Why analysts feel Dixon has a long way to go

MUMBAI: Dixon Technologies, India’s largest electronics manufacturing services (EMS) player, is once again in focus after the government approved one of its two applications for the production-linked incentive (PLI) scheme for large-scale mobile manufacturing.The stock, which surged 192% in the last one year, is likely to rally another 25-30% in the next one year, according to analysts who expect up to 60% return in case of the second PLI approval.“With the approval of one license, we build in a revenue of Rs 700 crore in FY21 and Rs 9,000 in FY25 at an EBITDA margin of 3.2% and in case the company gets second license, our FY23 EPS would increase by Rs 85 and therefore, our target price would move up to Rs 13,763,” said Himanshu Nayyar, analyst at Yes Securities.Shares of Dixon, which remains one of the preferred plays of analysts on Make in India strategy, ended 0.15% down at Rs 8,710.45 on BSE Wednesday. The stock is currently trading at 41 times its FY21 estimated earnings.“Given its successful track record till now, we are ascribing a strong multiple to the company’s expected earnings, which factors in that Dixon will be able to maintain and improve its relations with marquee clients and keep bringing in new MNC brands, which do not have manufacturing presence in India,” said Nayyar.As per Dixon management, for domestic companies, the upper revenue ceiling to avail the incentives stands at Rs 2,000 crore for first year, with incremental revenues of Rs 2,000 every year, reaching Rs 10,000 in revenues by the fifth year. Dixon management is confident of surpassing the prescribed upper limit of annual revenues to avail the incentives, and is engaged in discussions with customers to sign agreements.“For achieving volumes under the PLI scheme, Dixon is in talks with multiple brands and it will be announcing the names soon” said Naval Seth, analyst, Emkay Global. “Higher revenue and EBITDA from the Mobile PLI scheme is leading us to upgrade FY22 and 23 EPS by 13% and 16% respectively.”The company has delivered a good profit growth of 57% CAGR and 30% sales CAGR over the last five years. During this period, it posted an average return on equity of 25%. With an asset-light balance sheet, low working capital cycle and disciplined capital investments with 18 months payback make it an attractive and scalable business, said analysts.“We expect revenue and net earnings CAGR of 26% and 34%, respectively, during FY21-23, as we factor scale up in business operations along with contributions from one mobile PLI scheme,” said Ronald Siyoni, analyst, Sharekhan. “At the current price, the stock is trading at a PE of 35.4 times FY22 estimated earnings, which leaves further room for upside considering its historical average valuation.”

from Economic Times https://ift.tt/3iBuSTH