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Why Edelweiss is bullish on this electronic goods maker stock

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Primarily a play on India’s expanding consumer durable/electronics manufacturing, Edelweiss believes Dixon is yet to see a longer yet robust earnings super phase in its view. Additionally, breaking into global supply chain could yield consistent high returns, in contrast to peers, led by a judicious revenue mix and efficiency. 

Dixon Dixon Technologies is among India’s largest listed electronics/durables manufacturer with a scalable business model delivering healthy returns underpinned by low cost-capital intensity and prudently diverse revenue streams, the domestic brokerage and research firm said in a recent note.

Edelweiss has initiated coverage on the consumer durable stock with ‘BUY/SO’ rating and a target price of 5,700 per share given strong earnings-return scale-up trajectory and an expanding TAM basket with a comprehensive product basket. 

That said, Edelweiss admits that a global business at a matured stage could face risks of lower valuations, if Dixon fails to sustain its superior returns structure.

“Dixon is the best proxy for PLI-led globally compatible capacity creation in EMS/durables in our view. Given its highly competitive and scalable business model, we clearly see a growing concentration of production mandates. Dixon’s smart/judicious approach to global markets should keep growth/returns higher than global peers,” the brokerage said in a note.

It further said that Dixon’s business model is highly fungible across products with low-cost-capital intensity. This makes it the best play on expanding domestic electronic/durable manufacturing pie as supply chain gets local. Additionally, breaking into global supply-chain with a judicious business mix offers a longer growth super-cycle with healthy returns.

However, Edelweiss sees slow and limited global mandates and ramp-up, slowdown in domestic market and tougher competition from existing global incumbents as key risks/concerns.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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