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Saturday, October 24, 2020

Riding on ‘Make in India’ push, this stock is on an unstoppable run

The stock, listed in 2017, has risen 125% in the last one year, smartly outperforming Sensex.

Shares of this contract manufacturer are riding high on India’s plan to reduce import dependency and shift production to India, coupled with globally declining preference for manufacturing in China.

Analysts say the stock holds strong promise. The mid-cap stock is Dixon Technologies (India).

The stock, listed in 2017, has risen 125% in the last one year, smartly outperforming Sensex, which dropped 17% in the same period. The stock traded at Rs 5,270 on Wednesday, just 5% away from its 52-week high of Rs 5,572.75 hit on June 3.

Dixon Technologies manufactures consumer electronics, home appliances, lighting products and mobile phones. The stock 6 ‘strong buy’, 8 ‘buy’ and one ‘hold’ ratings, data from Reuters Eikon showed. There were no ‘sell’ or ‘strong sell’ ratings.

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“It is completely the story of Make in India and Atmanirbhar Bharat,” said Siddharth Sedani, Vice President for Equity Advisory at Anand Rathi Shares and Stock Brokers.

“Dixon is the biggest manufacturer of LED panels in India. It also manufactures private label brands. The shift from manufacturing in China to ‘Make in India’ is a key driver for the stock,” said Sedani.

“The stock should continue to perform, looking at the paradigm shift in manufacturing plans from China to India. The company’s results have been promising as well,” he said.

The pushback against Chinese manufacturing following the US-China trade war has intensified following the coronavirus outbreak.

While this may be political posturing, the trend of increased manufacturing outside China is based on economic fundamentals, Ambit Capital said in a June 8 note.

The brokerage argued that even as China has become the world’s largest manufacturer as more than 50% of electronic products by value are produced in China and has very well integrated supply chains, high labour costs at three times that of India have led global manufacturers to look for alternatives.

“Countries such as India and Vietnam are likely to gain share of this shift of manufacturing bases. Since labour is the biggest contributor to fixed costs, Electronics manufacturing services (EMS) companies are particularly advantaged to build scale based on labour competitiveness,” Ambit analysts said.

Ambit has a buy rating on Dixon, with a price target of Rs 6,774 for next 24 months, which implies nearly 37% upside from current level.

Despite the impact of coronavirus, which is likely to slow growth over FY21, Ambit believes growth is likely to bounce back to 30% levels over FY21-25 since the overall structural demand is likely to remain unchanged.

“The requirement to stay at home longer (due to lockdowns) may give a fillip to domestic appliances,” the brokerage said, adding that it expects 28% sales growth over FY20-25 on the back of increasing volume share.

On June 11, Dolat Capital upgraded the stock to ‘buy’ with a price target of Rs 6,100, implying nearly 10% upside from current level.

“Dixon has multiple growth options, including upcoming opportunities in electronic manufacturing, all of which is not captured in near-term earnings in FY20-22E,” Dolat Capital analysts said.

On June 2, Dixon Technologies told PTI that it is planning to invest Rs 250 crore and hire 2,500 people over next 8-9 months to expand operations to take advantage of the product-linked incentive (PLI) scheme.

Electronics manufacturing companies will get 4-6% incentives based on certain incremental sales every year. Under the scheme, the government aims to attract top five global mobile manufacturing companies that control 80% of the global market in the segment and also promote five local companies to expand business as national champions.

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