Dixon Tech - Haitong
Dixon Tech - Haitong
Research Report
12 Dec 2023
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Flash Analysis
Event: Dixon Technology’s subsidiary – Padget Electronics to manufacture IT Hardware products (Laptops and
Notebooks) under PLI 2.0 scheme for Lenovo
Dixon announced today (11-Dec-23) that its wholly owned subsidiary - Padget Electronics Private Limited has been awarded
manufacturing contract by Lenovo to carry out manufacturing of IT Hardware products i.e. Laptops and Notebooks under
Production Linked Incentive (PLI) 2.0 Scheme, subject to signing of definitive agreement in due course.
Building on the success of PLI scheme for mobile phones, the Government had approved PLI Scheme – 2.0 for IT hardware on
17th May 2023. This scheme covers manufacturing laptops, tablets, all-in-one PCs, Servers and Ultra Small Form Factor devices.
The scheme was open for applications from June 1, 2023 till end August 2023 and received about 53 applications. With planned
incentive outlay of Rs170 bn over a six-year period, with an aim is to boost domestic manufacturing of IT hardware.
Subsequently, the Government approved 27 manufacturers under the PLI 2.0 for IT hardware. These 27 companies are likely
to invest Rs30 bn and create direct and indirect employment of 0.2mn people. The current scheme has the basic incentive level
of 5%. The scheme seeks to promote local manufacturing of smaller components in computing devices by rolling out additional
incentives of up to 3% for companies that procure domestically-produced components, such as memory chips, printed circuit
board assemblies, solid-state drives, chassis, power supply components, and adaptors.
Lenovo is a global leading player in the field and is known for their affordable yet technologically advanced products. The
management is confident that the partnership with Lenovo besides creating employment opportunities in India will scale up
localization and creation of component ecosystem as it will bring in the global know-how and process to manufacture IT
hardware products to India.
Our View: We believe signing up Lenovo, which is amongst the leading laptop brands in the country, is a significant
development for Dixon as this tie up is expected to aid the growth of its Mobile & EMS segment, which saw 66% surge in
revenue in FY23. Laptop assembling business is expected to be a high volume - low margin business. This tie-up is set to benefit
from government’s focus on localisation of component manufacturing in India and a positive step towards expanding its IT
Hardware vision. The company is already manufacturing / assembling laptop for Acer with an annual capacity of 0.5mn units.
We expect revenue/earnings CAGR of 40%/51% over FY23-26 and are positive on its long term prospects given multiple growth
engines at work. We have an Outperform rating on the stock with target price of Rs6,260 based on 48x our Sep-25 earnings.
Key Risks: (a) Unfavourable change in custom duty, (b) Technology disruption, (c) Increased competition on the downside and
better performance on the upside and (d) Any disruption in global supply chain may hamper timeline, cost or performance.
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APPENDIX
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