Ladies and gentlemen, welcome to the Q4 and FY22 results conference call of Dixon Technologies hosted by Emkay Global Financial Services. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Should you need assistance during the conference, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now hand the conference over to Mr. Naval Seth, Emkay Global Financial Services. Thank you and over to you, sir.
Thank you, Peter. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Atul Lall, Vice Chairman and Managing Director, and Mr. Saurabh Gupta, Chief Financial Officer. I shall now hand over the call to management for their opening remarks. Over to you, Saurab.
Yeah, good evening, everybody. Good evening, ladies and gentlemen. This is Saurabh Gupta. Of course, we also have on the call our MD, Mr. Lall. He's slightly unwell today, so I'll be sharing the opening remarks. Thank you very much for joining the earnings call for the quarter ended March 2022. We are very pleased to report a strong performance in the fourth quarter with a 60 basis points improvement in operating margin sequentially. As we have been guiding on the earnings call, our margins, operating profit margins improved from 3.4% in Q3 to 4% in Q4.
This has been on account of operating leverage and continuous improvement in the cost structure across all businesses and continued implementation of the strategic price increases across ODM business of washing machine and lighting, which of course mitigate the cost pressures of the inflated raw material prices. The further price increases are being implemented as we speak, wherever gaps still exist. We are instituting cost optimization and efficiency measures across all our operations to support and to restore the margins. Our cost optimization initiatives and proven working capital management will help us to sustain growth, profitability, and even make the balance sheet even stronger. Overall, we are very happy that we could end this year on a good, strong note, with healthy growth across all the verticals despite many headwinds.
Headwinds relating to raw material, inflationary pressures, geopolitical concerns, and consumer consumption setbacks caused by the COVID disruptions. Now coming to the overall performance for quarter four, our consolidated revenues for the quarter ended March 31 was INR 2,953 odd crores as against INR 2,110 odd crores, which is a growth of 40 odd%. Our EBITDA for the quarter was INR 120 odd crores as against INR 81 crores in the same period last year, which is a growth of 49 odd%. Our PAT for the quarter was INR 63 crores as against INR 44 crores in the corresponding period previous year, which is a growth of, again, 43 odd%. Now, I would like to share the performance and strategy in each of the verticals going forward. Let me start with consumer electronics.
In this vertical, the revenues for the quarter was almost 1,000 crore with an operating profit of INR 28 crore. There is a sequential quarter-over-quarter improvement of 60 basis points in operating margins to 2.8% as against 2.2% in Q3. In the current quarter, the revenues within this 1,000 crore, the revenues of AC, TV and reverse cyclic business was INR 76 crore and INR 1.6 crore respectively. Now we have expanded our annual capacity to 6 million sets out of the total market in India of around 15 million, and we are fully backwardly integrated in LCM and SMT lines. We have the largest capacity in India catering to almost 35% of India's requirement.
We now have a total area in the Tirupati campus of almost 450,000 sq ft, which is fully backwardly integrated. We are now further investing in additional SMT lines, one complete assembly line of TV and injection molding line in the campus in line with our backward integration strategy. As mentioned in the call last time, we got a huge order for LED TV under our own design solutions from one of the largest brands globally. I'm glad to share that the business has commenced in this month of May, and we expect significant volumes from that brand in the current financial year.
We expect that LED volumes this year should grow by another 40%, mainly on account of this big order win and from the 3 million sets that we have planned in FY 2022-23. We should see further improvement in margins or the margins should be almost similar to what we have reported. This is on account of the operating leverage as well as more backward integration that we are planning. As far as monitors is concerned, we got orders from two of the largest global brands for manufacturing LED monitors, and the production for one of the brands has already commenced in the month of April. The expected volumes this year should be in the range of around 0.5 million, and we expect that the order book should significantly increase in the coming years.
The margin profile in monitors should be almost similar to what you are seeing on the LED TV side. Now the next vertical, lighting. The revenues for the quarter was INR 305 odd crores with an operating profit of INR 22 crores. There has been a Q-on-Q improvement in margins from 6.5% in Q3 to 7.1%, which has been on account of passing on the input cost increase to the customers and the various cost efficiency measures which have been taken. We are hopeful to bring in operating profit levels, nominal levels by Q2 of the current fiscal year. It'll take us another quarter or so, and then the margins should be slightly better than what have been reported.
We are India's largest OEM player in lighting and has the largest capacity in various SKUs. In LED bulbs, we have a capacity of 300 million, which is 50% of India's requirement. We've already expanded the capacity in battens to 5 million against a total market of 9 million a month. Downlighters we have a capacity of 1.5 million against the total Indian requirement of 3 million a month. We are closely working with now some global customers and hopeful that we should get the necessary factory and product approvals in coming months, and exports should happen in this financial year. We are still investing under the
We are also a beneficiary of the LED lighting components, and we have made a subsidiary to do that business with the Dixon Display Solutions Private Limited in line with the backward integration strategy. We will be making our investments in the first year of around INR 20 crores this year. Overall investment over five-year period is to the tune of INR 100 odd crores. The next vertical is home appliances. This vertical saw a growth of 50% year-on-year from INR 147 crores in Q4 FY 2021 to INR 234 crores in Q4 FY 2022. Out of this, revenues of fully automatic washing machine which we started only in December. Between December and March, the revenues were around INR 33 crores.
That business is also getting ramped up and stabilized, and volumes are increasing month-on-month. The operating profit increased by 81% year-on-year from INR 10 crore in Q4 FY 2021 to almost INR 19 crore in Q4 FY 2022. The operating margins have also increased, improved, expanded to both at the Y on Y level and Q on Q level at 7.9%. Again, the same thing process because of the passing on of the impact of commodity costs to the consumers, to our principal customers on account of the improved operating metrics and also on account of the cost optimization measures. Presently we have 160-odd models in semi-automatic category, the largest, with the largest portfolio in India from six-14 kg category. We will have the largest.
Now we are further expanding the capacity and taking the capacity in washing machine to 2.4 million. Our additional infrastructure built in Noida will be ready in next couple of months to meet the increased demand ahead of the festive season. We have added more customers in this category, and order book in this vertical looks very healthy, and we are expecting a 30% growth. Again, growth in volumes in this category. As against 1.1 million that we have closed, we are expecting the volumes to be 1.6 million in semi-automatic category this year. In fully automatic category, we have a capacity of 0.6 million. Again, with 96-odd variants from 6.5 kg to 11 kg, and Bosch is an anchor customer there.
Recently we've added customers like Lloyd and Thomson, and also got into agreements with some big customers, whose production is likely to commence by Q2 this fiscal. We are now increasingly focusing and investing on making this segment more R&D driven to serve the industry with the latest and innovative technologies. The next division, mobile phones or the EMS region. In this vertical, the revenues were around INR 1,294 crores with an operating profit of INR 46 crores and an operating profit margin of 3.5%. Here of course, in the mobile business our anchor customer is Motorola, and that business is now completely ramped up and stabilized, with the monthly volumes touching almost 400,000.
We have a strong order book of around 1.5 million in Q2 this fiscal, and that will be both for domestic and export markets. We've also started manufacturing Nokia feature phones in addition to the smartphone that we are already manufacturing. The expected monthly volumes once stabilized will be almost half a million per month. In addition, we have got another customer on board called itel in the feature phone category, with annual volumes expected to be around 1 million. That production is likely to commence by next month, June 2022. Meeting the demand for this new order book or new customers, we have also taken a new 2 lakh sq ft facility in Noida.
Apart from this, in addition to the 2G phones that we are doing for Samsung, our order book with Samsung on the 4G and the 5G phones is increasing. They have already increased from 1 million a month to 1.5 million a month, and we expect it to grow to around 1.7 million a month in coming months. We are making more investments in this category for Samsung 4G and 5G smartphones. I would be happy to share that we are the first domestic company to achieve the ceiling revenues for FY 2021-22, which is the first year under the PLI, both on the CapEx and the revenue, CapEx and the investment thresholds.
Numbers have been audited and appraised by the project management agency, which is IFCI in this case. They've already submitted the report to the Ministry of Electronics and Information Technology. We expect to get that incentive claim to come into the system in the coming months. As far as the set-top box business is concerned, we manufactured 6.6 lakh set-top boxes for Jio, which is through their company, Jio Hathway. And Dish TV, Siti Cable, Sun TV in Q4. The total revenues was almost INR 77 crores with a 2.3% operating margin. Order book in this vertical also looks stable. Now the next vertical is security segments, so we at Dixon has a JV with Aditya Infotech and Protect.
Dixon's 50% share of the revenues for this quarter was around 110 odd crores, with an operating profit of INR 3.8 crores and a 3.4% operating profit margin. The order book in this segment also looks really healthy, and we are going for further capacity expansion from 10 million per annum to 14 million per annum by Q2 this fiscal. For this, we are relocating from our existing setup in Tirupati to Kuppam Electronic Manufacturing Cluster, where we have taken 2 lakhs sq ft of factory facility. This is all about the existing verticals, and I'd also like to update you about the opportunities that the company is pursuing under the new verticals that we have recently started. I'll start with refrigerators.
Refrigerators, now, we will be creating a capacity of almost 1.2 million direct cool category, which will be ultimately expanded to frost-free category as well. The Indian market for direct cool size is around 10 million, so we probably will be around 10-10% of the Indian market. The balance 4 million is the frost-free and the other categories. Our product portfolio will be from 190-235 liters with multiple features and different star rating. The product designs have already been made. The technology partner has been finalized. We already have a land bank with us, completed land bank in Greater Noida. The construction is expected to commence soon. The orders for the machinery will be placed in the coming weeks.
We have started engaging with potential customers, and we expect that the mass production is likely to commence somewhere around Q2 of FY 2024. Now on the IT hardware products, we started manufacturing for Acer in December 2021. The volumes, they started small, but they are expected to increase. We are also in advanced discussions to close an agreement for manufacturing of tablets with one of the largest banks. We expect that the production for them should commence by Q2 of this fiscal. As you know, we are again a beneficiary for the PLI, under the PLI for IT hardware products. In Q4, we have received both our revenues, the threshold revenues, and we have already also done our investments in Q4.
We've also qualified for an incentive claim in Q4 in FY 2021-22. On the telecom and networking products, we started manufacturing ONTs for Airtel, and the production has already started. This is again, we have very strong order book from Airtel in this category. As you know, this is a 51-49 JV which has been made with Airtel, and we are a beneficiary under the PLI scheme of the telecom and networking products. Another venture, which is the inverter controller boards for air conditioners. A JV has been formed with Rexxam to manufacture inverter controller boards for air conditioners. As you know, Rexxam is a design and technology partner for Daikin, and they bring a lot of strength in PCB designing.
Clearly, Rexxam wants to make India as a manufacturing hub for its customers for both the domestic and global markets. This JV company, which is a 60/40 JV, is a beneficiary of the PLI. Total investment that is required to be made over a period of five years is around INR 51 crore. Dixon's share of investment will be around 20 crore. We have finalized the manufacturing location in Noida and the production under the JV is expected to commence in Q2. Again, the revenue potential is quite immense in this vertical as well, and we should have some healthy EBITDA margins and strong return ratios. On wearables and hearables, as you know, on the wearables side, the Indian market is the third-largest market globally and one of the fastest-growing markets.
Our 50-50 JV has been formed with Imagine Marketing for its flagship brand, boAt, for manufacturing wearables and hearables. Currently, we are manufacturing the largest-selling SKU, which is TWS, with an estimated yearly volume order of around 7 million units. We will soon start the production of neckbands, which is another high-selling SKU for boAt, with an estimated yearly order of around 4 million units at our Noida manufacturing facility. As the partnership strengthens, we expect that more categories will come into the JV, like Bluetooth speakers and smartwatches. Smartwatches is another category which we see as a very high-growth market. All of these products will also, over a period of time, come under the JV. I would like to now just stop here and would like to answer any questions along with Mr. Lall.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Our first question is from the line of Bhoomika Nair with DAM Capital. Please go ahead.
Yeah. Good evening, sir. Thanks for the opportunity, and congratulations on a good set of numbers. Just want to understand the mobile business a little better, given that we are looking at a very sharp ramp up. If you can just talk about what are the kind of ramp up that we are looking on Motorola specifically, how we in the exit in March and how it scaling up right now? If you can also talk about Samsung, given that they're looking to you know, scale down their feature phone business as well.
Bhoomika, as I mentioned in the opening remarks, clearly our volumes with Motorola are ramping up, and we have already touched closer to a level of 4 lakh. We have an order book with Motorola for almost 1.5 million in next quarter. We expect that the volume should or their monthly volume should go to around 5 lakh for us. Clearly the ramp up has happening at a faster pace now. We are expecting that as against a INR 3,000 crore revenue that we have done in the mobile and EMS division, out of which a significant portion has come from mobile business.
Our mobile business in itself this fiscal year should translate into almost INR 7,000-7,500 crore revenue, which will be significantly led by Motorola as an anchor customer. Within Motorola, a significant portion, 60% of the proceeds from Motorola will be exported to North America markets. Clearly, that's the outlook on the mobile side as far as Motorola is concerned. Also, as I mentioned that we've also added customers like Nokia on the 2G phone side, where they have a decent market share. Also, Itel. Again, they have a decent market share as far as the 2G phone and the feature phone market is concerned. Now to your second question on the Samsung side.
Yes, clearly, yes, Samsung is planning to exit out of the feature phone business, and they should exit either by December or by March this financial year. Clearly our volumes are already coming down for feature phone business in as far as Samsung is concerned, but they were increasingly shifting more and more smartphone business to us, 4G and 5G phones to us. As far as the overall revenue and profitability is concerned, clearly we see that the SIMs, the realization on a smartphone is much, much higher than what we are making on feature phones. They are increasingly shifting volumes. They started with 5 lakhs, and now clearly we are looking at a number of almost 1.5 million, and then gradually even increasing beyond that.
We should be fine as far as the overall profitability, and revenue potential is concerned in case of Samsung business. They'll be reducing their feature phone volumes, but at the same time, they are increasing their smartphone volumes to us.
Bhoomika, the customer acquisition is always a very focused exercise in Dixon case. On the smartphone side, we are in advanced stage of discussion with one of the largest global brands operating in India. We have successfully qualified the technical audits, and we are awaiting the commercial negotiation to be launched very shortly. Please be rest assured, mobile as a vertical is going to be the largest trigger of growth for Dixon in the forthcoming fiscal and in the coming years.
Got it, sir. The other question is on the washing machine side. You know, you spoke about the scale up and addition of customers, et cetera, out there. What kind of volumes can we look at in FY 2023? The second aspect is on the margins. While, yes, there is an improvement over, you know, 4Q 2021 and also over the previous quarter. The margin profile still remains lower than the double digits that we've been seeing in the past. You know, when do we see these margins coming back to the double digit profile or, you know, closer to that 9%-10% kind of range?
Bhoomika, last year we closed in washing machine at 1.1 million as volume. We are budgeting 1.6 million in the current fiscal. In addition to that, we're budgeting 289K for fully automatic top loading. The combined figure is almost going to be 1.9 million, which is a significant increase from 1.1 million of last year. Now, margins, the teams have worked on the cost optimization. Also there has been we have been able to pass on partially to our customers the cost increases. These are challenging environments. The exercise is on. I don't think in the current fiscal we'll be back with double digits, but definitely there'll be some improvement from the existing operating margin levels back to double digits, I don't think so. What we'll get is, absolute number increases and some improvement in the operating margins.
Right. We, you know, just from the top line, we're looking at 1.6 versus a 1.1. Like the TVs, is the demand still holding on? Or, you know, is this purely driven by new client additions, et cetera?
It's a combination of both. It's getting the larger share of existing customers' wallets and also new customer acquisitions. It's a combination of both. The order book looks pretty healthy.
Got it, sir. I'll come back in the questions queue. Thank you very much and all the best.
Thank you.
Thank you. Our next question is from the line of Aditya Bhartia with Investec. Please go ahead.
Hi, good evening, sir.
Hi, Aditya.
Hi, sir.
Good evening, Aditya.
My first question is on the lighting business, wherein growth has been a bit disappointing in the last couple of quarters. Just want to understand what is that on account of, and how are we seeing traction building up in battens and downlighters.
Aditya, in last two quarters, one saw significant headwinds in this business. We had gone through significant cost optimization exercises, and there was a minor improvement. However, I feel a lot of work needs to be done. We have a good order book, but the inflationary trend, we were not able to pass on to the customers. Somewhat, we have been able to achieve that in the last quarter and also in the current quarter. A lot of consolidation exercises, improvements, taking advantage of operating leverage and the scale, all that has happened. You will see some improvement in the current quarter. I think it's gonna take a couple of quarters to come back to the original levels of 8.5% and 10%.
My question was not so much on margins, but on absolute revenue numbers, wherein lighting business growth has been a bit lackluster. Just trying to understand, has the market itself slowed down significantly, especially as far as bulbs are concerned? With all the expansion that we have done on the downlighters and batten sides, how's traction over there?
The market indeed has slowed down. I don't see a very significant volume growth in this particular vertical. Yeah, our quantities, both on downlighters and battens, the kind of order book one is seeing, will keep on improving month-on-month. You will see some improvement. LED bulb would be kind of constant, but there will be improvement in battens and downlighters in the forthcoming months.
Understood, sir. On the TV business, you've spoken about a large customer moving to giving you larger quantities on ODM business. What exactly does the ODM part of the business entail in case of TVs, given that still a lot of components, I guess, would need to be imported? And what could that really mean for margins? That's point number one. Just on the same segment, are you seeing any issues from your largest customer in the segment after some of the actions that were taken by the government against them?
Responding to the first part of the question, Aditya, and when we talk about ODM or what we call as ODM and also JDM with the largest global brand, you see more and more global brands are looking at outsourced solutions. Now, we are working on four SKUs. We are working on 55 inches ultra high definition and 43 inches ultra high definition. Wherein the PCBA, because Samsung operates on Tizen operating system, the technology is from Samsung. However, the mechanicals, the displays, the audios, it's all designed by Dixon, aligning with the Tizen software, operating software of Samsung. This product has already been launched and the commercial production has started just last week. Then there are two other solutions, which is again in 32 inches and 43 inches HD, in which the PCBA is also Dixon's offering.
That's a kind of complete offering from Dixon's stable. Barring that, these four SKUs are Dixon ODM and JDM solution to Samsung. It's a big win for us. Please appreciate that we grew from 2.7 million to almost 3 million in the last fiscal, and we are targeting almost 4.2 million in the current fiscal. This is when the market is not exactly growing. This is a big plus for us. As far as margin is concerned, I expect the margins to expand a bit. Please, if you see Dixon's trajectory, whenever you launch a new project, it takes some time to stabilize. Fine. Just like you would have seen lately in mobiles.
I feel that a quarter or so, one needs to ramp up and stabilize, and then after that you'll see some improvement in the margin on the ODM/JDM side. By the time supply chain and sourcing stabilizes. When you're looking at our other large anchor customer, yeah, it was a setback. I personally engaged with the leadership in Beijing and in Bangalore, and they have assured me that there is no dilution. I also see no change in their forecast plan. It continues to be at 1.8-1.9 million in the current fiscal. Also there has been no impact at all on our current efforts. Our payments are flowing absolutely smoothly.
That's good to hear, sir. Thanks a lot.
Thank you.
Thank you. Our next question is from the line of Renu Baid with IIFL. Please go ahead.
Yeah. Hi. Good evening, sir. My first question is, with respect to the incentive payout from mobiles, how is the process in terms of the cash reimbursements coming in from the government? Are these largely in terms of duty payouts or cash reimbursements and, by when do we actually see the payout, or the incentive payout, materializing for us?
Saurabh, would you like to take that or I just go?
Renu, as I mentioned, we have already filed an incentive claim. We are the first company to actually achieve the revenue and CapEx thresholds, investment thresholds. The way it works is there's a project management agency, which is IFC in this case. They will audit, come and see your factories. They'll audit your numbers, appraise the entire workings and then they present the report to Ministry of Electronics. In that case, as far as our case is concerned, that part has already been done and the report has already been submitted to Ministry of Electronics.
Now the next step in this case is where there is an empowered committee which constitutes the ministry, secretaries of Ministry of Electronics, Ministry of Finance, Ministry of Commerce, and it is headed by Amitabh Kant. Then they will of course evaluate your case, and based on that they will finalize. The cash, it will be reimbursed in the form of an RTGS kind of a transfer, which will come to your account. That's how it goes typically. These are the steps going forward.
Basically, the cash payout, sorry, to us will come by the second half of the current fiscal for the previous year.
My sense is, Renu, as far as August to December is concerned, that part has already been appraised. That should, depending on when this meeting of the empowered committee happens, come in the next 30-60 days. As far as January to March is concerned, that may take another three to four months. Then accordingly, there will be a lag every quarter or so.
Sure. The second is if we look at the washer portfolio, can you update how it's going now, the order book and ramp up with Bosch on fully automatic washers? How are the margins and profitability on this portfolio stacking up?
Renu, on the fully automatic top loading, we have finalized 2 platforms of washers. The first platform is up to 8 kgs, and the second platform is up to 10 kgs. What has been rolled out is platform 1, which we call as T1. At present, we are at a volume of around 12-15 kgs. This one we would have done around 12 kg. That's the order book like. The T2 platform that is up to 10 kg is under reliability testing. The toolings and all are with us. The reliability testing with Bosch is a long drawn affair. I think it's going to be rolled out in the quarter of October to December. We have also launched now another T0, which is an economy model.
That tooling, I'm expecting it to arrive by 15th of June. That's not for Bosch, but that's for various other brands which are looking for an economy solution. That's going to be easier and faster to roll out. I think it's going to be rolled out in the quarter, in the month of July, August. That is the plan. The operating margins initially, because there's a ramp-up cost, but finally it's going to be in the similar range as semiautomatic. Slightly better than that.
Got it. While you mentioned that on the ref portfolio, we would also be extending our offerings beyond direct cool to frost free as well. Does that change our CapEx outlay and investment required in terms of capabilities for the products? By when are we expecting both production eventually and commercialization of the facility for direct cool? Will frost free be simultaneously or it would happen with a lag of couple of years once DC is fully stabilized at ramp up?
Renu, your first focus is on DC only. What we have done and what we had shared earlier with the stakeholders was that we are planning a capacity of 0.6 million. Looking at the prospects, we have increased the capacity to 1.1 million. This is what the project has been rolled out. Now, except for the toolings and some modifications, are the lines ready for frost free? Yes, they would be ready for frost free. As of now, have we calibrated and defined our plan for frost free? No. The first focus is gonna be on launch of DC. The targeted date for trials is March 2023. I think as Saurabh said, by Q1 or slightly giving into Q2, we should be rolling out this product. Frost free, yeah, one has to wait.
One has not even defined the plan.
Sure. My last question pertains to the LED bulbs portfolio. While we have seen some of the leading players on the bulbs side have been losing share, how should we read it? You mentioned that bulb portfolio might be flattish, but are you seeing any red flags in terms of Philips losing a bit of share on the bulb side of the business? How is the export to the European or the U.S. market, how is that part of the portfolio scaling up?
I don't want to give details about the specific brands, but yeah, one can see that there has been a flattening of demand for the last two quarters as far as the LED bulb is concerned. When we interact, and one has closely interacted with the leadership of our principals, they feel that the demand is gonna come back by August to September. I'm seeing lately that the inventories in trade have been corrected. I feel it's gonna improve from the next quarter. That's what my sense is. As far as exports is concerned, yeah, we have got the UL approvals for U.S., and we have got the technical approvals for Europe.
In fact, just a couple of hours back, when I was checking through my mail, yeah, we almost got our first order from U.K. That's it. I think it's gonna take time, but we'll have those breakthroughs.
Got it. Thanks much, sir. All the best. Thank you.
Thank you.
Thank you. Our next question is from the line of Sonali Salgaonkar with Jefferies. Please go ahead.
Sir, thank you for the opportunity. My first question is, with so many new verticals and new customer adds ramping up, what kind of a guidance in terms of revenue and margin trajectory would you like to give at this point for the coming 1-2 years?
Would you like to take it or I take it, please?
Sir, yeah, I'll take it. Sonali, clearly, as mentioned in the remarks, clearly our high-growth vertical will be mobiles this year. According to new verticals like telecom, wearables, and of course, the existing verticals have expansion plans as well. My sense is clearly we are looking at a 55%-60% run rate of growth from the revenues that we have delivered in FY 2021/2022. This will be significantly led by our mobile business.
On the margins?
Margins, we think that what margins we have reported in Q4, broadly it should be similar. Yeah, you can expect a margin profile of somewhere between 4%-4.25% operating profit margins.
For FY 23, right?
FY 2023, right.
Right. Great. Just an extension to this question, for the mobiles, which is the highest growth vertical for you, what kind of growth are you looking at, this year? I'm asking especially because your volumes and the order books are ramping up.
If you look at our mobile revenues, we have done a revenue of almost INR 3,138 crores. If I exclude the revenues of other divisions which are smaller, set-top box, IT hardware, telecom and medical, it translates into almost, if I remove the 350, 360, so we have closed at somewhere around 2,700 odd crores. This 2,700 crores has the potential to go to almost 7-7.5 thousand crores this year. Then the balance should come. That is the potential for this year.
Got it. On the CapEx numbers, do you foresee any change in your earlier guidance?
CapEx, we expect that the CapEx of around INR 330-odd crores is what we will do in FY 2022/2023, which will be a combination of PLI-related CapEx expansion, the construction and some advances, for the refrigerator project.
Got it. My last question is regarding price hikes. You did mention in your opening remarks that as we speak, you are implementing further price hikes, especially in the ODM segment. If we can understand from April, what is the kind of price hikes that we have taken on an average in ODM?
Sonali, we have mainly two ODM verticals. In the case of the washing machine, the customers who are kind of, it was a work in progress. We have been able to get a hike of almost 1.75%-2%. In the lighting side, it's still in works. We have been able to get a hike of 1%-1.5%, but we need to do more on which we are working. We feel that in the current month and the forthcoming quarter we should be able to do it.
Got it, sir. Thank you. That's it from my side.
Thank you.
Thank you. Our next question is from the line of Omkar Gogadare with Sri Consultancy. Please go ahead.
Yeah, my question was mainly regarding the balance sheet. If you can see, there is a significant increase in the long-term borrowings. The net debt has also increased. What is the comfortable level for the management in terms of debt to equity or debt to EBITDA? You're absolutely right. Our debt levels have increased because we have done a CapEx of almost INR 400 crore this year, and that has led to the increase in net debt. Even if you look at the balance sheet, our balance sheet still continues to be stronger and is in our cushion. If you look at our net debt to equity level, it's still 0.1.
At an overall level, I think so these are both comfortable levels to be maintained, and we expect that as the profitability improves, as the cash flow improves, the debt level should see a reduction this year.
The debt to equity would remain at the same level you are saying, or it would gradually increase in the coming years?
My sense is it will not go up. It should broadly be in the similar range, plus minus something, yeah. Broadly, it should be in the similar range.
Okay. As far as the EBITDA margin is concerned, you said that you would be doing around 4%-4.25% for the upcoming fiscal, right?
Yeah. That's about the range, yeah.
Okay. If you look at the next, actually, say, Dixon's next 3-4 years, if you look at it, where would the majority of the contribution can come from? It would be. Mostly it would be from mobile phones. Apart from that, where do you see larger opportunity in terms of revenue and again translating into the margin?
Yeah. It will be all across, but, yeah, in terms of revenues, it will be significantly led by mobile business, and then it will be TV business. If you are in lighting, if you are able to get big export opportunities, then the lighting revenue should see a major growth. If you look at our washing machine portfolio this year, we have closed at INR 700 crore. Now, that semi-automatic portfolio is going up, increasing from 1.1 to 1.6 million, and then we are additionally adding, doing almost 0.3 million of fully automatic. Now washing machine revenue should also increase from 700-odd crore to almost 1,200 crore this year. That should be again a decent growth portfolio, decent growth if export happens in those categories as well.
It will be all across. Yeah. Majorly it will be led by mobile as well as TV in terms of revenue contribution.
Also, we're looking at three new verticals which have just been launched. We've already started production of TWS. TWS presently we are only at a level of 100K per month. Within next three months, we are targeting 1 million a month. Within the next five to six months, we are targeting 2 million a month. Similarly, the outlook for ONT and set-top box from Airtel is very, very huge, and that production has just started. Then the commercial launch of the DC refrigerators, that is again once it reaches peak, is gonna be almost INR 1,000-1,200 crores. All these new initiatives will also be large contributors to our growth trajectory.
Okay. Given what you have said that, next three to five years, can you say that, the management would be thinking at least roughly around 25%-30% kind of growth?
Yeah. We are very confident about it. Yeah. There can be various events globally, geopolitically, challenges, inflationary pressures, but the internal plans are directed towards that.
Okay. You would be comfortable holding on to these margins or better the margins as the time goes?
You see, appreciate the maximum growth is coming from the OEM business. This OEM business, the operating margins are in the range of around 2.5%-3.5%. It's a low margin business. The new vertical of refrigerator and the expanded volume of washing machine is the ODM business wherein the margins are gonna be higher. It's gonna be a combination of both. Margins will be in this range only, which Saurabh has just shared.
Yeah. As the operating efficiency kicks in, you won't be seeing any margin increase?
There will be some improvement which you would have seen in the current quarter itself, in the last quarter in mobile.
Mm-hmm.
The margins in the mobile business have expanded because of operating leverage.
Mm-hmm.
You would have seen the improvement partially because of the unit price coming down, but partially also because of the scale and operating leverage in TV. It'll make a difference. To completely change the scenario and have a quantum jump in the margins OEM business, that's not the nature of that business.
Overall it would be in the same range which was there in the current quarter?
Something like that.
Yeah. Broadly it will be in the same range with an upward bias because of the factors that you have mentioned. Clearly because of the operating leverage, more backward integration, own designing, and some of the new verticals also in terms of margin profile will be better. Again, a significant portion is coming from the OEM business. My sense is, yes, margin should improve, but yeah, not a significant improvement, but yeah, there should be an improvement here and there.
Okay. Thanks a lot.
Thank you. Ladies and gentlemen, if you would like to ask a question, then please press star one on your telephone keypad. Our next question is from the line of Pulkit Patni with Goldman Sachs. Please go ahead.
Sir, thank you for that, those details. Just one question. Is it fair to assume, and I don't know if you already spoke about it, that the various segments in PLI where you have achieved the threshold of investment as well as incremental sales, those PLI benefits are already included in our margins? If yes, if you could quantify what those numbers are.
As I mentioned, we are a beneficiary of five PLIs, out of which, two PLIs we have achieved our thresholds. One on the mobile side, we achieved our maximum revenue thresholds and the investment thresholds. On the laptop side, we achieved our ceiling revenues on the one side as well as the investment thresholds. On the laptop side, yes, we are again achieved those investment thresholds and the threshold revenue, the minimum revenue that you have to do to qualify for the incentive claim. Now in these numbers, yes, because of this approval which I mentioned has already been done by the agency.
There is some income which has already been put, and which is reflected in the margins, and that number is to the tune of almost around INR 8 crore-INR 9 crore.
INR 8 crore-INR 9 crore for the entire year?
For the entire year.
Understood. Thank you so much.
Thank you. Our next question is from the line of Dhruv Jain with Ambit Capital. Please go ahead.
Hello, sir. Thanks for taking my question. Sir, I had two questions. One was on the mobile phone business. You know, we've seen a significant jump in the mobile phone revenue, but you also have a lot of customers. You know, we understand that Motorola is the prime customer, but you know, if you could just give a sense of how much contribution, you know, just a broad sense of how much contribution would Motorola be giving in the mobile phone business.
I think this year, as I mentioned, it will be, if you're looking at doing the revenue of almost INR 7,000-7,500 crores. This is of course now taking into account the new customer whose audit has been done and for which there can be an additional upside. Out of this INR 7,000-7,500 crores, the other customers apart from Motorola should contribute INR 1,000-odd crores. The balance portion would come from Motorola.
All right. Sir, the other question was with respect to the, you know, the consumer electronics TV business. We've seen a sequential decline, you know. What has caused this? You know, is there some sort of a demand issue that we are seeing?
No. Actually, what has happened is that, if you remember that in the last earnings call we mentioned that in TV, one should also look at the average selling prices. What happened in the last post-COVID scenario, the prices of the open cell, which is the largest component which goes into a TV, this component prices have increased. Since it is an OEM business, this increase does get passed on. As a result, the revenues look higher and the margins optically look lower. If you look at this analysis of Q4 versus Q1, Q4 versus Q4, there is a drop of 20%, right, in terms of revenues. This has been majorly led by the drop in the average selling prices across all our portfolio.
The drop is as high as up to 20%. The drop is as high as 15 odd %. There has been a volume drop year-on-year, but very nominal. It's majorly because of the selling prices coming down. As a result, the margins are looking better. The operating profit margins looking better.
Thanks, sir.
You are very welcome.
Thank you. Ladies and gentlemen, if you would like to ask a question then please press star one on your telephone keypad. Our next question is from the line of Omkar Gogadare with Sri Consultancy. Please go ahead.
Yeah. With the kind of debt levels you are sitting on, would you be looking to raise any equity?
No, we are not. No, we feel confident that it can be easily done, safely done from the internal accruals of the company. Whatever CapEx plans we have, it can be done from internal accruals. We have no plans to raise any equity.
Okay. As far as the AC business is concerned, can you elaborate a bit more on that? As we are not the frontrunners in the AC business, so are you looking to expand that business more, or are you comfortable with the current levels?
We have absolutely no plans to get into the AC business. There's so much on the plate right now. The idea is to focus and consolidate our existing verticals and the new verticals.
Okay, thanks.
Thank you. Our next question is from the line of Naval Shah with Emkay Global Financial Services. Please go ahead.
To 4.25% for 2023. As our PLI business or OEM business will increase substantially in FY 2023 and your commentary on ODM business margin expansion will be gradual. How we will be able to achieve this +4% margin? Because we ended with 3.5% in 2022. Any thought? I mean, reconciliation seems a bit difficult to me. If you can explain on that.
Naval, 3.5% is also a function of a bad Q1, which was impacted by a third wave, where we had margins of only 2.5%. That is also a function. If you look at the last couple of quarters, in quarter three we had achieved a margin of 3.4%, and in which we guided that there will be more passing of those input cost increases to principal customers. Significant, some portion of that has already been done, which is reflected in the margins. We expect that those continued passing on of those input cost increases will happen. We are also working on lot of cost reductions, cost optimization measures internally. Overall at a company level, by expanding into all other verticals.
In some verticals, the operating leverage benefit has kicked in. In some verticals, it will kick in over a period of time. As we get into more backward integration, as we get into more designing, ultimately all this will lead to expansion of margins. We are clearly guiding that what margins you're seeing on washing machine loading should see an improvement further in the coming quarters. That should add to our margin profile. The second thing which I mentioned that the prices of open cell have come down. As against an average selling price of INR 14,000-15,000 that we saw in the entire year last year, those selling prices will now look like INR 11,000-11,500. TV business as such contributes.
Out of those INR 17,000 crore revenues that we are projecting for this year, TV revenues will be almost INR 5,500 crore. Almost a significant portion. If that business, the margins grow up by 30-40 basis points, like the way it has happened in this quarter, it will also have a positive impact on the overall company margins. Combination of all these factors, we feel, that for the new verticals that we are getting, which we have got into telecom, boAt, Rexxam JV, these are also better in terms of margin profiles. Clearly, combination of all these factors gives us this confidence that the margin should be similar or better than what we have delivered in Q4.
Understood. Thank you so much.
Thank you.
Thank you. Our next question is from the line of Omkar Gogadare with Sri Consultancy. Please go ahead.
Yeah. With 22% ROE and almost 25% ROCE, what kind of scope do you see for this expansion in all the other areas?
Yes. Historically, if you look at, we have been maintaining a 30%+ kind of an ROCE and a 24%+ kind of an ROE. We continue to, we of course will work towards it, going back to those levels. Now, what has happened in this, in the year that we have just completed, as for 2021-2022, we have done a CapEx of INR 400 crores, and this current year we're looking at a CapEx of INR 330 crores. Lot of the CapEx has been front-ended as far as last year is concerned or this year is concerned. The new verticals are of course the fully automatic, the telecom, the boAt, they will start to deliver optimal revenues and profitability in the coming quarters.
My sense is it will take at least three to four quarters to go back to those levels. Maybe slightly earlier, if it happens. Yeah, the idea is to go back internally to similar levels as 30% ROCE and 24%-25% ROE.
Oh, sorry, I missed it. How much time it would take, you said?
Anywhere between nine-12 months or maybe slightly higher. Nine to 15 months roughly.
Okay. As far as the cash conversion cycle or the days are concerned, what would be the comfortable level? Is this the comfortable level around 90 days?
It's a comfortable position, but continuously there is a focus on managing your cash conversion cycle on your working capital management, so that's a continuous focus. Wherever we think the working capital intensity had gone up because of the supply chain issues, and because of this, supply chain issue, we are working towards it to bring it down, and that's happening. Month-on-month those inventory levels will keep getting corrected. Hopefully we should be in a better position in six months down the line on this working capital cycle. This would even get better than zero days. Broadly this is a comfortable ratio as far as the overall company is concerned.
Can all the problems regarding shipments and chip shortage are all just behind us? What would you say on that?
As far as we are now, there were problems in April during the shipments because of the closure of Chinese ports. The shipments were delayed, and we had some impact in the production, which we are hoping production will get compensated during the quarter. My sense is absolutely there is no issue right now. In fact, the freight rates, the logistics costs have also come down from the peak level significantly. Clearly we are passing on more and more of those price increases to our customers. As of now, the situation is fine. I'll also request Mr. Lall if he wants to add something on this. As of now, the situation is in control.
Okay. What about the chip shortage?
We are not facing any chip issue right now. There's absolutely no issue on the chip side.
Okay. Thanks a lot.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Yeah. Thank you everybody for taking out time for the call. In case you have any follow-up questions, any queries, please feel free. I'm happy to answer those questions.
Thank you.
Thank you very much.
On behalf of Emkay Global Financial Services, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.