Dixon preps for life after PLI, fearing hit to margins

Mint

23-07-2025

Dixon Technologies (India) Ltd has signed a slew of joint venture (JV) and partnership agreements of late. It was recently in the spotlight for its acquisition of Kunshan Q Tech Microelectronics (India) and a JV with Chinese company Chongqing Yuhai Precision Manufacturing, which should enhance its backward-integration initiatives.
With the government's production-linked incentive (PLI) scheme set to end in FY26, competitive intensity in the sector is slated to rise. These partnerships are expected to strengthen Dixon's customer relations and improve revenue visibility. But more importantly, they should shield operating margin, which is expected to come under pressure from the first half of FY27.
Mixed results
Against this backdrop, Dixon's June quarter earnings (Q1FY26) have given investors mixed feelings. Consolidated revenue rose 95% year-on-year to ₹12,838 crore, beating estimates. This was led by the mobile segment, were revenue jumped 125%, buoyed by volume ramp-up and new client additions.
However, revenue growth in other segments of home appliances, lighting and consumer electronics was unimpressive. Consolidated Ebitda grew 95% year-on-year, but the overall Ebitda margin was flat year-on-year at 3.8% and down sequentially. Over the medium term, Dixon is targeting a 130-150 basis points Ebitda margin expansion in the mobile segment through scale benefits and integration-led cost savings.
Smartphones remain central to Dixon's growth strategy. In Q1FY26 the company shipped 9.6 million smartphones and 5.73 million feature phones, and aims for 11-12 million smartphones in Q2. For FY26, guidance stands at 40-42 million units.
With capacity at 60 million units and an addressable market of 100 million (excluding Apple, Samsung and in-house volumes by Oppo and Vivo), Dixon is scaling quickly. A new deal with NxtCell India will add Alcatel-branded phones, and Vivo's pending approval could lift capacity to 80 million units.
The potential JV with Longcheer, whose 25-million-unit customer base in India offers Dixon a steady growth lever beyond the PLI scheme. Also, value addition in mobile manufacturing, currently at 15-17%, is expected to rise to 35-40% over two years, supported by JVs in display (HKC), camera modules (Q Tech), and precision parts (Chongqing Yuhai). This should also aid medium-term margin growth.
No quick fix
That said, the benefits of backward-integration measures will only come gradually. In a report dated 22 July, Yes Securities said that since Dixon now expects its JV with Vivo to materialise from Q4FY26, the full impact of the partnership will only be visible in FY27. Note that Dixon's management is confident of strong volume growth in mobile phones on sustained demand momentum and and the Vivo JV, so timing of the JV is critical.
Yes Securities has 'reduce' rating on the stock; it feels the positives are priced in, making the risk-reward equation unfavourable. Over the past year, Dixon stock has rallied 50% compared to the Nifty 50's 3% return. The stock trades at a rich 60 times estimated FY26 earnings, as per Bloomberg data. This leaves no room for disappointment on any front.
Amid this, Dixon is executing a ₹1,100-crore capex plan in FY26, of which ₹750 crore has been earmarked for component manufacturing, including the JVs. The rest will be used for capacity expansion, including a Noida plant for Vivo and a display JV set to produce two million mobile and laptop screens each per month.
'Dixon has a major capex ramp-up plan, which requires significant production mandate from local/global markets and efficient execution. This is coupled with certain demand expectations, and if that demand does not pan out, then it can pose downside risks," said a Nuvama Research report dated 22 July. Nuvama also warned about uncertainty on the timing for approvals for its joint ventures, most of which are with Chinese companies.