Strong volumes, uptick in margins to drive gains for Dixon Technologies

Mobile and EMS segments fuel Dixon's growth; brokerages expect further gains from backward integration and component manufacturing expansion

The recent results for the second quarter of financial year 2026 (Q2FY26) of the country’s largest electronic manufacturing services (EMS) player, Dixon Technologies (India) was in line with Street estimates. While growth for the EMS major was driven by the mobile and EMS segment, the fall in sales of the consumer electronics and home appliances segment partly offset the overall gains.

 

While some brokerages have cut their earnings estimates due to higher finance costs and minority interest, others are positive on the outlook/margins given outsourcing demand and backward integration. The Dixon stock has delivered about 7 per cent returns over the past year and is currently trading at 60 times its FY27 earnings. 

Led by a 41 per cent growth in the mobile and EMS segment, the company posted overall sales growth of 29 per cent year-on-year (Y-o-Y) and 16 per cent sequentially. Within the segment, mobiles led the growth with a gain of 34 per cent while the telecom and networking division saw a growth of 148 per cent. Mobile volumes saw a jump due to the base effect of Ismartu integration and improved volumes from existing clients. While the firm is in talks with companies to manufacture mobile phones, it has kept the FY26/27 volume guidance unchanged at 40-42 million and 60-65 million smartphones respectively. 

The sales of consumer electronics and home appliances segment were dragged down due to postponement of purchases on account of GST rate cut. Within this segment, consumer electronics was hit the most, falling 32 per cent Y-o-Y while home appliances were down 3 per cent. Given that demand is recovering post GST rate cut, the gains from the same are expected to reflect in the December (Q3FY26) quarter results. 

 

The operating metrics too were robust with the operating profit higher by 32 per cent while operating profit margins improved by 10 basis points to 3.8 per cent and was in line with estimates. While adjusted net profit was up 37 per cent Y-o-Y it was lower than estimates due to higher minority interest and finance costs. Given these costs, JM Financial Research has cut its FY26 earnings by 4.8 while its FY27 and FY28 estimates remain unchanged. 

 

Motilal Oswal Research has a buy rating on the company and believes that with continuous focus on backward integration through component PLI and plans for long-term JV agreements with clients, Dixon will continue to benefit from volume and margin improvements even after the PLI period ends by March 2026. Analysts led by Teena Virmani of the brokerage marginally revise their estimates to bake in an improved margin performance in the home appliances segment. 

 

The Street will keep a track of the company’s backward integration initiatives. This includes the display assembly, which is expected to come online from March or April 2026, and the camera module assembly. Under the electronic component manufacturing scheme, the company has committed a cumulative investment of Rs 3,000 crore over the next 3 years in display assembly, camera module assembly, mobile mechanicals and lithium-ion battery assembly.

 

JM Financial Research believes that the company’s Q2 performance alleviates Street’s concerns. The brokerage has maintained an add rating and values Dixon at 60 times its September 2027 earnings per share to arrive at a price target of ₹18,000 per share. 

 

Nirmal Bang Research has a buy rating on the stock with a revised target price of ₹20,798, valuing the stock at 60 times September 2027 earnings per share and at a 20 per cent discount to its 5-year average. Arshia Khosla of the brokerage believes that the near-term margins may see some pressure as mobile PLI benefits taper off and component operations scale up. However, Dixon’s leadership in EMS and focus on component manufacturing position it well to capture the rising outsourced manufacturing demand in India and drive sustainable long-term growth, says the brokerage.