Dixon, Amber - Crafting Precision In Every Circuit; Motilal Oswal Initiates Coverage With A 'Buy' Rating

Motilal Oswal Report

We initiate coverage on Dixon Technologies India Ltd. and Amber Enterprises India Pvt. Ltd. with a Buy rating as these companies have already achieved market leadership in their key domains and are now concentrating on expanding their presence across different segments and backward integration.

Dixon Technologies - Pioneering the future of manufacturing and electronics

Dixon Technologies has emerged as a fast-growing diversified player in the electronics manufacturing services industry. Dixon is a key beneficiary of several production-linked incentive schemes for mobile phones, IT hardware, white goods, lighting and AC components.

It has consistently increased its market share in different segments with either new technology tie-ups or new client additions. Its recent tie-up with HKC Corp for manufacturing of displays for mobile phone, TVs and automotive, Longcheer Group for mobile phones, stake purchase of Ismartu and sublicensing arrangement with Google done last year for TVs will help the company maintain its market leadership position.

We expect Dixon to continue to keep focusing on new segments, backward integration, original design manufacturing mix improvement and operational efficiencies to boost its margin despite a rising revenue contribution of the low-margin mobile segment.

We estimate a CAGR of 44%/51% in revenue/PAT during FY24-27. We believe that an efficient working capital cycle, focus on capital allocation and higher asset turnover ratios should result in RoE/RoCE of 33%/36% by FY27E.

We initiate coverage with a Buy rating on the stock with target price of Rs 15,000 based on DCF. Valuations are on the higher side but strong industry growth drivers, presence in fast growing segments, possibility of adding more segments and best in class RoICs will keep valuations higher.

Key risks and concerns

Key risks to our estimates and recommendation would come from lower than expected growth in the market opportunity, loss of relationship with key clients, increased competition, and limited bargaining power with clients.

Amber Enterprises - Moving beyond cyclicality!

Amber Enterprises is a leading player in ODM/OEM solutions for the Indian room AC industry. The company is one of the beneficiaries of PLI scheme with an early mover advantage in PLI-led capex for RAC and AC components.

With strategic diversification towards the high-growth electronics market (especially printed circuit board manufacturing) and increasing scope of work in the mobility segment, we expect Amber to benefit from margin improvement.

We expect the company’s transition from Amber 1.0 (AC-focused) to Amber 2.0 (electronics) and Amber 3.0 (mobility) to reduce business cyclicality, and result in improved asset turnover and return ratios after the initial few years of capex.

We expect a revenue/ Ebitda/PAT CAGR of 21%/26%/50% over FY24-27, which is likely to be driven by mid-teens CAGR in the consumer durable segment, high growth in the electronics and mobility segments, along with a 100 bp margin improvement over FY24-27.

We initiate coverage on Amber with a Buy rating and a DCF-based target price of Rs 5,000, implying 42x P/E on two-year forward EPS (Sep’26).

Key risks and concerns

Lower-than-expected demand growth in the RAC industry, change in BEE norms making products costlier, and increased competition across RAC, mobility, and electronics segments.

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