Dixon Technologies - All-Round beat; Client Win, Exports Boost Mobile Outlook; Maintain BUY - Anand Rathi Research

A 12% EBITDA beat was led by better-than-expected mobile volumes, as Dixon continued to gain share in a challenging market (industry volumes down 26% y/y in Q2). Ex-Vivo, smartphone volumes are expected to remain broadly flat in FY27 at ~33-34m units. The next leg of mobile growth should come from the Vivo JV, which we expect to add ~5m/~22m units in FY27/FY28, along with customer addition and export ramp-up under MPMS. Beyond mobiles, the medium-term outlook remains compelling, driven by the scale-up in IT Hardware and Telecom & Networking. The Inventec and Gemtek JVs add optionality to global IT hardware and data centre opportunities. We model a 40.4% revenue CAGR and a 46.3% PAT CAGR over FY26-29e. We also build in 90bp EBITDA margin expansion from FY27 levels, aided by backward integration into displays and camera modules and by MPMS and IT PLI 2.0 benefits, driving a 460bp RoE expansion to 26.4%. Maintain BUY with a TP of Rs18,000 (45x H1FY29e EPS). Dixon’s strong balance sheet, superior cash generation and industry-leading return ratios should support premium valuations.

Beat on all fronts: Revenue grew 46.7% y/y to Rs218bn in Q2FY27 (up 22.0%/13.5% vs. ARe/BBG estimates), aided by higher smartphone ASPs amid elevated memory prices. EBITDA margin fell 104bps y/y to 2.7% (down 24bps/18bps vs. ARe/BBG estimates), primarily due to expiry of Mobile PLI 1.0 and optical dilution from higher handset ASPs (absolute EBITDA/handset remained largely unchanged). The company recognised a one-off fair value gain of Rs575mn on its stake in Aditya Infotech. APAT declined 6.5% y/y to Rs3.0bn, (37.5%/4.8% above that ARe/BBG estimates).

Vivo, New Customers and MPMS Drive Mobile Outlook: Management expects smartphone volumes (ex-Vivo) to remain broadly stable at ~33–34m units in FY27e despite an industry decline, implying continued share gains. We expect the Vivo JV, starting production in Q4FY27, to add ~5m/~22m units in FY27e/FY28e. A new Indian brand (~6-10m units in FY28) and Motorola exports (~6-7m units a year) provide further growth, with management guiding to ~55–60m units in FY28 including Vivo. MPMS should drive incremental production (Rs50bn/year over baseline) and localisation. Display and camera module localisation (~80–100bp margin accretion over two years) and MPMS/ECMS benefits should support margin expansion.

Outlook and Valuation: Post Q2FY27, our PAT estimates remain largely unchanged. We introduce FY29 estimates and model a 40.4%/41.5%/46.3% revenue/EBITDA/PAT CAGR over FY26–29e, driving a 460bp RoE expansion to 26.4%. At the CMP, the stock trades at 63.2x/32.6x FY27e/FY28e EPS, near its -1SD one-year forward P/E. We roll forward our valuation to H1FY29e and maintain BUY with a TP of Rs18,000, based on 45x H1FY29e EPS. Dixon’s strong balance sheet, healthy cash generation and industry-leading return ratios should continue to justify premium valuations.

Key Risks: (a) Delay in scaling Vivo JV and exports; and (b) slower ramp-up of component facilities.