Is Dixon Technologies a good buy or a costly mistake?

In the fast-paced world of Indian manufacturing, few companies have captured investor attention like Dixon Technologies . With over 100 per cent revenue growth (year-on-year) in each of the last three quarters, Dixon is firing on all cylinders. Yet, the stock tells a different story. Despite this stellar performance, the stock is down over 10 per cent from its recent highs. Just a few months ago, Dixon was trading at a jaw-dropping price-to-earnings (P/E) ratio of over 200 times. A recent correction has brought this down to 145 (adjusted for exceptional items in Q2 FY25), but that's still sky-high compared to global norms. So, what's driving these lofty valuations? Is Dixon's growth story compelling enough to justify them, or are investors buying into a narrative that might falter under closer scrutiny? Why Dixon's valuation outpaces global EMS peers Dixon Technologies commands a valuation far exceeding those of global electronics manufacturing services (EMS) companies . While Dixon trades at a P/E of 145, the global median for EMS companies is closer to 19. Even Foxconn, Pegatron and Flex, three of the largest EMS players globally, trade at much lower multiples of 30, 15 and 20, respectively. But Dixon's supporters would argue that such comparisons miss the point. India's electronics market is growing at a blistering pace, far outpacing global growth. Between FY17 and FY22, India's electronics market expanded by 14 per cent annually, compared to a global rate of just 4 per cent. Dixon has been a direct beneficiary of this boom, with revenues skyrocketing from Rs 2,900 crore in FY18 to Rs 33,000 crore (about $4 billion) as of trailing twelve months in December 2024. Dixon vs Global EMS giants Sky-high P/E, stellar growth Company P/E ratio Market cap ($ bn) Revenue ($ bn) Operating profit margin (%) 5-year revenue growth (% pa) Foxconn 30 80 197 2.7 3.1 Pegatron 15 8 40 1.1 -1.2 Jabil 16 18 29 6.9 2.7 Wistron 18 10 28 3.2 -0.5 Flex 20 18 26 4.8 0.2 Celestica 59 14 8 5.1 3.7 Dixon Tech 145 11 4 3.0 50.0 Data as of January 22, 2025. Financials as of the latest fiscal year. However, there's a catch. Such valuations come with sky-high expectations. If Dixon's P/E were to normalise to a more reasonable 40 times over the next decade, the company would need to grow its earnings 15 times to deliver a 15 per cent annualised return. This translates to revenues climbing from Rs 33,000 crore to nearly Rs 5 lakh crore ($60 billion). For perspective, Dixon's current addressable market (for all its product segments) is around Rs 5.2 lakh crore, which is expected to grow at 12 per cent annually (per LG Electronics India's draft IPO prospectus). That means the market can transform into a Rs 15 lakh crore opportunity in the next 10 years. To achieve this, Dixon would need to capture an unprecedented one-third of the market — an ambitious goal in an increasingly competitive and fragmented industry. Earnings growth needed for 15% annual returns 10-year horizon shows how P/E impacts growth expectations Assumed P/E EPS growth required (times) 40 15 30 20

This article was originally published on January 25, 2025.