99 P/E still looks less when it’s a play on Modi’s Atmanirbhar drive

The appeal of Prime Minister Narendra Modi’s Atmanirbhar Bharat campaign is such that stock investors are ready to pay Rs 99 for every Re 1 earned by a company active in domestic consumer durables manufacturing!

The investor enthusiasm over the domestic manufacturing theme is currently getting reflected in the superlative performance of two stocks: Amber Enterprises and Dixon Technologies. The former is up 130 per cent since August 5 last year, and the latter nearly 313 per cent. BSE Sensex is up barely 2.50 per cent over this period.

Dixon has been the market’s darling despite a washout June quarter in terms of both profit and sales growth.


Analysts say both Dixon and Amber can be major beneficiaries of the government’s move to promote local manufacturing of consumer durables products to build self-dependence.

The Road Ahead
Dixon Technologies’ consolidated net profit tanked 93.21 per cent year-on-year in June quarter to Rs 1.60 crore from Rs 23.58 crore posted for the year-ago period. Revenues declined 54.93 per cent YoY to Rs 516 crore.

Anand Rathi Shares of Stock Brokers is bullish on Dixon with a target price of Rs 9,834, indicating nearly 27 per cent upside from the current price of Rs 7,745.

“It is well placed to benefit from the government’s PLI (production-linked incentive) scheme. The recent notification putting television imports in the restricted category augurs well for Dixon and would help customer addition,” the brokerage said.

The PLI for large-scale electronics manufacturing offers financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain, including mobile phones, electronic components and ATMP (assembly, testing, marking and packaging) units.

Annual imports in product categories where Dixon operates are estimated at Rs 1.38 lakh crore (growing at 11 per cent CAGR over FY11–19). This offers a diversified opportunity that can be grabbed by only a few manufacturers in India.

There are also expectations that the expansion of Reliance Jio will further increase Dixon’s addressable set-top boxes volumes and make it a Rs 1,000 crore opportunity in the coming years.

Amber will announce its June quarter earnings only on August 10. It posted 4.70 per cent year-on-year drop in profit at Rs 62.84 crore for March quarter.

Sitting on Expensive Valuations
Shares of Dixon are hovering at a price-to-earnings (P/E) ratio of around 99 times, nearly double the average of 54 times it has quoted at since its listing in September 2017. Amber’s P/E multiple hovers at 46.46 times against an average of 39 times seen since January 2018 listing.

A high P/E multiple indicates that investors expect higher growth from a company compared with the overall market. A high P/E does not necessarily mean a stock is overvalued. Also, a P/E multiple needs to be considered against peer values in the same industry.

“Both Dixon and Amber are the beneficiaries of the government’s Atmanirbhar Bharat vision. Business visibility is quite strong for the two over the next 2-3 years. These stocks may continue to see buying interest despite higher valuation,” said Sanjeev Hota, Head of Research at Sharekhan.

However, independent market researcher Ambareesh Baliga says the valuations are not justifiable. “The ongoing rally in both the stocks is sentiment-driven due to the government focus on local products. I advise investors to book profit at current levels,” he said.

Dixon manufactures consumer durables, lighting and mobile phones. Amber makes air conditioners, microwave ovens, washing machines, refrigerators, heat exchangers, among others.

As per earlier estimates, Amber makes room ACs for eight of the top 10 AC companies, and its clients include Voltas, Godrej, Blue Star, Daikin and Hitachi. It has a 55 per cent share of the contract AC manufacturing and 19 per cent of the total room AC market. It has 11 manufacturing facilities across India.

Key Risks
Some analysts say a key risk for these homegrown players may emerge should the demand drought in consumer durables prolong in the country.

Others feel relentless and predatory pricing policy of Chinese contract manufacturers can be another important factor to watch out for. “Localised lockdowns that can create logistics issues and supply-chain disruptions would be key monitorables from a near-term perspective,” they said.