Shares of Dixon Technologies (India) Limited, a leading player in the electronic manufacturing services (EMS) sector, continued their sharp downward trajectory on Monday, December 29. The stock fell another 4% to close at ₹11,821 per share, marking its sixth consecutive session of losses and hitting its lowest level since August 2024.
A Sustained Downturn and Mounting Investor Concerns
The company's stock has been in a free fall since late September, eroding a staggering 35% of its value from a peak of ₹18,471. This dramatic decline has been primarily fueled by growing apprehensions among investors regarding potential cuts to the company's earnings per share (EPS) estimates for the financial year 2027. Despite intermittent periods of strength, the overall sentiment has been severely dented by a bearish outlook from global brokerage giant Morgan Stanley.
This negative momentum has positioned Dixon Technologies as one of the top underperformers within the Nifty 500 index, with year-to-date losses now standing at 33.5%. The stock is on track to record its first annual decline in two years, a stark contrast to its spectacular 173% surge in 2024.
The Brokerage Verdict: Morgan Stanley's "Underweight" Rating
Last week, Morgan Stanley reaffirmed its 'Underweight' rating on Dixon Technologies, setting a target price of ₹11,563 per share. The brokerage firm highlighted a key regulatory concern: the extension of the IT hardware import management norms. According to Morgan Stanley, this policy continuation creates growth uncertainty for domestic manufacturers like Dixon.
The firm argued that the existing Import Management System could enable global brands such as Acer, Lenovo, HP, and Asus to continue importing their products by securing the necessary licenses and making required disclosures. This scenario, the brokerage noted, might limit the addressable market and growth opportunities for local EMS players.
Adding to the concerns, Morgan Stanley pointed out a significant gap between the company's projections and its own estimates. While Dixon has maintained a cumulative IT hardware revenue guidance of ₹48,000 crore up to FY31, Morgan Stanley's estimate stands at a lower ₹43,000 crore. The brokerage stated that achieving the company's guidance appears challenging in the coming years. It further expects IT hardware to contribute only about 7% of Dixon's FY30 revenue, warning that favourable import norms pose a downside risk to even this modest estimate.
Diverging Views and Long-Term Context
Not all brokerages share this pessimistic view. Earlier in December, CLSA reiterated its 'Outperform' rating on the stock with a 12-month price target of ₹18,800. CLSA acknowledged that Dixon is awaiting approvals for its Vivo joint venture and component manufacturing facilities under a government scheme. It also noted that medium-term growth is unclear due to a saturated smartphone market. However, CLSA considers the stock's valuation at 44 times earnings as "undemanding," suggesting that these concerns are already factored into the price.
Despite the current weak short-term trend, Dixon Technologies' long-term performance narrative remains strong. The stock is still trading 204% higher over the last three years and an impressive 340% higher over the past five years, indicating the significant wealth it has created for long-term investors before the recent correction.
Disclaimer: Investors are advised to consult with certified financial experts before making any investment decisions.
