Dixon Tech, Once an Investor Darling, Faces Potential 32% Downside: Kotak

Valuations are expensive, and Dixon Technology's target price already considers its electronics manufacturing services segment (EMS), components, and exports, as noted by Kotak Institutional Equities. Despite a remarkable 164 percent gain in the past year, the recent acquisition of Ismartu raises questions about sustaining the rally.

Dixon Technology inked a share-purchase deal with Ismartu, a Noida-based company specializing in manufacturing, assembling, and distributing mobile phones and electronics. While this acquisition is seen as a strategic move to further penetrate the domestic smartphone market, Kotak maintains a "sell" rating on the stock, setting a price target of Rs 5,200, implying a 32 percent downside.

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The brokerage attributes its stance to Dixon's expensive valuations and already factored-in prospects in various segments. Kotak has adjusted its earnings estimates, foreseeing a boost from Ismartu's integration, particularly in mobile manufacturing.

In the preceding quarter, Dixon secured a contract to produce mobile phones for Compal, a prominent Taiwanese computer manufacturer, signaling potential market expansion, both domestically and internationally. Collaboration prospects with BBK Group, a major player in the Chinese smartphone market, offer further growth avenues.

The tie-up with BBK Group aligns with Dixon's strategic vision to enhance local manufacturing capabilities, potentially increasing market share in India's mobile manufacturing sector. Despite modest revenue growth in consumer electronics and home appliances, Dixon's lighting segment faced challenges due to subdued consumer demand.

On April 10, Dixon Tech shares closed at Rs 7,828, reflecting a nearly 2 percent increase from the previous close on the NSE. Over the past three months, the stock has surged by 24 percent, underscoring market optimism despite Kotak's cautious stance.

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