Shares of Dixon Technologies (India) nosedived 20 percent to their 52-week low of ₹2,691.75 in the morning trade on BSE on Friday, reacting to the company's December quarter scorecard released on Wednesday, January 25.
The company reported a 12 percent year-on-year (YoY) rise in consolidated net profit at ₹51.89 crore for Q3FY23 against ₹46.38 crore in the same quarter last year.
The current financial year's total income for the December quarter stood at ₹2,407.54 crore, down 21.7 percent YoY, against ₹3,073.92 crore in Q3FY22.
The company has seen a sharp decline in key verticals. Brokerages pointed out that the management has revised its revenue guidance downwards due to the sluggish demand environment.
Most brokerages appear cautious about the stock at this point and after the Q3 results, their reports have come mixed.
The stock has performed poorly in the last one year, indicating the prospects of weak economic growth weighed on the price.
What brokerages say
Brokerage firm ICICI Securities has downgraded the stock to a 'reduce' from a 'hold' and cut FY23-24 earnings estimates to factor in lower guidance and a slowdown in the sector.
The brokerage firm cut the target price to ₹3,000 from ₹4,120.
"At the current valuations of 58 times FY24E, we believe the risk-reward is not favourable to the investors and, hence, we downgrade Dixon to reduce with a revised DCF-based target price of ₹3,000 (implied P/E of 36 times FY25E EPS)," said ICICI Securities.
It expects Dixon to report revenue and PAT CAGRs of 27.8 percent and 37.5 percent, respectively, over FY22-FY25E and RoE to be over 20 percent over FY23-25.
However, YES Securities has upgraded the stock to a 'neutral' from a 'reduce' with a target price of ₹3,506.
The brokerage firm has made a downward revision to its estimates, considering management's guidance and a subdued demand environment.
The brokerage firm highlighted that Dixon's revenue growth has been below expectation as consumer electronics, lighting and mobile phones, key verticals for the company, have seen a steep decline. The television segment has been impacted on both the counts, volumes de‐growth as well as realisations, on lower open cell prices while the lighting and mobile phones have seen lower demand.
YES has upgraded the stock due to the stock's sharp correction while it anticipates a strong growth momentum.
"We upgrade the stock to 'neutral' as the stock has already corrected sharply and strong growth momentum is expected to resume as: (1) the order book across the categories continues to remain healthy, (2) new capacities have started commercial production, (3) revenues from new product categories like wearables and refrigerators will drive incremental growth, (4) new JV in, wearables and telecom products will add further growth levers, and (5) lighting exports has started in Q3 with an order from UAE and has got additional orders," said YES Securities.
"We roll forward our valuation multiple and now value the company at 40 times versus 50 times earlier as there could be downside risk if the demand environment remains sluggish for an extended period. Despite near-term uncertainties, Dixon is expected to deliver strong revenue growth in the medium term given its strong order book, customer addition and capacities in place," said YES Securities.
The brokerage firm expects FY22‐25E revenue CAGR of 31 percent, EBITDA CAGR of 39 percent and PAT CAGR of 55 percent.
Brokerage firm Nirmal Bang has tweaked its estimates and maintained an ‘accumulate’ rating on Dixon with a revised target price of ₹3,710 from ₹4,600 earlier, based on 45 times Sept’24E earnings versus 48 times Sept’24E earnings earlier. It said a cut in the multiple is largely reflecting a slower-than-expected ramp-up of the mobile segment.
"Led by the strong scale-up opportunities across multiple product categories, we expect 43.8 percent earnings CAGR for Dixon over FY22-FY25. Robust growth prospects, healthy return ratios, lean working capital cycle and high fixed asset turnover will continue to support Dixon’s valuation," said Nirmal Bang.
Brokerage firm Emkay Global has maintained a 'hold' call on the stock, with a target price of ₹3,165 per share based on 35 times PE.
"We believe the slowdown in some key segments is hampering the overall growth of brands, with additional impact from Dixon being a B2B supplier. In the last one year, the Street has cut FY23 EPS by over 30 percent owing to lower sales. We have cut our FY23e-FY25e EPS by 16-20 percent largely on account of lower sales, while the margin remains at nearly 4 percent. Sales ramp-up remains the key monitorable going forward, in our view. Risks include slowdown leading to lower requirements by brands," said Emkay.
Some technical analysts believe this stock can be bought for the short term.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers, pointed out that the stock made a high of ₹6,240 on October 18, 2021, and since then, it has been making lower highs and lower lows structures resulting in a massive 57 percent cut in the stock price.
Patel said at the current juncture, it is taking support near its historical levels of ₹2,600-2,700. In addition, it has also made a bullish AB=CD pattern on the weekly scale with a potential reversal zone of ₹2,650-2,750.
Patel added that the best part about this setup is that Dixon has made a reverse bullish divergence on the weekly RSI exactly at mentioned potential reversal zone. (refer to the chart given below).
"One can buy the stock in the range of ₹2,750-2,850 for the target of ₹3,350 and the stop-loss should be ₹2,525 on a daily close basis," said Patel.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.