Why Dixon Technologies Share Price is Falling

The Indian stock market is showing extreme volatility these days with the earnings season coming to a close and investors tracking Budget 2023 announcements.

This is because investors are bracing for the worst reporting season in more than two years amid a toxic blend of many macroeconomic headwinds, including rising interest rates, persistently high inflation, and slowing economic growth.

The ability of companies to increase sales due to lower demand has remained a critical variable in the quarter under review, i.e. September 2022 to December 2022.

Many consumer durables and consumer electrical companies have felt the heat of it, diving to their 52-week lows. Among them is Dixon Technologies.

The share price of Dixon Technologies has plunged over 17% in the past five days, touching its 52-week low this week.

So why is Dixon Technologies share price falling?

#1 Slowdown in demand and weak financial results

The company, on 25 January 2023, posted a 22% YoY decline in revenue to Rs 24.1 billion (bn) for the December 2022 quarter. It had posted Rs 30.7 bn in revenues in the December 2021 quarter.

Revenues were also lower sequentially by 37.8% due to slower progress in the mobile market and a lackluster performance in the consumer electronics and lighting industries.

Topline figures were below estimates and market expectations were crashed then and there...

Due to the company's new value engineering initiative and cost optimisation, the net profit rose by 11.9% YoY to Rs 519.1 million (m) for the December 2022 quarter. However, the profit was lower by 32% sequentially.

The operating profit, calculated as earnings before interest and tax, depreciation, and amortisation (EBITDA), rose 10% YoY to Rs 1.1 bn against Rs 1 bn in the same quarter a year ago.

It was on the back of a reduction in input prices, calibrated pricing actions, and inventory planning.

Margins also improved on the back of a change in sales mix, operating leverage, cost optimisation, and efficiency measures across all businesses, and the strategic price hikes in the ODM business.

Following the quarterly earnings release, shares of the company crashed by 20%.

#2 Weak revenue guidance

Another reason that intensified the fall was weak revenue guidance its management gave. The management slashed its sales guidance to Rs 127 bn for financial year 2023 from Rs 150 bn earlier.

This was due to weakness in the mobile segment and sluggish demand, in addition to falling realisations in other prominent divisions.

The mobile segment revenue contracted to Rs 9 bn from Rs 16 bn in September 2022. A similar decline was seen in LED televisions, where its revenue fell to Rs 8.6 bn from Rs 15 bn.

The sluggishness in mobile segment sales was on account of weak exports of Motorola handsets and lower festival demand. The lower realisation in LED televisions led to a revenue dip in the consumer electronics segment.

Also, according to International Data Corporation, global smartphone shipment for December 2022 declined 11.3% YoY to 300 m units. This was the biggest-ever drop in a holiday quarter.

The management has further warned that its revenue projection of Rs 190 bn may be trimmed, even though it expects the income from its mobile sector to quadruple in the financial year 2024.

Outlook remains positive for the long-term

The company is in the process of adding new customers from the UAE. It has also received repeat export orders for the same.

It also expects a sales recovery led by a ramp-up in production-linked incentives (PLI) with good growth in new segments of refrigerators, wearables, IT, and many more.

Further, Dixon Technologies is also building a team for research and development and is also looking to get into new products.

How Dixon Technologies shares have performed recently

Shares of Dixon Technologies are currently down 28% in the last one month and down 36% in in the last one year.

However, the stock is a true multibagger with its five year gains coming in at more than 250%.

At the current price, Dixon Technologies trades at a PE multiple of 70.6 and a price to book value multiple of 16.

As of December 2022, promoters owned 34.06% of the company, while FIIs owned 16.66%.

About Dixon Technologies

Dixon Technologies is one of the largest design-focused and solutions company in India. It's engaged in manufacturing consumer electronics.

The company's product portfolio includes most consumer electronics we use daily. LED TVs, washing machines, LED bulbs, and tube lights, mobile phones, CCTV - Dixon has its footprint in all of them.

It's the biggest manufacturer of LED TVs in India.

It produces TVs for global and domestic brands like Samsung, Panasonic, Xiaomi, TCL, OnePlus, and many more. The biggest part of the company's revenues (over 45%) is from the LED TV segment.

Display manufacturing is very complex and technology intensive. The problems are huge capital investment, high risk, and rapid changes in technology.

Despite being in a capital-intensive sector, Dixon has maintained a footprint, across verticals, with little debt on its books.

To know more about the company, check out Dixon Technologies fact sheet and quarterly results.

You can also compare Dixon Technologies with its peers.

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