Why Dixon Technologies Share Price Fell 10% Despite Q2 Results Beating Estimates

Dixon Technologies was down 10% in trade today after its second-quarter results showed margins were impacted due to higher share of mobile business — low margin business — in total revenues. The Ebitda margin came in at 3.6% which was lower by 40 basis points versus last year’s margin at 4%.

Dixon reported strong revenue growth of 133% at Rs 11,534 crore with Ebitda growing more than 100% as well. The company also had a one-time positive impact in consolidated profit.

Lets dive deep into the key segments that led to this beat and commentary going forward by the management.

The company’s profitability was positively impacted by an exceptional item. This was on account of a fair value gain of Rs 210 crore which is the value of Dixon's stake in Aditya Infotech Ltd. Dixon owns roughly 6.5% in Aditya Infotech.

For context, the company had a joint venture for Security surveillance system with Aditya Infotech. Dixon sold its 50% stake in AIL Dixon to JV partner Aditya Infotech. In return, Dixon took a 6.5% stake in Aditya Infotech.

Aditya Infotech is expected to launch the IPO by Q4 of FY25 or Q1 of FY26. This entity will increasingly focus on more backward integration and designing, and this relationship is likely going to be huge value accretive for the company.

Excluding for fair value gain, profit grew 78% on consolidated basis.

The mobile division reported a 235% growth in revenues compared to last year. The mobile division contributes roughly 81% of total revenues now. This was led by a ramp-up of orders received over the last year as well as integration of Ismartu. Ismartu was acquired last year and contributed roughly Rs 1,100 crore, as per numbers from August 13^th to September 30^th.

Margins have fallen for the company this quarter and speaking to NDTV Profit, Saurabh Gupta, CFO, Dixon Technologies, said that the company is venturing into components and that will support margins by at least 100 basis points. Components will take at least 12-18 months.

Home appliances segment saw 22% revenue growth at Rs 444 crore but margins fell by 60 basis points to come in at 11%. The washing machines segment has been growing well with a monthly production of 30,000.

Consumer electronics which includes refrigerators production at 12 lakh units with 90% capacity utilisation is expected to rise to 1.6 million units. Key clients currently serviced by Dixon Tech include Voltas, Kelvinator, Acer, BPL. LED TVs' segment has been subdued this quarter for the industry.

Telecom and IT hardware segment is an upcoming segment for the company. For telecom division, the company is expecting a 3x growth in revenues in FY25, driven by 5G Fixed Wireless Access. The company is also looking to expand capacity and doubling it.

IT hardware which includes laptops saw the company stitching manufacturing partnerships with HP and Asus. They now cater to top 4 of the brands in India namely, HP, Asus, Lenovo and Acer. The company expects this segment to report revenues of roughly Rs 4,500 crore-Rs 5,000 crore by FY26.

Investec retained its 'Buy' rating with a target price of Rs 15,900 vs Rs 12,700 earlier. It believes IT hardware can be an attractive opportunity.

The company has guided for revenues of roughly Rs 32,000 crore for FY25. Total capex outlay for the year is expected to be around Rs 580 crore, out of which, Rs 370 crore was incurred in first half itself. Dixon also expects margin improvement in next 15-18 months with its foray into components.

Investec believes foray into components manufacturing can further improve profitability and has upgraded its FY25-27 revenue estimate by 8-10%.