Dixon Tech slips 3%; Phillip Capital raises competition concerns, cuts TP

Business Standard

12 hours ago

Dixon Technologies shares slipped 2.8 per cent in trade on Wednesday, logging an intraday low at ₹1,4090 per share on BSE amid worries that the domestic business may face significant competition.
Phillip Capital has reduced its revenue/Ebitda/PAT estimate for Dixon for FY27 by 4 per cent/ 6 per cent/ 9 per cent on account of higher competition in the mobile phone assembly space.
Ebitda refers to Earnings before interest, tax, interest, depreciation and amortisation and PAT refers to profit after tax.
Further, the brokerage has reduced its target price from ₹11,077 per share to ₹9,085.
At 12:12 PM, Dixon Technologies share price was trading 2.31 per cent lower at ₹1,4167.45 per share on the BSE. In comparison, the BSE Sensex was up 0.68 per cent at 82,611.89. The company's market capitalisation stood at ₹85,652.42 crore. Its 52-week high was at ₹19,149.8 per share and 52-week low was at ₹10,61 per share.
In one year, Dixon Technologies shares have gained 24 per cent as compared to Sensex's rise of 5 per cent.
Why are worries suddenly arising from increased competition?
Motorola (Dixon's largest client) diversifying supply chain:
Dixon's largest client Motorola has begun outsourcing domestic volumes to Karbonn, noted Phillip Capital in its brokerage report.
According to the report, the outsourcing was minimal in February and March CY25, but now has increased to 25 per cent of Motorola's monthly volume, in April-May.
Initial estimates suggest this figure can rise to 35 per cent by June. The brokerage believes that the shift is not unexpected as Motorola's entire manufacturing was managed by Dixon when it was smaller in CY23 and now, Motorola wants to diversify its supply chain.
Longcheer may also outsource to Karbonn:
Phillip Capital fears that Dixon's second-largest client, Longcheer will also start largely outsourcing incremental volumes to Karbonn. It already, in May CY25, began outsourcing around 2 per cent share to Karbonn.
While the number is currently modest, the brokerage fears it could scale up quickly in coming months – mirroring Motorola's recent trajectory. Motorola had also initially outsourced only a minimal amount around 1-2 per cent to Karbonn in February CY25, but ramped up significantly in following months, with 30 per cent of its May volumes going to Karbonn.
Longcheer and Huaqin are two of the leading global ODMs (Original Design Manufacturers). Currently, Dixon manufactures Longcheer's phones, while Huaqin outsources to Bhagwati Products and the DBG Group. For Dixon, volumes from Longcheer have grown over the past
Volume share shifting to Karbonn:
Dixon manufactures for Motorola across domestic and international markets. However, in recent months, while Dixon ramped up exports, particularly for Motorola, increased domestic competition led to volume share shifting to Karbonn.
For domestic business, Motorola depends on local manufacturing partners such as Dixon and Karbonn due to India's duty structure. However, the export scenario is different.
Further, the political ties of Motorola's parent company Lenovo with China further complicate long-term manufacturing strategies.
Motorola has an 80mn smartphone manufacturing base in Wuhan, primarily for exports. There is a shift in manufacturing to India from China, so the capacity utilisation of its Wuhan plant has dropped by 15-20 percentage points. Notably, Lenovo, Motorola's parent, is based in China, with the Communist Party of China (CPC) holding a 10 per cent stake in that company, and considering this political ownership, Phillip Capital believes the long-term trajectory of this shift remains uncertain.