Buy This Multibagger Midcap Consumer Durable Stock For 22% Returns, Says BoB Capital Markets

CMP, 52-Week Low/High, Returns, & Market Cap

Dixon Technologies is a mid-cap consumer durables sector company having a market cap of Rs 25,368.68 crore. On NSE, the current market price (CMP) of the stock stood at Rs 4,275 per share, 0.48% down as compared to its previous close. Its 52-week high level is Rs 5,858.55, and its 52-week low is Rs 3,180.55, respectively.

In a week, its share price moved up 0.61% and fell 4.84% in the past 1 month. In the past 3 months, it gave an 8.27% positive return. In the past 1 year, it fell by 18.85%. The stock gave 592.82% multibagger returns in 3 years. In the past 5 years, it has given 705.13% multibagger returns.

Strong Q2

Dixon posted an above-expected Q2FY23 performance as revenue grew 38% YoY to Rs 39bn (8% ahead of our estimates), led by broad-based growth across verticals (except security systems). EBITDA margin improved sequentially by 25bps to 3.8% (-17bps YoY), marginally above our 3.7% forecast. Adj. PAT came in at Rs 777mn, up 24% YoY and 15% ahead of our estimate.

Margin aided by ODM-led verticals

The lighting & home appliance verticals generate higher margins on account of their original design manufacturing (ODM) characteristics, and performed relatively well in Q2. EBIT margin stood at 8.2% in lighting (+100bps QoQ, +20bps YoY) and 9% in home appliances (+90bps YoY, +50bps QoQ). Amongst other verticals, consumer electronics posted improvement of 20bps QoQ (+50bps YoY) to 2.9% while the mobile segment recorded a modest 2.7% margin.

Guidance maintained

Management retained its FY23 revenue guidance of Rs 150bn but remains optimistic about securing newer, larger client deals in the near future, thus offering scope for guidance revision.

Expanding ODM capabilities

Dixon is focused on expanding its ODM capabilities as it looks to capture a considerable share of India's electronic manufacturing services (EMS) industry. The joint design manufacturing (JDM) business with an anchor client has yielded desired results and the company is in active talks with other customers for additional business. It has already entered into an agreement with Google for ODM sublicensing rights relating to Android. Additionally, Dixon is setting up an injection moulding plant by Q4FY23 to deepen its network and establish backward integration.

Bright prospects; maintain BUY with a target price of Rs 5,200 per share

Over the years, Dixon has scaled up and fortified its leadership in the EMS business. Rapid yet judicious capacity expansion on the back of strong demand, backward integration, steady client acquisition, and favourable PLI schemes are fueling a high growth trajectory. Additionally, entry into newer verticals/products and incremental ODM contribution auger well for the company. "We raise FY23/FY24 EPS estimates 2%/5% and roll over to Sep'24E valuations, yielding a revised Target Price of Rs 5,200 (vs. Rs 4,500), set at 55x P/E, a 20% premium to the 4Y avg," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.