Dixon's sales rose 47% last quarter, but its operating profit rose only 6%

Dixon Technologies is a contract manufacturer: among other things it assembles phones, laptops and telecom equipment for brands that sell them under their own names. In the September 2026 quarter its sales rose 47% on a year earlier, while its operating profit rose 6%. Put in rupees, ₹6,939 crore of extra sales brought ₹36 crore of extra operating profit, about half a paisa for each additional rupee of revenue, calculated from the filed results.

Most of the gap traces to memory chips. Their prices have climbed, and in phones, laptops and telecom equipment Dixon hands the higher cost straight on to its brand customers without adding a markup of its own. Revenue rises with the chip bill; what Dixon earns for assembling each unit does not. Saurabh Gupta, the group chief financial officer, said phone volumes were slightly below a year earlier and put the rise in selling prices at "almost closer to 35%, 40%". Refrigerators and washing machines work differently: there, the company said, higher costs reach customers only after a delay, so those businesses absorb part of the increase for a while.

The result is a thin margin. Operating margin, operating profit as a share of sales, was 2.7% last quarter, down by more than a point on a year earlier, the lowest in 18 quarters of filed results. Part of that fall is arithmetic rather than lost earnings: a cost passed on unchanged makes sales bigger without making profit smaller, so the percentage shrinks on its own. The rest is real: the company said margins were also hit by the end of the first mobile production-linked incentive scheme, which it had warned in May would put this year's margins under some pressure. That is why rupees of operating profit are the fairer measure here. Net profit is a poorer guide still, because the year-earlier quarter's other income included mark-to-market gains on Dixon's stake in Aditya Infotech.

Those numbers have overtaken the yardsticks management set in May. It guided then to revenue of about ₹56,000 crore for the year, excluding the planned Vivo joint venture; after six months, sales are already two-thirds of that, calculated from the filed results. The guidance that still measures something is the one on profit: management said absolute profitability would rise this year. Over the six months operating profit was only slightly above the same period a year earlier. Mix works against the percentage too. IT hardware such as laptops, where revenue last quarter was several times its level a year earlier, earns a margin Saurabh Gupta put at about 2%, below the group's.

Two projects that management has counted on for growth have moved. In July the company expected the Vivo joint venture to start showing in revenue from the third quarter of this financial year; it now expects consolidation to begin in the fourth, with the large volumes in the year after. The display plant being built with HKC was due to start mass production around the turn of the third and fourth quarters; its notebook and automotive lines are now due to start commercial production by the fourth quarter, but the mobile-display line has slipped, with commercial production expected early next financial year.

Phone volumes tell a longer story. In October last year management talked of 55-60 million phones for this year; by May it had cut that to roughly last year's 32 million, excluding Vivo. Since then the outlook has edged up, to around 34 million, and last quarter's output, by the company's count, came in above the range it gave in July.

The price rise also sits on the balance sheet. Total assets grew 52% in the six months to September, as receivables, inventory and payables swelled together. Most of that offsets itself, since other liabilities rose almost as much as other assets: other assets less other liabilities was ₹570 crore at the end of September, against minus ₹78 crore in March, calculated from the filed balance sheet. Saurabh Gupta said that of the money tied up in working capital during the half, "almost 80%, 85% of that will get released before March", with part of the money due as government production-linked incentive payments.