Ladies and gentlemen, good day, and welcome to the Dixon Technologies Q3 FY 2024 earnings conference call, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, ma'am.
Yeah. Good evening, everyone, and welcome to the Q3 FY 2024 earnings call of Dixon Technologies. We have the management today being represented by Mr. Atul Lall, Managing Director and Vice Chairman, and Mr. Saurabh Gupta, Chief Financial Officer. At this point, I'll hand over the call to Mr. Lall for his initial remarks, post which we'll open up the floor for Q&A. Thank you, and over to you, sir.
Thank you so much, Bhoomika. Good evening, ladies and gentlemen, this is Atul Lall, and we also have on the call today our CFO, Saurabh Gupta.
Good evening, everybody.
Thank you very much for joining these earnings calls for the quarter ended December 2023. Coming to our overall performance for third quarter, consolidated revenues for the quarter ended December 31, 2023, was INR 4,821 crores against INR 2,408 crores in the same period last year. That's a growth of 100%. Consolidated EBITDA for the quarter was INR 187 crores, against INR 114 crores in the same period last year. That's a growth of 64%. Consolidated PAT for the quarter was INR 97 crores, against INR 52 crores in the same period last year, and that's a growth of 87%.
With a strong capital allocation discipline and effective working capital management, we were able to expand the return on capital employed and return on equity to 35.6% and 25.6%, respectively, as on 31st December 2023. We feel very confident that the same would keep improving in the upcoming quarters and years on account of improved earnings, working capital efficiency, higher asset turns in both Mobile and IT Hardware segments. We continue to invest in our capacities and diversify into new product categories to support long-term growth opportunities with huge focus on quality, manufacturing excellence, and consistently meeting the needs of our principal customers and to strengthen our position as a key player in the industry.
Strong balance sheet, high liquidity, and adequate credit lines from banks enables us to direct growth capital swiftly and enables us to invest in the long-term development of our business for long-term value creation. Our foremost objective continues to be a part of India's long-term growth story and to ride the country's robust consumption narrative and Make in India initiative to achieve industry-leading growth. Now, I'll share with you the performance and the strategy in each of the segments going forward. Starting with Mobile and EMS division. Revenues for the quarter were INR 3,214 crore, which is a growth of 251% year-on-year, and 14% quarter-on-quarter. Operating profit was INR 104 crore, a growth of 215% year-on-year, and 13% quarter-on-quarter, with an operating profit margin of 3.2%.
In the first nine months of this fiscal, we have already touched a significant milestone of manufacturing 11 million smartphones and 26 million feature phones. We have created an annual capacity of 13 million smartphones and 15 million feature phones across four plants in Noida. We are making more investments in this business in order to meet the increased order book in Motorola business, including a significant part which is going to be exported, and to meet the demand for some new large brands in pipeline. Production should commence in the next couple months for one of the largest global brands which we've acquired, and for another customer, which is again, one of the largest global brands, it should commence within the next four to six months.
Agreements with both the customers are in the final stages of closure, and we expect very decent volumes from these two new customers. Our ramp-up in Xiaomi smart business in the range of around 3 lakhs-4 lakhs a month, and then ramping up significantly, has already started in our new facility in Noida. We expect the volumes to further build up starting April 2024. So these are very, very large order wins, and we would be undoubtedly the largest phone manufacturer in the country. Consumer Electronics. Revenues for the quarter was INR 929 crores. That is a value growth of almost 8%, with an operating profit of INR 32 crores and 3.4% of operating margin.
We have rolled out India's first ODM-based Google TV solutions from Google in the quarter under review, and we are getting an encouraging response with some of the brands already taking our solution. We've also entered into partnership with Samsung for their Tizen operating system, which will be supplied for us to offer to other domestic brands and is expected to be rolled out by Q4. That is the current quarter of this fiscal. We've started manufacturing Interactive Flat Panel Display this quarter, and we have a good order book on this. We expect the margin of this business to be much superior to LED TV. As a part of our backward integration exercises, we've already started injection molding for televisions and also started manufacturing the LED bar for televisions. Home Appliances.
The revenue for the quarter was INR 288 crores, which is again a significant growth over the quarter last year, with an operating profit of INR 30 crores and operating margin of 10.4%. Our new state-of-the-art facility at Dehradun is now ready, and the mass production will be starting in a week's time. In line with our backward integration strategy, we have set up our own tool room, and most of the majority of our tools are being manufactured in-house now. Manufacturing for both Bosch and Reliance in semi-automatic category and Panasonic, Lloyd, and Reliance in fully automatic category will start in Q4 of financial year 2024. Lighting. Revenue for the quarter was INR 187 crores, with an operating profit margin of 7%.
Apart from subdued consumer demand and increased competitive intensity, reason for lower revenues year-on-year is mainly due to price erosion for the new DOB solutions, which is 35%-40% lower as against the same period last year. We are on track to launch professional products by Q4 of the current financial year. New product introductions, specifically on ceiling lights, are also planned in the current quarter of the current fiscal. We're getting into backward integrations of mechanicals to achieve better cost optimization. We are targeting to start the production of these mechanicals in Q1 of the next financial year. We've got some repeat orders for exports from our customers in Middle East, and we are also pursuing in other developed markets in the coming quarters. Next is the Telecom and Networking products.
Revenues in this segment for the quarter under review was INR 182 crores. Our new facility in Noida, which got operational in December 2022, is now stabilized and now ramping up for various telecom products successfully. Mass production is now going on for telecom GPON ONT , that's WiFi 5 and WiFi 6 routers and Android set-top boxes. This is mainly for Airtel and the other largest mobile service operator. This is in partnership with very large global ODM. We have also won very, very large orders from Airtel for 5G fixed wireless devices. That is currently in the NPI and trial stage, and this is one of the largest global players, global ODM solution provider in the FWA category. We've also got large order from the Indian largest telco on set-top boxes and 5G CPE devices.
These products are also going to be started in the Q4 of the current fiscal. The order book in this business is very good. Next is Laptops and Tablets. Dixon, through its 100% subsidiary, Padget, is now a beneficiary under IT Hardware PLI 2.0, under the hybrid category, wherein we have committed an investment of INR 250 crore during the tenure of the scheme. We've already finalized business with Lenovo for manufacture of notebooks and tablets. NPI phase for tablets is completed, and mass production will start in the current quarter. Notebooks, we are expecting to start by August, September of next fiscal. Asus business plans are also in discussion, which are going to increase significantly. Wearables and Hearables. Revenues for this segment were INR 101 crore, with healthy operating margins.
The festival sales in this particular category in Q3 were subdued, resulting in lower profits revenues. In this category also, we have deepened our level of manufacturing by setting up SMT for PCBA, which is going to be done in-house from the current quarter. Security surveillance systems. Dixon's 50% share of revenues for the quarter was INR 200 crore, which is very significant growth, growth over last year. New facility in Kopparthi is now getting stabilized, resulting in normalization of operating margin to 2.6%. We have further expanded our SMT capability by adding two more SMT lines. We're going to add more product categories like 4G camera and routers in this particular business. We are also looking at the possibility of setting up an injection molding shop. Rexxam Dixon Electronics.
It's a 40-60 joint venture with a Japanese company, Rexxam, to manufacture inverter controller boards for air conditioners for Daikin. This JV achieved a revenue of INR 82 crores in Q3 with very heavy operating margins. We have a strong order book in this vertical. We've also achieved the CapEx thresholds for two years and revenue thresholds for current fiscal under PLI. Refrigerators, we have created a capacity of 1.2 million direct cool refrigerators, which is almost 10% of India's requirement in the categories of 190 liters, 235 liters, with multiple features and different star ratings. Production in this particular factory has already commenced, the trials are on. We're expecting some BIS approvals, and the commercial production will start in next week to 10 days.
We have already signed up agreements with some large Indian brands, and the trial runs for them are on. We will further be introducing large door models and start developing two- door frost-free models in this category. In addition to this, the company is also seriously pursuing PCB assembly and box build in the high- value addition industrial electronic sector. In this, the response has been good. We hope to conclude some good orders in a couple of quarters in this business. So I would like to stop now, and me and Saurabh are there to respond to your questions. Thank you so much.
Thank you very much. We will now begin the question- and -answer session. Anyone who wishes to ask questions may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from the line of Ankur Sharma from HDFC Life. Please go ahead.
Thanks for your time as always. You know, I had a couple of questions. One, to start off, was on the lighting side, and, you know, clearly lighting has been struggling for a while, and that's, that's pretty much an industry-wide phenomenon given the erosion in prices. But being one of the largest players, you know, how do you really see this going forward? By when do you think prices bottom out? Because I understand volume will be there, but that's completely been taken away by the price erosion. So, so, is it like another quarter away, couple of quarters? How would you see this?
Ankur, lately I'm seeing that the price drop, which was happening because of migration to the new technology of DOB has kind of bottomed out and stabilized. So I don't see this kind of erosion taking place in the coming quarters. However, the demand continues to be subdued on the consumer side. What our data points are showing, that on the professional side and industrial side, the demand continues to be fairly robust.
Also, the consumer end solutions, that is the products like LED bulb, which was a major contributor to our revenues, is subdued and kind of declining. The consumer demand is shifting more towards ceiling lights and downlighters. That's what we are trying to do internally. We had set up an R&D almost a year back by taking in senior professionals from the industry.
So our professional solutions or street light industrial lights are being rolled out, and we start generating the revenues from the next quarter. And also, we have invested a lot for coming up with extremely good solutions for ceiling lights and downlighters. So that's also going to be rolled out shortly. And our new product category, which I had mentioned in my earlier earnings call, was on the strips and ropes. That has already been rolled out. So those are the steps one has taken from Dixon side.
How soon it's going to recover? To be very candid, one has to wait and watch. But, as far as the unit value decline is concerned, I think it's bottomed out, and these are the steps taken by us to get the business back on track.
Right. And on export, how big would that be right now? I understand that is fairly small, right? But can this kind of offset some of this weakness on the B2C demand? Would that happens in next one or two quarters, or is still some time away?
So, we are definitely seeing this phenomenon called OOC, Out of China, and we are working on this opportunity. We feel that we are almost close to certain significant breakthroughs in the developed markets, but let's wait and watch. But, what kind of revenues it's going to offer, I'm not in a position to answer that question. First is, to get those breakthroughs, and we feel that we are almost close to it. Second is to establish our credentials and deliver as per the large customers' demands, and then the volume will come up. I'm very sure it'll come back on track. but take some time.
Okay. Fair. So second, on the cell phone side, and I think you spoke about some two new large customer additions, if I heard you right, where you're working upon. Anything more you can talk about? Are these brands in India? Are these mostly brands outside India? Would you be making it for the Indian market? I don't know, whatever maybe you can share at this point.
So this is mainly for the Indian market. The first brand that we mentioned in our opening remarks, wherein we are targeting the trials within February, March, and the commercial production to start in April. It's within the top three to four brands in India. The other brand is a very, very large global brand, and that requires certain specialized lines. We are close to signing some documents, but that's going to take four to five months to start commercial production.
Right. Okay. And just if you could remind us, you know, ramp up on Xiaomi, you know, Itel, Jio, how is that going? Any numbers you can share, where you land up, say, this year and next year on some of the larger. Even Motorola I hear has increased, exports out of India. So some of these larger clients, how, how is the ramp up happening? I know the Xiaomi plants also started. If you could help us there as well.
So, the ramp up in Motorola volumes is very significant, and almost, 20%-30% of what we're gonna manufacture is going to be for exports to U.S. market. For Xiaomi, the production has already started, and we are adding lines. We have won the RFQs for certain new models. So that ramp up is going to be significant. Month-on-month, the ramp up is happening. Jio, we are consistently producing for them, the Bharat Jio phone.
But that's more on the feature phone side.
Yeah.
Itel, also, we're producing the feature phones. We feel that in a month's time, a significant production of the smartphones for them is going to start. And then we are talking about adding two new brands. One brand that I mentioned is gonna happen hopefully by April, and the next brand should happen by August.
Got that. Just, just one last one on the, yeah.
I'm really sorry to interrupt, but-
Sure, no, no problem.
Rejoin the queue.
Thanks.
Several participants waiting. Thank you. Before we take the next question, we request participants to please limit your questions to two per participant. Should you have a follow-up question, we request you to rejoin the queue. We take the next question from the line of Aditya Bhartia from Investec. Please go ahead.
Hi, good evening, sir. So my first question is...
Hi.
Yeah, hi, sir. My first question is on the mobile phone side. We have obviously started a few new facilities like that of Xiaomi, and we are also constructing a fairly large, if I remember, almost 1 million sq ft kind of a facility. So how are we thinking about structuring this business? Would some part of the existing business be moving to a larger facility and we let go of some of the leased facilities? Or are we anticipating new business to be large enough to be filling in such a large capacity?
So at present, apart from our Samsung footprint, we have three footprints. We have three factories in Noida. And within these three factories in Noida, we are creating a capacity of almost 30 million units. Smartphones only, I'm talking about. And parallelly, we are building this 860,000 sq ft factory in Sector 151 in Noida, which is gonna take 2-2.5 years. And also, please appreciate that we are an active participant in IT PLI 2.0, and that is production of notebooks and also tablets. So that business is also going to ramp up. At present, it's going to be done in our Sector 68 factory. And as the volumes ramp up and let's see, because if we're doing 30 million, 35 million, 40 million phones, it's a very large number.
We'll have to take a call that how much of it is gonna be shifted to the new, our own-owned, footprint, or we can secure some new business. Let's see. There is time for that. But at present, that's the way it is structured.
Understood. That's, that's helpful, sir. My second question is on performance this quarter for segments other than mobile, which appears to be a little soft. Lighting, obviously, you mentioned some of the challenges, but even on the TV side, given that we had a slightly delayed Diwali, maybe one could have expected slightly stronger volumes. So is it that the market is going through a fairly stark slowdown, or is there something more to it? And also a related question, in categories like let's say wearables or IT products, which are just in the nascent stages, we are not, this quarter has been a bit weak. So what are you seeing on that track? Thanks.
Let me just share with you the numbers. See, as far as LED TV is concerned, we have grown 8% in value over the same quarter last year, but there is some decline in the volumes. As far as semi-automatic washing machine is concerned, we have grown by 35%. As far as the smartphones and feature phones, you know, the numbers have grown, i n the case of smartphones, by almost 246%, in feature phones by 1,300%. As far as W earable is concerned, we have grown by 22%. As far as CC TV is concerned, year on year, we have grown by 89%. In DVR, we have grown by 81%. In our telecom devices, because it was a small base, I mean, it's a significant growth.
What I'm putting across here is, of course, the growth, the main growth trigger has been mobile, but all the other verticals we have grown, except for lighting, and, you know that the demand and the consumption side in India, in this particular category, has been rather subdued, but we have grown.
Sir, on the Wearable side and IT hardware side, I was actually looking more from a sequential basis versus quarter two, given that these businesses are on a ramp-up mode. Like wearables, we had seen a pretty decent growth in second quarter also because I think we started consolidating 100% of revenues. But from there, we have seen a bit of a dip. So, I just wanted to understand that.
I compare quarter-over-quarter. Please appreciate that in Q2, the buildup was for Diwali.
Okay. So there's still a bit of seasonality even in wearables and hearables?
Yeah, yeah, absolutely.
Sure, sure. Understood.
Generally, yeah, Aditya, basically, I think Diwali the sales are more than the January and maintain the channel, which takes time to liquidate. So, so that always happens in W earable category as well, apart from the TVs and washing machines. But in washing machine, we are still grown year-on-year, clearly because we have been taken-- we have been able to take high share of wallet, and we have also been able to add more customers in this category.
Just to share with you the numbers in semi-automatic washing machines, I know that the overall demand has not been that buoyant, but we have grown from 3.1 lakhs to 4.2 lakhs.
Okay, perfect. Great, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Deepak Krishnan from Kotak. Please go ahead.
Hi, sir. Thank you for the opportunity. I just wanted to check on the Jio Bharat phone and the feature phone, under that do you kind of see that volume sustaining beyond this year? Or do you kind of look at that as a one-time revenue addition for this particular year? What are your viewpoints on this?
The Jio Bharat is going to ramp down in a couple of months.
Sure, and are additional other customers, especially the Xiaomi ramp-up and the Itel ramp-up, should more than help us offset any impact in that? That's how we are-
New customers. Okay.
Sure, sir. Maybe any viewpoint on how are you looking at mobile growth for the next couple of years? Any data points that you can share in terms of obviously integrating new customer addition, but either in volume or value terms, how you kind of see this business scaling up?
So undoubtedly, it's going to be a largest contributor to our growth. See, we feel that the outsourcing opportunity in mobile, out of 150-odd million mobile smartphones sold in India, is almost 85 million-90 million. And we feel that in a couple of years, we should at least be at 35%-40% of that market. So it's going to be a very large revenue contributor.
Sure, sir. Those are my questions, and thank you for the opportunity.
Thank you.
Thank you. The next question is from the line of Renu Bai Pugalia from IIFL Securities. Please go ahead.
Yeah, hi. Good evening, sir, and thanks for the opportunity. So my first question is, how should we look at the mobile phone business from a profitability perspective? Earlier, you had mentioned that this business should be growing anywhere between 2.5%-3% margin over medium term. So this quarter, we would have seen initial start-up costs for new factories for Xiaomi ramp up in Moto, plus there are CapEx underway for other factories as well. So, if we take the next 12 months perspective, do you think margins in mobile could take a near-term knock or ramp up in new the existing brands and investments in new brands should be able to take care of the margins by naturally offsetting each other?
So when we are looking at customer mix, the model mix, and we have done and prepared the financial matrix internally. We feel, you see, the last quarter we have generated an operating margin of 3.2%. I feel we should be in a similar range. There will not be any negative impact. If possible, there might be 10-20 basis points improvement.
Sure. And in terms of the backward integration with respect to mobile phone components, how is that placed for the next 12, 15 months?
So we are looking very seriously now at the vertical integration play in mobiles. And other dialogues and deep study with some of the largest players in this, in this domain. We feel now is the time for Dixon, because we will be having a large mass of mobile and a large share in this business, to vertically integrate. This is happening at present, at conceptualization and study stage. Let's see how is the opportunity looking, but please be rest assured that we in Dixon are very deeply diving into this.
Right. So just to recap, when we first entered the Mobile segment, we had incubated a small team of R&D, which was based out of China, to work on potential ODM capabilities as well. So is that team still working on or that ODM plan or those plans to build those ODM capabilities in mobile phones over a three to five -year period, is that plan still intact or there have been changes in the business strategy given the sharp volume ramp-up that we have seen in the recent quarters?
Renu, that is on a back burner now. Because the opportunities that has come into our lap are very, very huge, and the whole bandwidth of the team is going to be consumed in executing that. And also, a lot of work has to be done on industrial engineering, robotics, NPIs, automation, increasing the productivity levels, yield levels, to the best in China. Also, the opportunity one feels is going to be on the vertical integration side... So that's the reason ODM thing has been put on a back burner, at least for time being.
Got it. And lastly, you did mention briefly about plans to explore entry in PCBA for industrial applications. Can you share some insights in terms of what applications are we exploring on the PCBA side? Would this be more domestic focused foray in EM, pure EMS, or it would be export-oriented portfolio for us?
What we are looking at, because we feel that we have adequate capability on the EMS side for industrial electronics. We're exploring the opportunities in a higher value-added business, mainly for global markets. Mainly for global markets. We have built up a small team. We've dedicated some resources. Some RFQs are with us. In fact, with some customers, advanced stages of discussions are happening. So let's see how it pans out. But definitely there will be a business revenue stream created in the EMS side, which is having a larger value addition.
Got it. Thanks much and best wishes, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential. Please go ahead.
Thank you for the opportunity. Hi, team. First question, on the mobile side, I think, since now the Xiaomi plant is on stream, earlier you have mentioned about 0.5 million kind of run rate on a monthly basis, and around 1 million for the Itel smartphone. So what kind of timeline do we expect to reach this, or have we revised upward, downward? Any update on this? That is first question.
So we are working towards it. It's very difficult to give a timeline, but we are working towards it, and we're confident these numbers would be achieved.
Right now, it could be, since... I mean, I know it's still early stage, since the plant coming on stream. So right now, what would be the level of production, any run rate that you can share or any expected run rate going forward?
INR 100,000 for Xiaomi.
Okay. Okay, understood. Secondly, on the laptop side, just more thoughts on existing opportunity from the existing customer, and any timeline that you can share for the start of the production and ramp-up timelines?
For the new contract for notebook, laptops that we have signed with some of the large global brands, we are targeting to start production in August, September.
Okay. And, for the, just one follow-up: So existing volumes are totally imported, so basically, what is the size of opportunity, and what kind of volumes can we import substitute for them? If you can share that.
We appreciate the IT products market in India is almost $10 billion, and it's largely being serviced through imports. So first, the Indian EMS companies like us have to establish their credentials, because laptop manufacturing it requires a different skill set. It requires a different level of engineering expertise. Also, there is a nudge from the government for all the global brands to start manufacturing locally. But all this has to align. First, the global brands have to be convinced about the capabilities in India. So to, it'll be slightly difficult to give a timeline, but I think a very substantial production, once we've proven our credentials, is going to shift to India over the next two to three years. Yeah.
Understood. Let me get back in with you. All the best. Thank you.
Thank you. The next question is from the line of Abhishek from DSP Mutual Fund. Please go ahead.
Yeah, hi, sir. Thanks for the opportunity. So just on the EMS part of the business, so once you probably get a clientele and then will you start incurring CapEx? So one should assume a 12-15 months kind of a lead time from the time you actually, you know, sign a contract with the customer, or how does it work? If you can help us with the timelines.
So we have taken an internal strategic call to pursue this. We have built up a small team, which has started working towards it. We have some very significant RFQs. We have some because a lot of our SMT capacity is tangible, so we can always utilize our surplus capacity for and create a footprint. How much time it's going to take? It's very difficult to say because it's a new business for us. But we are absolutely committed to it.
Okay. So, sir, only from the perspective that once you get a firm contract from a client, you can use your existing capacity itself to produce is what the understanding is. So lead time for putting up a factory, it should not be very high. Is that a right understanding?
Not at all. You see, the only SMT lines are basically the same, but when we are looking at industrial electronics, and when we are looking at value-added industrial electronics, they require a different kind of clean room capabilities.
Sure.
Which can be in six to eight months.
Okay. Got that. Got that. And, sir, just in terms of Xiaomi also, your plant is largely ready, but in terms of you know, product approvals and other things, are those in place? And how should one look at in terms of the ramp-up that you have kind of largely guided for, in terms of further approvals and, you know, product approvals? How should one look at in terms of what are the things which you see need to cross in terms of to be able to get to that ramp-up?
So there is a prescribed SOP for product approval. It takes around a couple of months for the product to get approved after the trials have taken place. So the first couple of models have already been approved, and the execution is taking place there, and other product mix pipeline is very clearly established. So I think starting March, April, month-on-month, we see there should be an increase and ramp-up will happen.
Okay. Okay, got that. And so just one last thing in terms of the competitive intensity, sorry, both in television and lighting, how are you seeing that? Is there an increase in competitive intensity, or is it just the end demand, which is kind of weak? Any thoughts on these two segments? Thanks.
So on the television side, yeah, the competitive intensity is there, but I think we are still in largely a secure position. And, we are working with some of our customers for getting a larger share of their wallet. The response is positive. So my sense is that in the next fiscal, we should see a volume growth also. And also, we have got into the new category of IFPD, which is a high-value product, and I think our order book there should be decent. But the competitive intensity definitely is there, but to share more deeply into this, I don't see that competitive intensity from domestic industry. I see largely from a global player. As far as lighting industry is concerned, the competitive intensity is very, very high, particularly on the consumer side.
On the professional side, that the product portfolio that we are launching now, the competitive intensity is significantly lower. So that's the way it stands.
Got it, sir. Thank you so much for answering my questions. Wish you all the best. Thank you.
Thank you.
Thank you. The next question is from the line of Girish from Morgan Stanley. Please go ahead.
Yeah, thank you, Sir, for the opportunity. I have three questions. So on mobile, if you can help us on volumes for FY 2025, this is what you understand. You mentioned the two customers, so the base business of Motorola and Itel, the volumes that you expect in FY 2025, and how should we think about the two customers in terms of volumes, how much they would be?
Well, it's slightly premature to give the volumes, but I think, I feel that, all the opportunities which we are pursuing, we are almost close to finalizing them. We should be somewhere around 25 million.
Okay. And, just in terms of IT hardware, do we have a customer win for both, tablets as well as laptop, or what's the kind of run rate that, on revenue and volumes we should expect for IT hardware for FY 2025?
Again, I'm not in a position to share that number because, yeah, tablets, the commercial production is going to start in a couple of months. The trials have already happened. For notebooks, it's going to start by August, September. It's a complex line. So, for me to share the numbers of these for 2024, 2025 is, is slightly difficult.
Okay. And then in terms of CapEx, what will be our total CapEx that we end this year, and next year, what are we penciling in?
The CapEx that we have incurred till now is around INR 450-
40
INR 440 crores. So I think we should close it around INR 400 odd crores.
Okay. Next year, how much should we think through on FY 2025?
Girish, we haven't budgeted the numbers for next year.
Okay.
But broadly, it should be a similar level of INR 400 crore plus kind of a number, but, we haven't budgeted, so the next couple of months, you will have a better idea on the budgets for next year.
Because these opportunities are still in the pipeline, but one feels that the number that Saurabh is mentioning, it should be in a similar range.
Okay. Thank you.
Thank you. The next question is from the line of Pulkit from Goldman Sachs. Please go ahead.
Sir, thank you for taking my question. So this announcement that came in the morning of reduction in import duty, do you think this is going to delay the indigenization of components for us, which in a way works for us that more assemblies could happen in India, but the whole backward integration plans basically get further postponed. How are you thinking about it from a medium-term perspective for the company?
You see, the area or the domain that we are evaluating for mobile backward integration is primarily in modules and displays. So I still have to study the notification, but my sense is that on display, there were two sets of tariffs. One was 10%, another one was 15%, and now it is 10%. That's what I understand, but one has to study the notification deeply. So, my strong conviction is that there is a strong case for setting up an indigenous, indigenous infrastructure for display at 10% arbitrage also.
Okay, when you have a large scale, when you have a 10% arbitrage at the scale level we are talking about, the capacity that we are putting in would, would lead to a lot of arbitrage.
Understood, sir. Yeah, I understand it's a little premature right now. One follow-up question on the CapEx number. These numbers that you are sharing for next year also, approximately, which you gave, I'm assuming doesn't include any estimation or any backward integration CapEx, because those would be numbers running into INR a few thousand crores. Is that right?
If that happens, it's of a different order.
Sure. Sure. Okay, that's it, from my side, sir. Thank you.
Thank you. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Yeah. Hi, good evening, sir, and thank you for the opportunity. My first question is on the IT hardware spoke. I believe you clarified that this PLI can be passed on from the main beneficiary to an EMS player, along with a CapEx sharing model. Now, have we received any such job work for, you know, other brands apart from Lenovo and Asus ?
So, Natasha, our approval under IT Hardware PLI 2.0 is under domestic hybrid category, wherein we have committed a CapEx of INR 250 crore, and we are committed to make that CapEx. Two large global brands we have already acquired as our customers. We are in discussions with some other very large global brands. So let's see it, how it pans out, but that's the status as of now.
I'm assuming that these large brands that you're talking about have been an awardee in the PLI, right? They are going to pass on that business to you.
Please.
Sir, Natasha, your understanding is right. So awardees can be a branded company, but they can, the way the whole PLI is structured is that they can work with any EMS company, and EMS company can get an award, contract from them, and they get the conversion charges. So PLI can be with the brand owners who are more the beneficiaries, but for an EMS, player like us, they can be a play on the conversion charges and the volumes and the revenues.
Understood. Thank you so much, Saurabh. That's all from my end.
Thank you.
Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead. Indrajit Agarwal, you may go ahead with the question.
Hi, can you hear me now?
Yes, please go ahead.
Okay, I have a question on the Lighting segment. So you mentioned the competitive intensity remains high. Is it from other contract manufacturers or insourcing, where the brand is also putting a dent on the overall manufacturing ecosystem? And second, on those lines, the decline that we are seeing, is it also because of market share loss or we are largely in line with industry?
So, the competitive intensity that I referred to was largely from the other contract manufacturers. And, I also feel that there would be some loss of market share for us in the consumer side to the other contract manufacturers.
So do you think the worst is over on this? Or going ahead, there could be some more, you know, loss of market share in the next few quarters?
Well, I feel confident now when I look at the numbers and the strategy of my team, that we will be able to hold our ground, I feel so. And in fact, in some of the SKUs, like battens, we're going to be increasing our market share significantly and also in downlighters.
All right, thank you. That's all from my side.
Thank you. The next question is from the line of Shrinidhi Karlekar from HSBC. Please go ahead.
Yeah, hi, and thanks for the opportunity. Sir, one question on Motorola export opportunity. May I ask how much is Motorola's non-India volumes currently on an annualized basis, and how much of that is currently serviced by Dixon?
100% of Motorola, whether for domestic or for global markets, is done by Dixon. The present volume is almost 22% of what we manufacture, it being exported. I feel in coming quarters, this volume is going to, well, the percentage will increase to almost 30%.
You mean 22% of Motorola's global volume that Dixon is doing, that can go up to 30?
22% of what we are producing. And as far as the total volume is concerned, this year, we should be doing almost 15% of what Motorola does globally, which I feel that in the coming year should increase to 18%-20%. That of what Motorola does globally will be done by Dixon.
Right. So just wanted to name that number actually, like how much is Motorola's volume, in terms of million units, and how much is India and how much is non-India?
So, yeah, I'm gonna have to check those numbers, but I think the Motorola global volumes are almost 40 million-45 million.
Right. And so where do we compete here? Like, which factories, and how much... Like, what are the, like, drivers which decide the allocations here?
Motorola has three footprints. One is their factory in Wuhan. Second is their factory in Manaus in Brazil, and the third factory is Dixon.
Right. So the question is more so when, what really drives a location between the factories? Is it RFQ- based and the pricing gets, like, bid out, and then you get the opportunity? So just if some color on that aspect would be really helpful.
Yeah. So it's purely on the commercials and also the capacity on deliverables, because particularly when we are looking at the global. So whatever is being sold in India, it's a no-brainer, it's going to be manufactured in Dixon. But when we are looking at global markets, the expectations on specifications on quality and delivery are also of a different order. Very huge element of flexibility is required. So keeping all those contours in front of them, they take a call. But I can see that India's share and Dixon share for the global market significantly increasing.
Right. And the last one, if I may. May I know how much is the PLI incentive that was booked during the quarter?
Yeah. So, I should, yeah. So mobile, we booked an incentive of almost 17 odd crores, INR 16.5 crores in this quarter.
This quarter. Okay. Thank you, Saurabh, and all the very best.
Thank you.
Thank you. The next question is from Bharat Shah, from ASK Investment Managers. Please go ahead.
Yeah, good evening, Atul and Saurabh.
Good evening, sir.
Good evening, Bharat.
Good evening. Over the last two years, if you see, it has been a bit of a bittersweet, bittersweet, kind of alternating situation. More bitter in the earlier part and relatively more sweet in the now more recent past. And we all learned the perils of forecasting. In investing, we learn it all the time of the perils of forecasting and how badly all of us can go wrong. But you still have a right to judge and forecast the future. So, with all that is flown under the bridge over the period of time, especially last two years or so, how am I, how strongly now we feel about the future?
Because we through, we too have gone through our own learning curve and experiences and, some of the, unanticipated, issues that may have cropped up. So with all that behind, we having learned more business, having received some, positive tailwinds, in the recent, past, how do we view the future now, both in terms of our, competitive strength, the growth, the opportunity, and of course, the margins and profitability?
So Bharat, what, like always, you've asked a very deep question. So since the time when we got listed in 2017, we have grown 10x in our revenues and also 8x in our profitability. And if you recall, the total equity that we have raised at the time of IPO was only INR 60 crore. And practically, there is no debt in the company. So from that kind of capital allocation, this kind of growth has happened. The balance sheet of your company is extremely strong, with a return on capital employed of 35%+. Without sounding pompous, this would be one of the best in our industry. We have always tried our best to identify the large opportunity pools in front of us. Sometimes to get business into the opportunity pools takes time.
I think that God has been kind, our stakeholders are our good well-wishers, that we have been able to acquire large business in the largest of opportunities in this pool that is in mobiles. Because all the other opportunities combined is half the size of the opportunity pool in mobiles. And we feel that we're going to be almost at 40%-45% of the outsourcing opportunity in mobiles. So that is big thing for us. And also, we try to hold on to our pole positions, because I think in the other verticals, we are almost 3x-4x, except lighting, of what our competition is. We try to run a very lean organization. We try to run a very tight balance sheet. We're extremely cautious on our capital allocation.
Sometimes we may not have gone absolutely right, and sometimes we have not delivered as per what the markets were expecting on account of various factors like pandemic or global slowdown, which were beyond our controls. Now, we feel that we are on a strong footing. I think we're very fortunate, and that's our biggest strength, that we have a very, very solid team, an extremely committed team. So we feel that the growth journey with a strong balance sheet will carry on. We have the capability and bandwidth to execute this. So hopefully, we are going to come up to your expectations, sir. That's what I feel, and I'm saying that from an element of confidence. But this is life, this is business. At times, the things don't work out as per what we prescribe.
But, from Dixon's perspective, let me show you one thing, that we'll always be transparent and candid. In what we foresee, that's what we share. So that's how I would like to respond to your question, Bharat sir.
No, no, there has been no doubt about the quality of growth and the transparency and candidness with which always issues have been dealt with, not just in good times, but in difficult times as well. So on that, 11 marks out of 10. There is no question about it. The quality of the growth has been sound, it has been disciplined, and it has remained focused on the longer end of the strategic agenda. But what I will... And I understand that the mobile phone is a huge opportunity, and you have good reasons to believe that you'll have lion's share of outsourcing in mobile phones, so that should give you- that should put you in a good state to grow at a meaningful pace.
But given all of that, given the fact that manufacturing ecosystem is getting more mature, having acquired scale, different experiences with the customers and others have been going through, and as I mentioned, some challenges have been going through. Do we now believe something topically, sometime will do well, something may not do well, and that is the way business could be always, as you correctly pointed out. But do we say approximately, we should be able to quadruple our business in, say, four to five years' time, which is roughly like 35%-40% kind of a growth rate, depending upon whether five years or four years, we quadruple. Is that a realistic possibility or you think that's too high?
Well, don't hold me onto it, but I definitely feel that it's a realistic possibility. I'm not giving any forecast or any numbers, but I think, internally, we're excited about this opportunity. And, we feel that that is a reality. Now, in which direction it goes, what challenges, what timeline, we'll all work hard to overcome them. But definitely, the opportunity and the growth rate that you're mentioning is in front of us.
Sure. Thank you, Atul. That's good to know. All the very best wishes. And just one last thing. I suppose with the margins held in check or slightly better, rather than any adversity on that margin front, right?
Margins, Bharat, because large growth is coming from EMS prescriptive business, wherein margins globally and in India are in the similar range, are going to be in this range only.
Right. Right. Thank you, Atul. All the very best.
Thank you, sir.
Thank you. The next question is from the line of Vinod from BOB Capital. Please go ahead.
Yeah, thanks for the opportunity. Atul, I think my question is similar to what Bharat asked just now, probably, but more direct. I think one of the key hallmarks of Dixon's business model has been the high asset turns and which has actually led to high ROCs. Now, when you're talking of vertical integration in mobile business, do you see any of these, these parameters getting impacted going forward?
So, I think it'll be a good blend. In fact, the asset turns, because the capacity utilization of prescriptive AMS business is going to increase, asset turns are going to improve. ROCEs are going to further improve. Now, vertical integration, when we are talking about, one, the balance sheet can approve, can execute it, can afford it. And second, it further helps us in enhancing the stickiness with the customer, and also it helps us in sustaining and expanding our margin. So please be rest assured, the capital allocation, the way it's going to be done, is going to be very prudent. We are not going absolutely outlandish on that, and it will be a correct mix.
Okay, okay. Thanks a lot, Atul. Thanks.
Thank you. We'll take that as the last question. I would now like to hand the conference back to Ms. Bhoomika Nair for closing comments.
Yes, thank you everyone for attending the call and particularly the management for giving us the opportunity to host the call. Wishing you all the very best. Sir, any closing remarks from your end?
Thank you, Bhoomika. Thanks for the call, and thanks for all the participants. Really grateful to you for sparing your time and giving your very, very valuable inputs. Thank you so much.
Thank you so much. Thank you very much.
Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect the lines.