Jefferies Downgrades Dixon Post Sharp Rally; Cuts Target

Global brokerage Jefferies downgraded consumer electronics maker Dixon Technologies (India) Ltd. to Underperform from Hold following a sharp rally and cut its target price on the stock.

The brokerage reduced its base case target price on Dixon to 5,920 rupees from 6,440 rupees per share. The stock ended at 6,971 rupees today in Mumbai trading after hitting an all-time high of 7,048 rupees on the National Stock Exchange.

Dixon has sharply rallied by over 150% in the last one year, and now trades at FY25/FY26E PE of 73x/52x, Jefferies said in an investor note. “Risk-reward appears stretched,” it added.

Jefferies said the risk-reward looks stretched in view of:

• Order book susceptibility (business-to-business electronics manufacturing services player),

• Around 80% original equipment manufacturer sales mix with low margins (3%-3.5%),

• Capital expenditure outlay can be higher (new categories/production-linked incentives/original design manufacturer), and

• Emerging competition.

The brokerage said over FY23-FY26E, the mobile segment (60% of 9MFY24 sales mix) is likely to be the key driver, with over 36% sales compound annual growth rate. However, this growth trajectory could be a key monitorable post expiration of PLI tenure (in next three to four years), it added.

“Also, softer demand warrants caution, as most of Dixon's end-user categories are B2C/discretionary (eg: Mobiles, LED TVs, appliances,” Equity Analyst Sonali Salgaonkar said in the note.

The brokerage, which reduced Dixon's FY25-FY26 EPS estimates by 2%-3%, said its FY25 EPS estimate is about 7% lower than consensus view.

Jefferies has a target price of 8,000 rupees on Dixon considering its upside scenario assumptions, while it pegs a target price of 4,500 rupees on the stock, based on the downside scenario.

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