Dixon Technologies, a star player in India’s electronics manufacturing services (EMS) sector, has had a rough month. After riding a massive wave of growth, the stock shed over 23% in less than four weeks, partly caught in the turbulence caused by the sell-off in a peer stock, Kaynes Technology.
But for investors, the tide may be turning. International brokerage firm CLSA has stepped in, reiterating its ‘Outperform’ rating and assigning a strong target price. This provides a clear institutional vote of confidence right when the market needed it most.
The Sharp Correction: Dixon’s shares had plunged significantly (down over 23% in under a month) from their highs, driven by two main factors:
- Peer Sell-off: The “rub-off effect” from Kaynes Tech’s sharp decline. Kaynes faced investor scrutiny over financial disclosures and cash flow concerns, shaking confidence in the whole EMS sector.
- Internal Concerns: Market worries about potential cuts to Dixon’s Earnings Per Share (EPS) forecasts for the fiscal year 2027, mainly due to pending government approvals for new projects like its joint venture with Vivo.
CLSA’s Bullish Stance: Despite the negative sentiment and correction, CLSA has maintained its positive view:
- Rating: Maintained ‘Outperform’ (suggesting it should perform better than the overall market).
- Target Price: ₹18,800 per share.
The Upside Potential: Based on the previous closing price of ₹12,988, this target implies an impressive 45% upside potential, signaling that CLSA believes the recent market pessimism is overdone.
The Main Concerns of Dixon tech
Dixon Technologies is still awaiting Press Note 3 approval for its joint venture with Vivo. This venture is expected to contribute around 20 million units to smartphone production out of an estimated 58 million to 64 million units in FY27 and FY28.
Since it is a 51 to 49 joint venture, CLSA believes that even if only a small part of this volume materialises in FY28, the company’s EPS could be impacted by 13% in FY27 and 7% in FY28.
Meanwhile, the Serious Fraud Investigation Office under the Ministry of Corporate Affairs is reportedly preparing to file a chargesheet against Chinese smartphone maker Vivo in December. This has further clouded the outlook for the Dixon Technologies and Vivo joint venture, which is waiting for Press Note 3 approval.
However, the brokerage believes that in the worst case scenario where the joint venture is not approved, Vivo could lose market share to other smartphone brands. This shift could create an opportunity for Dixon Technologies to capture a share of the displaced production volumes.
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