After ~5 qtrs of y-o-y dip in margins, Dixon re-gained wholesome OPM in This autumn at 4% (+60bps q-o-q; +20bps y-o-y), resulting from well timed worth hikes in ODM. Apr22 noticed worth hikes of ~2% in Washers and 1-2% in Lighting. Mgmt expects FY23 OPM at 4.0-4.2%, although JEFe is decrease at 3.9%. Post Rs 4-bn capex in FY22, Dixon plans additional Rs 3.4-bn in FY23, larger vs. JEFe. We reduce FY24-25 EPS by 5-6%. But, as the brand new capex ramps up, we count on RoCE, RoE to rise ~2x over FY22-25. Buy with PT of Rs 5,300.
Trend reversal in OPM: Dixon’s Q4FY22 consolidated gross sales have been at Rs 29.5 bn (+40% y-o-y). While Mobile Phones and Home Appliances posted notable y-o-y development, Consumer Electronics (LED TVs) and Lighting witnessed subdued traction. Key spotlight of Q4FY22 was enchancment in EBITDA margin, to 4% (+20bps y-o-y; +60bps q-o-q); OPM improved y-o-y after
~5 qtrs. Further worth hikes in Apr’22 may help EBITDA in Q1FY23 as properly. This autumn PAT posted development of +42% y-o-y to Rs 632 mn.
Stellar Mobile gross sales: +274% development in Q4FY22 gross sales; OPM at 3.5% (+100bps y-o-y; +50bps q-o-q). Dixon has achieved threshold in PLI (each income and gross sales) in Y1 and is now eligible for incentives as per standards. Volumes for Motorola (anchor) is ramping properly and now at 0.4mn models /month. Dixon has added a brand new buyer, Itel, in characteristic telephones section – anticipated annual quantity at 1mn models. We count on Mobile gross sales to develop at +38% CAGR over FY22-25e.
Robust steerage, capex: Dixon has acquired cumulative 5 PLI approvals until now, and can be including new verticals and prospects. Mgmt is anticipating topline development of 55-60% y-o-y in FY23; that is according to our estimates. Key gross sales contributors can be LED TV and Mobile segments. However, JEFe is decrease on EBITDA margin at 3.9% in FY23 vs. mgmt steerage of 4.0-4.2%, as we imagine the present inflationary pressures warrant warning.
Capex is front-ended in view of future development prospects. Company expects to incur Rs 3.4 bn in FY23e in the direction of numerous PLIs and expansions – that is larger than our earlier estimates. As the brand new capex ramps up, we foresee return ratios (RoCE and RoE) virtually doubling over FY22-25e, additionally noting that the OEM segments (LED TVs, and Mobiles) require lesser capital employed vs. ODM.
Outlook; Buy: Primarily factoring in larger capex outlay (rise in depreciation and curiosity expense as properly), we reduce FY24-25e EPS by 5-6%, whereas FY23 EPS reduce is at 8%. However, we retain margin assumption, enhancing from 3.9% in FY23 to 4.4% by FY25e. We keep bullish on the indigenisation alternative in India, whereby Dixon may very well be a key beneficiary, given its expansive product slate and 5 PLIs acquired.
We estimate FY22-25E gross sales /PAT CAGR at +42% / 60%+, aided by ramp-up in PLI gross sales. Retain Buy with revised PT of Rs 5,300. Target PE at 50x, at ~10% premium to historic common a number of.
Source: www.financialexpress.com”