Dolat Capital's research report on Dixon Technologies
Q1 was a tough quarter with a 55% drop in sales, with a 32-80% drop across different segments (Refer Exhibit 3). Margins were weak at 3.3% due to lower scale of operations and under absorption of overheads, with increase in capital employed due to working capital. Given new customer acquisitions, deepening business with existing customers, and increase in the ODM mix, we expect Dixon’s sales/EPS to grow at a CAGR of 20%/25% over FY20-22E. We change our estimates to factor in Q1 as outlined in Exhibit 5. We acknowledge that Dixon has multiple growth options including upcoming opportunities in electronic manufacturing-all of which is not captured in near term earnings in FY20-22E.
Outlook
The stock has seen a sharp 60% run up from our last update and is currently trading at~50XFY22E, which we believe is rich. Even increasing our multiple to 40x, on par with sector leaders like Havells, takes our TP to Rs6500, which forces us to downgrade the stock to sell. We continue to like the structural story in Dixon and would await a better entry point in the stock.
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