 "Dixon Technology")
Dixon Technologies’ results for the April-June quarter for the financial year 2025-26 (Q1FY26) beat consensus estimates. The electronic manufacturing services (EMS) company, which focuses on design and solutions and manufactures consumer durables, lighting and mobile phones in the country, saw its mobile segment register a growth of 125 per cent year-on-year (Y-o-Y) in Q1FY26. Consolidated revenue grew 95 per cent Y-o-Y to ₹12,840 crore. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) rose 95 per cent Y-o-Y to ₹480 crore, while margins were flat at 3.8 per cent. Adjusted profit after tax (PAT) increased 68 per cent Y-o-Y to ₹230 crore.
The company’s strategy includes deeper relationships with existing clients and looking for backward integration. A display facility with HKC, a camera module with Qtech and precision components with Chongqing Yuhai Precision Manufacturing will help Dixon produce components, which should improve margins. A joint venture (JV) with Longcheer, and agreement with Vivo will add phone volumes.
Other JVs include one with Taiwan-based Inventec named Dixon IT Devices Pvt Ltd, which is owned 60 per cent by Dixon for the manufacturing of notebook PCs, servers, desktops and PC components, with access to Inventec’s global customers. There’s also an agreement with Signify to form a JV for OEM (original equipment manufacturer) business of lighting products and the transfer of Dixon’s lighting business to the JV.
There’s also an agreement with Eureka Forbes for robotic vacuum cleaners and a binding term sheet with Qtech India for acquiring 51 per cent stake in Qtech India for manufacturing and distribution of camera and fingerprint modules, IoT and automotive applications and a binding term sheet with Chongqing Yuhai Precision Manufacturing for a prospective 74:26 JV in India for manufacturing of components for laptop, mobile phones, IoT, automotive products, subject to government approvals.
Mobile volumes were at 9.7 million units during Q1FY26 and expected to grow to 10-11 million in Q2FY26, with Dixon holding contracts with most majors except Apple. The company recorded export volumes of 1.5 million phones for Motorola during FY25 and expects to scale to exports of 8-9 million smartphones in FY26, with export revenue of nearly ₹7,000 crore in FY26.
The company targets 42-43 million smartphones during the financial year. Dixon has entered into a contract manufacturing agreement with NxtCell India to produce Alcatel smartphones. Dixon has a capacity of 60 million smartphones and an addressable market of 100 million smartphones (excluding Apple, Samsung and in-house volumes of One plus, Oppo and Vivo). The company may scale to 80 million smartphones if needed. Additional upside may come from Longcheer JV, since Longcheer has a customer base with 25 million smartphones in India. This should lead to sustainable volumes even after the production linked incentive (PLI) scheme is phased out.
Dixon’s display facility with HKC is expected to commence trial production from Q1FY27. This should offset decline in mobile margins after the PLI scheme ends since the displays will generate double-digit margins. Qtech India already supplies camera modules to large mobile players and can add to margins once the 51 per cent stake is taken.
Among other segments, in Q1FY26, consumer electronics revenue declined 21 per cent Y-o-Y to ₹670 crore, due to a drop in LED TV volumes. This was partly offset by the refrigerator business, which grew 129 per cent Y-o-Y to ₹330 crore. Despite revenue drop, Ebitda segment grew 38 per cent Y-o-Y to ₹40 crore, with a 260bp margin expansion to 6.0 per cent.
Home appliances saw 3 per cent Y-o-Y revenue growth to ₹313 crore. Ebitda rose 13 per cent Y-o-Y to ₹36 crore, with margins up 90bp to 11.5 per cent. But lighting saw 17 per cent Y-o-Y revenue decline to ₹190 crore, and 27 per cent Y-o-Y fall in Ebitda to ₹11 crore and 80bp contraction in margin to 6.0 per cent.
Dixon has a capex plan of ₹1,150 crore - ₹1,200 crore in FY26 with ₹800 crore allocated to component manufacturing, including JVs. The capex is funded through internal cash flows and government schemes.
Backward integration is perhaps the best way to improve margins in what is inherently a low-margin business and Dixon’s ability to build relationships is impressive. Key risks now would be lower-than-expected growth, or loss of relationships with key clients, or increased competition.
According to Bloomberg, 16 of the 25 analysts polled post results (announced on Tuesday post market hours) are bullish, while five are bearish and remaining four are neutral on the stock, which closed 2.66 per cent higher at ₹16,540.25 on Wednesday on the BSE. Their average one-year target price is ₹17,206.
