However, as investors started getting worried about the stock’s expensive valuation amid increasing inflation affecting consumer spending, share prices of the Noida-based company that manufactures electronics like TV and mobile phones also took a hit.
Since then, Dixon stock is down 46 per cent from its all-time high. Given the strong policy-related tailwinds (PLI scheme), long-term potential of outsourced manufacturing in India and increasing demand for consumer electronics, analysts have, however, been largely positive.
Out of the 19 analysts with coverage on Dixon, the consensus recommendation is a Buy with an average target price of Rs 4,418 that signals upside potential of around 31 per cent, according to Trendlyne data.
Global brokerage Morgan Stanley, which recently downgraded the stock to underweight, said the market is ignoring multiple risks including competition, margins, and ROE contraction.
“Beyond the PLI period (i.e., once the incentive scheme is discontinued), the cost competitiveness of EMS players will be tested, and sufficient local component ecosystem development will play an important part of a sustained manufacturing thrust in the country. Rising commodity prices pose a risk to ODM business margins,” it said in a note to clients.
Morgan Stanley has a target price of Rs 2,634 on Dixon, signalling a downside potential of as much as 28 per cent.
Amid the bearish outlook on growth and impact on margins due to inflationary headwinds, one of the reasons behind the underperformance of the electronic manufacturing services (EMS) player has been sell-off by FIIs.
Market data shows that foreign investors have decreased holdings in Dixon from 18.51 per cent to 16.39 per cent in the March quarter.
Dixon is also a favourite of retail investors, who held 15.23 per cent stake in the company as reflected by the number of individual shareholders with investments below Rs 2 lakh.
Domestic brokerage firm ICICI Securities cites three key triggers for the stock:
1) Dixon has a market share of 3-4 per cent in the Indian EMS industry which is valued at $23.5 billion. ICICI Sec said there is an opportunity to expand and grow.
2) The domestic mobile production is set to grow 5x to Rs 10.5 lakh crore by FY26 under the PLI scheme. Dixon is seen as one of the main beneficiaries.
3) New segments such as electronics/IT products, telecom products and LED lights & AC components will drive future revenue growth for Dixon, according to the brokerage.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)