Dixon Technologies Faces Profit Booking Amid Rising Competition and Expensive Valuations
Dixon Technologies saw a significant pullback on Wednesday, January 8, as its shares dropped by 8% to ₹16,982, marking a four-week low and the worst intraday fall in over two months. The decline came after a period of consistent gains, with Dixon’s shares surging 175% in CY24 and 336% over the past two years.
Rising Competition and Market Pressures
The sharp decline in Dixon’s stock price is largely attributed to growing competition in the electronics manufacturing services (EMS) sector. The Competition Commission of India (CCI) recently approved Tata Electronics Pvt. Ltd. (TEPL) for a majority stake acquisition in Pegatron Technology India Pvt. Ltd. This acquisition is expected to enhance TEPL’s position in the rapidly expanding electronics manufacturing industry, particularly within the smartphone supply chain.
Analysts believe this move will strengthen Tata Electronics’ ability to compete in the EMS space, particularly in light of Dixon’s recent growth and the establishment of its greenfield EMS facility.
Profit Booking and High Valuations
After its impressive rally, Dixon shares are now facing profit booking, especially as the stock’s valuations have reached lofty levels. Despite the positive news flow surrounding the company—such as partnerships with leading mobile brands and plans to ramp up production capacity—investors seem cautious about the stock’s short-term performance.
Analyst Outlook
Despite recent challenges, Dixon continues to attract positive sentiment from some brokerages. Japanese brokerage Nomura raised its target price for the company to ₹22,256 from ₹18,654, citing strong growth prospects due to the ongoing US-China trade tensions. Nomura anticipates that India’s mobile exports could surge 55% by FY2026, with Dixon well-positioned to benefit from this growth.
Similarly, Anand Rathi, a domestic brokerage, has maintained a positive outlook on the stock, projecting a 25% CAGR in mobile manufacturing exports through FY2030 and forecasting margin expansion that could drive Return on Capital Employed (RoCE) to 46.4% by FY2027.
However, not all analysts are equally optimistic. Jefferies, while recognizing the growth potential in India’s EMS sector, remains cautious on Dixon. The brokerage has set a target price of ₹12,600 for the stock, indicating a 35% downside from its current levels.
Recent Developments and Expansion Plans
Dixon Technologies continues to expand its business through key partnerships. In December 2024, the company signed a binding term sheet with Vivo India to undertake OEM manufacturing of electronic devices, including smartphones. This joint venture will allow Dixon to produce non-Vivo phones as well, increasing its capacity from the current 50 million units annually.
The company has also onboarded global giants like Google, HP, and Asus for manufacturing their flagship products in India, including the premium Google Pixel phone. Additionally, Dixon has established a new plant in Chennai with a production capacity of 2 million units, set to begin operations by Q4 FY25.
The company’s foray into IT hardware manufacturing, particularly laptops, is expected to drive future growth. Dixon has already started producing laptops for Acer, and its Chennai facility will cater to increasing demand in the sector.
Dixon is targeting a revenue range of ₹3,500-4,000 crore by FY2026, with a total capex outlay of ₹150 crore for the new Chennai unit.
