Bear Turns Bearish: Dixon Tech downgraded by Morgan Stanley, projecting 23% downside

Global brokerage firm Morgan Stanley has downgraded Dixon Technologies to 'Underweight' but raised the price target by 33% on the stock. However, the stock is still 40% below its previous peak.

Morgan Stanley has assigned a price target of ₹11,563, up from ₹8,696 per share earlier. The revised target implies a potential downside of 23% from Monday's closing levels.

The brokerage expects higher competition in its core Electronics Manufacturing Services (EMS) business once the Production Linked Incentive (PLI) scheme expires in financial year 2026.

Importantly, Morgan Stanley predicts an earnings slowdown from fiscal year 2027 to fiscal year 2030. Core EMS: earnings are expected to slow down by 46% in FY25-FY27 and 18% in FY27-FY30.

Component manufacture is moving in the right direction but may be easier to undertake than the core EMS business, the brokerage said.

Components: progress is contingent on technology tie-ups, approvals, and cost controls.

Display fabrication: this is a deeply cyclical business and requires significant investment and research and development (R&D) spending.

Morgan Stanley pointed out about rising indications that Dixon's clients are considering collaborations with its rivals. In response to these risks, Dixon has signed strategic collaborations that are yet to be approved by the government.

The brokerage believes approximately 45% of volumes are likely to remain stable, while the rest may face competitive pressures between FY27 and FY30.

Additionally, the Information Technology (IT) hardware business has been subdued recently, potentially due to the government's accommodative import policies.

Another broking firm Philip Capital, in a recent note on Dixon, said its largest client Motorola has begun outsourcing domestic volumes to Karbonn. While Dixon was Motorola's sole manufacturing partner in CY24, the trend shifted in CY25. In February and March, outsourcing was minimal, but by April-May, Karbonn accounted for 25% of Motorola's monthly volumes. Philip Capital estimates this could rise to 35% by June.

The brokerage also flagged risks from Longcheer, Dixon's second-largest client, which has started outsourcing a small portion of its volumes to Karbonn as well. Longcheer's business with Dixon had grown over the past year, but in May CY25, it began outsourcing around 2% of volumes to Karbonn.

Of the 33 analysts tracking Dixon Tech, 19 of them have a 'Buy' recommendation, four of them say 'Hold', while 10 others have a 'Sell' rating on the stock.

Shares of Dixon Technologies (India) Ltd. settled 3.26% higher on Monday at ₹14,951.20. The stock is down 17% so far in 2025.Read about our editorial guidelines and ethics policy