Looking to enter the refrigerator segment: Dixon Technologies

Update on the Indian Equity market:
Markets started the four-day week on a positive note, led by global peers on the back of positive vaccine news from Moderna. Nifty closed the day 94 points higher at a new record high of 12,933. Within the index, the gainers were led by TATAMOTORS (6.2%), TATASTEEL (5.9%) and HDFCLIFE (5.7%) whereas BPCL (-4.2%), HEROMOTO (-2.6%) and NTPC (-2.5%) were the laggards. Among the sectoral indices, METAL (2.4%), PSU BANK (2.2%), and BANK (2.1%) led the index higher while MEDIA (-1.3%), PHARMA (-0.7%), and IT (-0.3%) were the laggards.
Excerpts of an interview with Mr. Atul Lall, Managing Director, Dixon Technologies Ltd (Dixon) published on CNBC-TV18 dated 13th November 2020:
The government on Wednesday levied a 5% duty on the import of TV parts like chips, printed circuit board assemblies, and glass boards. Reacting to the development, Mr. Lall said that the industry has been requesting the government to correct the disparity for a very long time.
After the recent decision by the government, the duty on both pure and open cell is at 5%. The localization on LED and LCD TV parts too is positive for coming quarters.
He said that the government has stated that LED will be covered under the production-linked incentive (PLI) scheme. The final details about it are still to be announced. If this development takes place then it gives an additional impetus for exports of LED lighting products to the company.
The company has expanded the capacity of LED TVs from 3.6mn to 4.4mn in phase-I. The company further plans to expand the capacity to 5.5mn sets (>30% of India’s requirement). The expansion will be completed by March 2021.
The company entered into digital setup boxes in a big way. In the next phase, the company is looking to enter the refrigerator segment organically or inorganically.
The company achieved the highest monthly production of 3.6 lakh units and the order book for 4Q looks healthy as well.
Consensus Estimate: (Source: market screener website)
The closing price of Dixon was ₹ 10,302/- as of 17-Nov-2020. It traded at 81x/ 47x/ 33x the consensus EPS estimate of ₹ 127/ 219/ 316 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 9,940/- implies a P/E multiple of 31x on FY23E EPS of ₹ 316.
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