The Dixon Technologies share price has corrected close to 20% so far in 2025 but the worst may not be over yet. Morgan Stanley has downgraded the stock to Underweight from Equal weight and the price target has been set at Rs 11,563 per share. This indicates that the stick could fall as much as 20% from current levels.
According to Morgan Stanley, “higher competition in its core EMS business” after the end of the PLIs and an “earnings growth slowdown between FY27-FY30,” are the key reasons for the downgrade. They believe that though the “component manufacturing is a step in the right direction, but it could be tougher to execute than the core EMS business.”
Morgan Stanley on Dixon Tech: Earnings slowdown
Morgan Stanley expects, Dixon Tech earnings to slow 46% between FY25-FY27 and 18% in the period between FY27 and FY30. The components business is contingent to tech tie-ups, approvals and cost controls and this, as per the brokerage, is a concern.
Morgan Stanley on Dixon Tech: Focus on R&D spending
Dixon Tech’s display fab is a deep cyclical business and requires investment and R&D spending. With the core EMS experiencing slowing growth and volume risk, Morgan Stanley forecasts “that after the production-linked incentive (PLI) scheme expires in FY26, brands could be more open to working with competing EMS players offering similar costs and/or bear higher net working capital.”
The brokerage house highlighted that they see “rising evidence of its customers discussing tie-ups with its competitors.” To offset and address these risks, Dixon has entered strategic alliances, which await government approval. Morgan Stanley believes that “45% of volumes are likely to be sticky, but the balance could face competitive risks over FY27-FY30.” The IT hardware business has also been muted recently, possibly due to an accommodative government imports policy. This, according to Morgan Stanley, is another concern.
Morgan Stanley on Dixon Tech: Components execution holds the key
As a result of the above-mentioned challenges, Morgan Stanley considers that the components could be tough to execute compared to the scope in EMS. Dixon expects to commission a display facility in H2FY26 and is awaiting government approval on its tie-up with HKC. It is looking to set up a capacity of 45 MU under a government component policy that will eventually expire. Thus, Morgan Stanley sees “lower visibility on converting its non-strategic mobile EMS customers to its components business.”