Electronics manufacturing services (EMS) company Dixon Technologies India is in focus after it received government approval for its joint venture with HKC Overseas. The JV will manufacture display modules in India. Following the development, the share price jumped 6% intra-day.
Nomura has maintained a ‘Buy’ rating on Dixon Technologies with a target price of Rs 14,678, which indicates a potential upside of nearly 50% from the current price. The brokerage said the target price is based on around 45 times the company’s projected earnings for FY28.
Here are three reasons why Nomura is bullish on Dixon Technology
#1 Margin expansion expected
The joint venture will develop, manufacture and distribute LCD and TFT-LCD display modules. These display products will cater to several sectors including smartphones, laptops, automotive displays, televisions, computer monitors and industrial applications.
Nomura said display module assembly accounts for about 10% of the bill of materials and typically carries healthy double-digit margins.
The brokerage believes the new venture could add around 50 basis points to Dixon’s overall margins by FY28, with the potential to rise to around 100 basis points after full ramp-up.
Nomura noted that the company’s expansion into components such as display and camera modules is expected to increase value addition for Dixon over the long term.
“This along with camera modules, which is already in ramp up stage, will increase value addition by Dixon and remains a longer term structural margin tailwind, in our view,” Nomura said in its report.
#2 Investment and production plans
According to Nomura, Dixon is investing about Rs 1,200 crore in the project. The display manufacturing plant is already under construction. The trial production is likely to begin in Q2FY27, with a ramp-up in H2FY27.
In the first phase, the facility is expected to produce around 24 million smartphone displays and about 2 million laptop displays annually. Later, the production capacity could increase to about 55 million units.
#3 Dixon to hold 74% in new display JV with HKC
The joint venture will be called Dixon Display Technologies (DDTPL). Dixon will hold a 74% stake in the venture, while HKC Overseas will own the remaining 26%.
Nomura noted that HKC is a strong partner in display which is already catering to most of Dixon’s mobile customers globally and also a leading player in IT hardware and TV displays.
Conclusion
Nomura believes Dixon Technology will continue to benefit from strong growth in electronics manufacturing services in India, particularly in the mobile and IT hardware segments.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.
