EMS stocks have been on a strong upward trajectory in recent months, reaching record highs and delivering exceptional returns to shareholders. Dixon Technologies (India) is one of them in this space, which has rallied over 320% in just 18 months, spiking from ₹2,681 apiece to the current trading value of ₹11,267.
The Indian EMS industry has gained considerable prominence and influence over the past five years. The COVID-19 pandemic accelerated its growth, driven by several key factors, including the increased demand for essential medical devices, the rise of the work-from-home economy, spurring the need for smartphones, tablets, and laptops, and a heightened focus on sustainability, leading to increased demand for digital solutions that track and measure environmental initiatives.
Amid this backdrop, India has emerged not just as a cost-effective option but as a hub for high-quality design work. Many multinational companies have set up and expanded their captive centers in the country. EMS providers are progressively offering comprehensive design services in addition to contract manufacturing and original equipment manufacturing.
According to Equirus Securities, the total addressable market (TAM) for EMS players in India’s electronics sector is expected to grow at a 35% CAGR, reaching approximately ₹4.5 trillion by FY26E. In this backdrop, Dixon is the only company to cater to most segments of the pie.
About 63% of India’s EMS market comprises mobile phones (smartphones + featurephones) while the rest encompasses different industries. Dixon’s major presence is in mobile phone assembly, which contributed 62% of its FY24 revenues.
It derives the remaining 38% of revenues from consumer electronics; this includes the assembly of lightings, LED TVs, inverter boards for ACs, wearables, hearables, refrigerators, set-top boxes, telecom and IT hardware.
The brokerage notes that the company excels by strategically entering and scaling new categories while integrating backward with a streamlined business model, achieving 2-3 days of net working capital (NWC).
It said that the company effectively reinvests its cash flow to expand or enter new categories, maintaining steady cash flow from operations (CFO). For instance, the company generated a CFO of ₹15 billion over the past three years, despite investing ₹15 billion in capital expenditure.
The brokerage highlights that Dixon’s growth is driven by its expansion into new categories and acquisition of new customers. It says the company has a robust order book for FY24, including mobile phones from Samsung and Xiaomi, IT hardware from Acer and Lenovo, and telecom products from Jio and Airtel, bolstered by various strategic partnerships.
Should you consider buying the stock?
The brokerage believes that the company is well-positioned to leverage multiple structural drivers in the Electronics System Design and Manufacturing (ESDM) industry, particularly benefiting from the global shift in electronics manufacturing.
This includes significant opportunities in mobile phone production and IT hardware assembly. The company’s strong presence in high-value, low-margin (HVLM) segments such as telecom, home appliances, and consumer electronics further solidifies its position as a key player in India’s EMS sector.
The brokerage forecasts a consolidated revenue, EBITDA, and PAT CAGR of approximately 39%, 38%, and 45%, respectively, for FY24–FY27, with EBITDA margins expected to stabilise at 3.9% until FY27. As the mobile phone segment, known for its lean working capital model, becomes a major revenue driver, the company’s return on capital employed (RoCE) is anticipated to exceed 40%.
The company benefits from a debt-free balance sheet and strong operating cash flow (OCF), with average pre-tax OCF/EBITDA ratios above 100% over the past four years, providing ample capital for both organic growth and acquisitions.
However, the brokerage points out that the stock currently trades at 98x/78x/58x on FY25E/FY26E/FY27E, significantly above its 10-year SD+1 average P/E (3-year average P/E is at 60x), even considering the high growth phase.
Given these factors, the brokerage has initiated coverage with a ‘Short’ rating and set a September 2025 target price of ₹9,830, based on a 60x EPS estimate for September 2026.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.