What led to Dixon Tech's electrifying comeback

Dixon Technologies is one of India's leading electronic manufacturing services (EMS) providers, with a market capitalisation of over Rs 25,000 crore. It manufactures various electronics ranging from home appliances to security surveillance devices. After falling to its 52-week low in January, the stock has recovered sharply and posted a 43 per cent return in the last three months.

In this story, we take a deep dive into the factors that led to the company's resurgence.

A new partnership
It recently added Xiaomi India, one of the largest smartphone brands in the world, as its new customer. The markets are optimistic about the addition of Xiaomi as it might provide the company with new growth opportunities and further diversifies its client portfolio. It already counts global smartphone juggernauts like Motorola (anchor customer), Nokia, Samsung and Jio in its clientele.

Dixon will now manufacture and export Xiaomi mobile phones through its wholly-owned subsidiaries. It plans to commence manufacturing by Q3 FY24 from a new facility of 3,20,000 square feet being set up in Noida.

Bet on smartphones
While the Xiaomi partnership has been the primary trigger, part of the optimism surrounding the stock is related to the overall expansion of its mobile & EMS divisions. Its mobile segment has witnessed astronomical growth in the five years. In the last five years, revenue from the mobile segment grew at 96 per cent per annum.

A word of caution
Before you rush to invest, note that this is not a stock recommendation. The purpose of this story was to highlight the factors that led to Dixon shedding its January blues of a 52-week low. However, like every investment, risks are aplenty.

From the above, it is evident that the company is primarily involved in manufacturing consumer durables. Thus, its order book is highly vulnerable to the cyclicality of these products. In addition, its star-studded clientele comes at a cost. To attract global leaders, it has been operating at thin margins (five-year median net margin of 2.1 per cent). Also, its over-reliance on China for components leaves it highly exposed to geopolitical risks.

Hence, do your due diligence before investing.

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