Dixon Technologies Ltd is raising the stakes in India’s IT hardware market. With a new partnership with HP, alongside existing deals with Lenovo and Acer, the company is now aiming for 60% of the rapidly expanding IT hardware sector. Dixon has been vocal about its ambitious plans of scaling IT hardware revenue to ₹48,000 crore over the next six years. For context, the company’s FY24 consolidated operating revenue stood at ₹17,690 crore.
While the HP deal is pivotal, the real test lies in executing the ramp-up efficiently—a key determinant of whether Dixon’s lofty goals will be achieved. Currently manufacturing laptops for Acer and preparing to begin production for Lenovo soon, Dixon is scheduled to start production for HP in FY26.
A lot is still at stake though. Dixon aims to serve four of the top five Indian IT hardware players, and a potential entry into the server market could prove transformative. However, as Dixon scales up operations in this sector, return ratios need to be watched.
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“While tie-ups with HP, Lenovo and Acer could help, we believe a higher capex requirement could imply IT hardware PLI might be return-dilutive over the shorter term,” said a Kotak Institutional Equities report dated 9 September.
Under the revised production-linked incentive (PLI) scheme for IT hardware, Dixon is required to increase its domestic value addition each year, pushing it towards backward integration. This move demands higher capital investments, likely creating short-term pressure on return ratios. In FY24, Dixon’s return on equity rose 240-basis points (bps) year-on-year to 24.7%.
Moreover, the success of these tie-ups will hinge on operational efficiency as Dixon strives to hit its revenue targets without sacrificing profitability.
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At the same time, Dixon’s mobile segment continues to be a core driver of its financial performance. Strong execution for anchor customer Motorola, along with a ramp-up in volumes from new partners Realme and Xiaomi, has helped. In the June quarter (Q1FY25), Dixon’s revenue almost doubled year-on-year to ₹6,580 crore, largely due to an 189% increase in the mobile and EMS segment. Despite a 20bps dip in Ebitda margin due to higher input costs to 3.8%, Dixon’s profit after tax was up 113%.
The outlook for the second half of FY25 is promising, with further smartphone volume growth expected, particularly through the Ismartu India acquisition. Dixon has also indicated a potential addition of another key customer in the smartphone segment, positioning this as the next growth catalyst. Moreover, Dixon’s expansion into notebook production, including for HP, is set to begin in Q1FY26.
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Investors have plenty to celebrate, with Dixon’s stock soaring nearly 100% so far in 2024. However, that excitement could taper off if the company’s earnings growth falls short of market expectations.
