Dixon Technologies IPO has generated quite a buzz on the street, even thought another IPO of Bharat Road Network is also going to remain open during the same dates. Understandably, Dixon Technologies IPO recommendations are largely positive from analysts, although some have pointed out that the valuations are high.
A day before the IPO opens for subscription, the consumer electronics manufacturer has also raised INR179.79 crore by placing shares with anchor investors including Steadview Capital Mauritius, DSP Blackrock, Kuwait Investment Authority, Goldman Sachs India Fund, Franklin Templeton Mutual Fund, HSBC MF, Nomura Funds, HDFC MF, Birla Sunlife MF, SBI MF, ICICI Prudential AMC and Kotak Mutual Fund.
Here is a sampling of brokerage house views about the IPO.
Asit C Mehta said it expects the company to benefit from rising disposable income and affordability. “Growing middle-income class population, rising disposable income, increasing affordability, positive consumer confidence, and easy finance availability coupled with favorable government policies, increasing product awareness, and shrinking replacement cycle for consumer durables, we believe, would boost consumer electronic market, which in turn would benefit companies such as Dixon. Moreover, diversified business model, asset light business, superior return ratio, and strong client relationship augur well for Dixon in the long run. At the upper price band of Rs 1766/-, the company’s stock trades at 38.6x its FY17 EPS of Rs. 45.86/-, which is priced. Hence, we recommend to SUBSCRIBE the issue from a long-term perspective,” said its IPO note.
Angel Broking also threw its weight behind the company while pointing to the prospects of better margins in years to come. “DTIL would continue to report higher revenue and improvement in margins owing to its presence in high growth segments, experienced management and growing share of ODM segment. Despite the company operating on thin margins, it has registered return on capital of a whopping 33.3% in FY2017. Further, it has been generating positive cash flow from operations over the last 5 years and negligible debt post IPO. At the upper end of the price band, the pre issue P/E multiples works out be 38.5x of FY2017 EPS, on P/B, it is valued at 9.8x of FY2017 book value. We recommend ‘SUBSCRIBE’ on the issue for a mid-to-long term period,” noted analysts in their report.
Another positive word came from SPA Securities which believes the company has strong revenue visibility. “Indian consumer electronics and appliances market is expected to register CAGR of 16.5% between FY16-21 reinforced by the surging rural consumption, reducing replacement cycles, increasing penetration of lifestyle appliances and availability of multiple brands at various price points. We are positive on the company owing to strong revenue visibility, low capacity utilization, established relationships with its clients, strong clientele, leverage play, healthy balance sheet (D/E- 0.2) and high return ratio (ROE-25.7%). At the upper end of the price band, the stock is available at P/E of 39.4x based on FY17 earnings, which is reasonable considering strong revenue visibility and low capacity utilization. We recommend SUBSCRIBE to the issue with long term perspective,” said analysts in their recommendation.
Choice Broking further added to positive Dixon Technologies IPO recommendations but has advised investors to exercise caution. “At current financial performance, the demanded P/E valuation of 39.7x seems to be stretched. However, considering FY18E and FY19E earnings of Rs. 56.5 and Rs. 78.4 per share, it is demanding a P/E valuation of 31.2x and 22.5x, respectively. Thus considering its stretched valuation, dominant market position, presence in the fast growing consumer electronics industry and healthy financials, we assign a “Subscribe with Caution” rating for the issue,” the brokerage house’s IPO note pointed out.
Dixon Technologies IPO recommendations: Not everyone is impressed
Despite strong fundamentals, not everyone is impressed and balancing the stream of positive Dixon Technologies IPO recommendations is SMC Global Securities which believes the upcoming IPO is good only for long term investors as valuations are high. “The company is a fully integrated end-to-end product and solution suite to original equipment manufacturers (“OEMs”) ranging from global sourcing, manufacturing, quality testing and packaging to logistics. The Company has shown strong financial performance over the past five years. Its debt equity ratio is much lower. With the increasing demand for electronic appliances due to changing modern lifestyle and high consumer spending, it is expected that company would see good growth in long run. As the issue looks expensive, a long term investor may opt the issue,” said the research report.