EMS sector at risk amid memory price surge; CLSA cuts Dixon Tech to Hold

CLSA downgraded Dixon Technologies to 'Hold' from 'Outperform', cutting its target price to ₹12,100 from ₹15,880 per share

CLSA has flagged rising risks for India's electronics manufacturing services (EMS) sector amid a sharp uptick in memory prices, and has downgraded Dixon Technologies, citing it as one of the most likely to be affected. 

 

The brokerage downgraded the stock to 'Hold' from 'Outperform', cutting its target price to ₹12,100 from ₹15,880 per share.

 

According to CLSA, the global memory industry has entered the early stages of a boom cycle across DRAM, NAND and specialty memory markets. The upcycle is being driven by structural demand from artificial intelligence (AI) computing and constrained supply expansion by global memory manufacturers.

 

Combined with years of under-investment and accelerating demand, this has pushed inventories to historical lows and led to sharp price increases, CLSA said. In January, DDR5 and DDR4 contract prices rose 119 per cent and 63 per cent month-on-month, respectively, while NAND contract prices climbed 37-67 per cent, alongside strong gains in spot markets, the report said. 

India more exposed to supply squeeze

CLSA noted that India is particularly vulnerable due to its heavy reliance on imports and limited bargaining power, accounting for less than 4 per cent of global memory demand in dollar terms.

 

The domestic market remains skewed towards legacy DRAM and NAND, largely because of its concentration in low-end smartphones and consumer electronics, the report said. With global suppliers prioritising high-margin AI-grade memory, India faces an accentuated impact from tightening supply. 

EMS players most at risk

The brokerage said the consumer electronics segment, especially smartphones, would be the most affected. Memory accounts for 20-25 per cent of smartphone costs, which could result in 10-25 per cent increases in average selling prices, disproportionately impacting low- and mid-end models.

 

CLSA believes Dixon Technologies could be among the most impacted companies. While the company follows a cost pass-through model, insulating margins from higher memory prices, weaker end-demand could hurt volumes.

 

The brokerage also flagged potential delays in the Vivo joint venture and approvals under the Electronics Components Manufacturing Scheme, along with the expiry of performance-linked incentives in March, as near-term risks.

 

CLSA has cut its FY26 to 2028 earnings per share estimates by 1-18 per cent, mainly due to lower revenue growth assumptions. It now values the stock at a revised target price of ₹12,100 and has downgraded the rating to Hold.

 

Shares of Dixon Tech were trading lower for the fourth straight session on Friday, down 0.9 per cent as of 12:00 PM. The counter has fallen 8 per cent this year, compared to a 2 per cent decline in the benchmark Nifty 50 

 

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