Dixon, which started as a manufacturer of color television in 1994, is now one of the leading players in the electronic manufacturing services (EMS) space in India. The company has expanded its operations to include various sub-segments of electronics – consumer electronics, home appliances, lighting products, mobile phones, CCTV & DVRs, wearables, and refrigerators. Standing true to its tagline – The brand behind the brands, Dixon boasts of a clientele that comprises leading domestic and international brands. Dixon serves as an original equipment manufacturer (OEM) as well as an original design manufacturer (ODM) to its clients. Segment wise Mobile Phones and EMS contributed 62% of the sales mix in FY24, followed by Consumer Electronics (23%), Home Appliances (7%), Lighting Products (4%), and Security Systems (4%).  

Favorable industry tailwinds supported by Government initiatives

India’s electronic goods market is projected to reach USD3tn by 2047, including exports valued at approximately USD100bn. This presents ample opportunities to domestic manufacturers, further supported by the Government’s commitment on creating a favorable policy environment and implementation of initiatives such as 'Make in India' and ‘Production Linked Incentive (PLI) scheme’. In addition, the Government’s recent policy initiatives to include assembly support for electronics and component manufacturing in India, augurs well for the sector.

Dixon is well-positioned to reap the benefits of the favorable industry dynamics and become an integral part of India’s manufacturing blueprint. The company has booked a PLI income of around INR700mn in 2QFY25, mainly from mobile, telecom, lighting, and air conditioning components. Sensing an opportunity in the IT Hardware space, Dixon plans to leverage the PLI scheme to build capacity in the segment. In this regard, the company has finalized businesses with HP and Asus, bringing the total number of global brands to which it caters to four, along with Acer and Lenovo.

Impressive top-line performance led by the Mobile & EMS division

Aided by Government initiatives and income from PLI scheme over the last few years, Dixon reported stellar numbers, clocking CAGR revenue and net profit growth of over 35% in the period FY18-24. Revenues surged to INR177 bn in FY24 from INR28.4bn reported in FY18, and net profit increased from INR609mn to INR3.7bn over the same period. During the same time frame, Dixon added 4-5 new product categories in its portfolio such as Smartphones, Telecom products, IT Hardware, Refrigerators, Wearables, and Hearables that has helped in revenue expansion. Going forward, the company will look to leverage the huge potential in Industrial and Automotive electronics manufacturing in India, which is characterized by lower volumes and higher margins. In addition, Dixon plans to diversify into new segments such as Industrial electronics, IT products, telecom products, LED lights and components for refrigerators and air conditioners.   

In 2QFY25, the company reported an impressive 133% YoY growth in revenues to INR115,3bn. Segment wise, Mobile & EMS Division contributed the bulk of the sales, clocking an impressive 235% YoY growth to reach INR94.4bn. Revenue contribution from the segment surged to 82% of the total revenue in 2QFY25 from 57% in 2QFY24 aided by the acquisition of Ismartu in August 2024, contributing INR11.1bn. The segment is also poised to deliver encouraging revenue figures in the current quarter, helped by a capacity of another 400,000 smartphones per month for its principal customer on the back of increased demand. Gross margin performance took a hit during the quarter and declined over 200bps YoY to 7.5%. The decrease is primarily driven by higher proportion of sales from lower-margin mobile business. However, management has opined that around 18 months down the line the margin profile is expected to be boosted by complete operability in the component side.

Strong foothold in the OEM and ODM space has led to pricier valuations

Dixon has given staggering returns of over 190% in the last one year, and over 169% on a YTD basis. Strong stock performance has led to an increase in valuations with the P/E ratio reflecting at 123.0x (based on 2025 consensus estimated EPS of INR141.4), higher than the 7-year average P/E of 85.3x. EV/EBITDA also appear to be on the higher side at 72.8x (based on 2025 consensus estimated EBITDA of INR14.2bn), compared to the 7-year average of 45.1x. A total of 27 analysts have covered the stock, with most of them giving an average consensus rating of ‘Buy’ with an average target price of INR14,651. However, the recent surge in stock price means the target has been crossed, providing no room for upside. Any correction in the near term should provide investors an opportunity to revisit the stock.

Given the company's strong fundamentals, supportive industry dynamics, and favorable government policies, Dixon seems well-positioned for continued growth in sales and profit. The expanding client base, high demand for EMS, and the company's foray into new product portfolios are expected to drive revenue growth in the medium to long term. However, Dixon is prone to macro risks including reduced end consumer appetite for the products owing to inflationary pressures or muted demand environment. High input costs could pose additional challenges, as the business is highly sensitive to margins. Furthermore, any slowdown in the Indian mobile industry could lead to volatility in Dixon's sales. Despite these risks, the company's solid order book and strong clientele provide revenue visibility, helping it navigate potential challenges in the medium to long term.