Dixon Technologies CEO Atul Lall sells stock worth Rs.505 million

The stock is at its all-time high and insiders are wasting no time cashing in 

Blessed with a healthy order book and a product-linked incentive (PLI) scheme, Dixon Technologies’ stock has been on a roll. From a 52-week low of Rs.2,900 hit on March 24, the stock has gained nearly 270% to hit an all-time high of Rs.10,790 in November. The company’s Q2FY21 revenue stood at Rs.16.39 billion growing 17% year-on-year, while net profit came in at Rs.523.6 million, recording 22% YoY growth.

In the Q2FY21 earnings call, CEO Atul Lall said that the growth was on the back of consumer electronics (LED TVs) and lighting segments. While consumer electronics recorded revenue of Rs.9.57 billion against Rs.7.38 billion in the same period last year, the lighting segment witnessed revenue of Rs.2.96 billion, registering growth of 4%. “In order to meet the strong order book of our anchor customer Xiaomi and newly acquired customers like Samsung, Nokia, Hisense, Toshiba … we are further expanding our capacity from 4.4 million to 5.5 million in this fiscal,” said Lall.

Top management and promoters are making the most of the stock rally. Lall sold shares worth Rs.505.4 million, reducing his stake from 4.03% to 3.55%. Promoter Sunil Vachani, too, cashed in by selling shares worth Rs.481 million. Total insider selling in FY21 stands at Rs.1.03 billion. Promoter holding now stands at 35.59%, of which Vachani holds 34.24%.

The company is expected to strike gold with the PLI scheme, feel analysts. Padget Electronics, the wholly owned subsidiary of Dixon Technologies, received approval under the PLI scheme for manufacturing mobile phones on October 8. “We are confident of generating cumulative revenue of Rs.280 billion- Rs.300 billion over a period of five years,” said Lall to analysts during the Q2 earnings call, adding that the company has already started investing to increase its capacity in smartphones from the current three million to 15 million-16 million level annually in the next couple of years. It is also in final rounds of discussions with three large global brands. “We are fairly confident of starting the new capacity by early Q4 that is January of this fiscal,” added Lall.

Analysts at Elara Capital have maintained their ‘Accumulate’ rating on the stock with a target price of Rs.9,265. They expect earnings CAGR of 44% over FY20-23 driven by “rising demand of the outsourcing business model, especially by large MNC firms in the durables industry… and PLI scheme in mobile phones.” Analysts at Axis Securities have changed their stance from ‘Hold’ to ‘Buy’ with a target price of Rs.11,214. However, they note that key downside risks for the company are lower traction in set-top boxes and medical devices, and lower revenue contribution from PLI scheme.

Meanwhile, mutual funds are also taking money off the table, having reduced their stake from 20.99% to 16.68% between June and September. Nippon India and SBI Mutual Fund have cut their stake from 5.7% and 6.99% to 4.8% and 3.64%, respectively. But, foreign investors have absorbed this selling by increasing their stake from 12.27% to 16.21% over the same period, with Abu Dhabi Investment Authority picking up 1.32%. Meanwhile, Goldman Sachs India and Taiyo Greater India Fund have marginally reduced their stake from 1.73% and 1.70% to 1.03% each.