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Dalmia Securities
Dixon Technologies (Buy)
CMP: ₹2,052.05
Target: ₹2,586
Dixon Technologies Ltd (DTL) is a market leader in three of the six segments it operates, namely flat panel display (FPD) TV, washing machines and lighting products with 50.4 per cent, 42.6 per cent and 38.9 per cent market share respectively in terms of volumes among EMS companies during FY2016.
The penetration levels of consumer durables such as washing machines and even TVs remain low in India. TV Penetration had reached 66 per cent in 2018, which still means there are 34 per cent households that don’t own a TV. According to a survey done by Counter Point Research, the replacement cycle for a smartphone in India stands at 20 months compared to a global average of 21 months.
Majority of India’s energy requirements are catered via imports with petroleum crude and products making up 23.34 per cent of its total imports. Electronics items form the second highest imported product after crude oil for the country. With declining exports and over-dependence on IT services and FDI flows for foreign exchange, the government has given a big fillip to the country’s manufacturing sector to broaden its sources of foreign exchange inflow and minimize foreign exchange outflow.
Valuation: We expect DTL earnings growth momentum to continue at revenue CAGR of 22.7 per cent, operating EBITDA CAGR of 29.1 per cent and EPS CAGR of 22.5 per cent over FY16-21E.
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