Good evening, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Atul B. Lall, Vice Chairman and Managing Director, and Mr. Saurabh Gupta, Chief Financial Officer. I shall now hand over the call to the management for the opening remarks. Over to you, Mr. Lall, for your opening remarks.
Thank you very much, Naval. Good evening, ladies and gentlemen. This is Atul Lal, and with me is our CFO, Saurabh Gupta.
Good evening, everybody.
Thank you very much for joining this earnings call for the quarter ended December 2021. If I analyse the performance of Q3, I would say that the demand was good. However, there was impact due to high inflation and Omicron scare. Overall, the company's preparedness to counter supply challenges helped in delivering overall revenue growth during the quarter. Also, we remain positive on the demand resilience for the upcoming quarters. Margins have been under pressure for the industry, and so is the case for our ODM business. This has been primarily due to the elevated commodity and freight cost, and it is taking some time to pass on this increase to our principals. Also, the lowering of margin is on account of change in sale mix, wherein the main growth has come in the prescriptive business of mobiles.
We're confident that we should be able to pass on the increase in cost of input to our principals. We're confident that the margin should start improving from the current quarter and should go back to the normalized level by next fiscal. Coming to our overall performance, the Q3 saw an overall resilient performance on revenue front, which was as per our targets. In fact, on nine-month basis, it grew to INR 7,800 crores from INR 4,300 crores, which is an increase of 79%. In the current quarter, it grew to INR 3,074 crores against INR 2,183 crores for the same period last year, which is a growth of 41%. Consolidated EBITDA for the quarter was INR 104 crores against INR 101 crores in the same period last year, a growth of 3%.
Consolidated PAT for the quarter was INR 46 crore against INR 62 crore in the same period last year, decline of 25%. Now I'll share with you the performance and the strategy in each of the verticals going forward. The revenues for the growth under review for consumer electronics were INR 1,410 crore against INR 1,364 crore in the same period last year, which is a growth of 3%. Operating profit witnessed a degrowth of 24% year on year. It was INR 30 crore in Q3 FY 2022 against INR 40 crore in the same period last fiscal. We have an annual capacity of 5.5 million sets, including backward integration in LCM and SMD lines, which is the largest capacity in India, catering to almost 35% of India's requirement.
We have total area of almost 500,000 sq ft in our integrated campus at Tirupati, which is fully backwardly integrated. We're making investments in injection molding units in the campus, which should be operational by Q1 end of this fiscal. A very significant progress and development is that we have a very huge order for LED TVs under company's ODM solutions from one of the largest global brands. The project has been launched, and we're targeting to start commercial production in May of the forthcoming fiscal.
As I had shared with you last time, we've also got orders for LED monitors from the largest global brand. The trials have been concluded, and the commercial production is expected to start by April next fiscal. The expected volume in year one is around 0.5 million, and we expect the order book to significantly increase from year two.
The margins in this business are expected to be in the same range as LED TV. Coming to lighting, the revenues for the quarter witnessed a growth of 23%. That is INR 430 crore in Q3 against INR 349 crore in the same period last year. We are almost back to the strong growth trajectory which we have been demonstrating. However, due to the commodity price pressure and the cost element within the freight side, the operating profit witnessed a degrowth of 16% year-on-year. That is INR 28 crore in Q3 versus INR 33 crore in the same period last year.
The margins in lighting business have contracted again because of the commodity price increase. We have undertaken raw value-adding initiatives, and we feel that the margin report will start improving from Q4 and should go back to the normalized level within the next fiscal. The availability and the cost of ICs, along with the rising freight rates, has been a challenge in this business. Our team's agility in vendor selection, pre-buying inventory management protected us from the shortage issue. We are India's largest ODM player in lighting and have the largest capacity in various SKUs. In LED bulb, we have capacity of 300 million, which is almost 50% of the Indian requirement. We have already expanded the capacity in battens to 5 million per month.
The total Indian requirement is 9 million, and in downlighters to 1.5 million per month, which is almost 50% of the Indian requirement. Our R&D team is working on decorative lighting and some more cost-effective solutions for next-generation lighting products. We are almost at the final stage of approvals, both technical and commercial, from our global customers, and the export should be starting in the forthcoming quarters. In this particular vertical, we have got approval
under the PLI scheme of Government of India for manufacturing LED lighting components to our wholly-owned subsidiary, Dixon Technologies Solutions Private Limited. This is in line with the backward integration strategy, and it will make us more competitive. We are committed to make an investment of INR 100 crores over a period of 5 years. This will help us in expanding our margins. Home appliances.
Revenue growth of 56%. That is from INR 115 crores in Q3 FY 2021 to INR 180 crores in Q3 FY 2022. Operating profit increased by 3% year-on-year from INR 11.7 crores in Q2 FY 2021 to INR 12.1 crores in Q2 FY 2022. The operating margins in this case also were lower due to the impact of commodity cost, which has been on an increasing trend, resulting only in partial transition in pricing to our principals. The margins in this segment would also see an expansion in Q4 and normalize the next fiscal. Presently, we have 160-watt models in semi-automatic category with largest portfolio ranging from six to 14 kg.
We have now the largest capacity of semi-automatic washing machine, which is almost 2.4 million annually. We have set up an additional industrial footprint in Dehradun. This will be ready in Q1 of next fiscal, which is sufficient to meet the increased demand ahead of the festive season. We have also added some more customers in this category, and order book in this vertical looks very healthy for the coming quarters. In the fully automatic category, our plant in Tirupati is now operational. The commercial production for Bosch, our anchor customer, has already started, and deliveries have started. We have capacity there of 0.6 million with almost 96 variants across six to 10 kg. We have tied up with some other customers, and commercial deliveries to them would commence by next month. Mobile phones and OEM distributions.
Revenues for the quarter under review was INR 940 crore against INR 299 crore in the same period last year. This is a strong growth of 214%. In the current quarter, the revenues for set-top box business and medical equipment was INR 70 crore and 0.5 crore respectively. Operating profit was INR 28 crore in Q3 FY 2022 against INR 14 crore in the same period last year, a growth of 102%. The Motorola mobile business is now ramped up and is stabilized in monthly volumes touching 250k. We have a strong order book for around 1.2 million in Q4 and 1.6 to 1.7 million starting Q1 next fiscal. Out of that, the major portion will be for global markets, particularly U.S.
We've also finalized Nokia's feature phone business with monthly volume of 0.5 million units in addition to smartphones that we are currently manufacturing, and production is likely to commence from Q1 next fiscal. In addition, we have added one more customer, itel, in feature phone category. To meet this demand from new customers' order book and also the new, increased requirement for Motorola, we have taken a 200,000 sq ft facility in Noida. In addition to 2G phones, our order book on Samsung smartphones have also significantly increased from 1 million to almost 1.5 million a month. We are the first domestic company, and the only domestic company, to achieve thresholds for revenues and investments prescribed under the PLI in 22 to 23, and the necessary claims for incentives are being shortly filed. Sorry. Set-top box.
In this vertical, we have manufactured 6.5 lakh set-top boxes for Jio, Dish TV, SITI Cable, Sun TV. Reported revenues were INR 70 crore, with 2.3% operating margin. Order book in this vertical is stable. Security surveillance, that is cameras and DVRs. Revenues for the quarter witnessed a strong growth of 103%. That is INR 113 crore in Q3 versus INR 55 crore in the same period last year. Operating profit witnessed a strong growth of 143%. It increased from INR 1.9 crore last year to INR 4.7 crore in Q3 of FY 2022. This order book in this segment is very robust, and we're going in for further capacity expansion from 10 million per annum to 14 million per annum by Q1 next fiscal.
For this, we are relocating our existing set-top box factory in Tirupati to Kopparthi Electronic Manufacturing Cluster, where we have taken 200,000 sq ft constructed facility. Apart from this, I would like to update about the opportunities which we are pursuing. Refrigerators, we'll be initially creating a capacity of 0.6 million direct cool refrigerator, which will be further ramped up immediately up to 1 million. Please appreciate the Indian market for DC is approximately 10 million under various categories of 190 litres to 235 litres with multiple features and different star rating. The product designs have been made, technology partner agreements have been concluded, and we've already acquired land bank of almost 20 acres in Ecotech VIII of Greater Noida. The construction is going to be launched soon.
We have started engaging with various potential customers, and for mass production, we have taken a stretch target of Q4 of the next fiscal. Laptops, tablets, and IT hardware products. We have started manufacturing laptops for Acer from December 2021, and volumes are expected to increase significantly from next fiscal. We are one of the beneficiaries of PLI for IT hardware products and are confident of achieving the threshold revenues and also the CapEx in the current fiscal. We are in discussions with some other leading brands and are confident that we'll be concluding some contracts. Telecom and networking products. Our 51 to 49 JV has been formed with Beetel in this quarter. The JV company is a beneficiary in the PLI scheme for manufacturing of telecom and networking products like GPONs, ONTs, modems, routers, set-top boxes, etc.
Presently, this manufacturing is going to start in one of the existing plants in Noida of Dixon, which is expected to start the trials in the current quarter and commercial production in the next quarter. Finally, this is gonna be transferred to the Ludhiana plant once that plant is upgraded. Inverter controller boards for air conditioners. A 40 to 60 JV has been formed with Rexxam, Japan, who have already been our partners for last fiv years. We manufacture inverter controller boards for air conditioners. Rexxam is a design and technology partner for Daikin and brings strength in the PCBA designing. Rexxam wants to make India a manufacturing hub for its customers for both domestic and export markets, so the global opportunity is a big play in this business.
The JV company is a beneficiary under PLI, and we'll be making a total investment of INR 51 crore, in which Dixon share is INR 20.4 crore over a period of five years. Revenue potential is quite immense with healthy EBITDA margins and a strong return ratio in this business. Wearables and hearables. On the wearables, Indian market is the 3rd largest market globally and one of the fastest growing market. Currently, we are manufacturing TWS and neckbands for boAt at our Noida manufacturing facility.
We have recently entered into a 50/50 JV with Imagine Marketing for its flagship brand boAt, which will be mainly undertaking design and manufacturing of wireless audio devices. Significant portion of boAt's requirement of these devices will be met through this JV. It is also an immense potential to further build on capabilities and add product categories as the partnership strengthens. We are also waiting for the PLI scheme rollout in this category. Thanks very much. I would like to stop now here. Me and Saurabh are there to address any questions. Thank you so much.
Thank you. 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. We have the first question from the line of Bharat Shah from ASK Investment Managers, please go ahead. Mr. Bharat Shah, can you hear us?
Hello?
Yes, Mr. Shah, we can hear you now.
Okay. Atul, I was saying I hope my question is not misunderstood. What I wanted to really check off you is, we have many products, many areas, therefore there is plenty of details and plenty of, you know, sub-details to be discussed. At a big picture level, what I want to get clarity from you is, given the fact that size of opportunity is large, we have a good business model for the frugal manufacturing. Government PLI schemes have been kind of a heaven-sent tailor-made for entities like you. Many areas are moving in the direction in which this business should be much more successful.
Moreover, while we have seen the top line growth, but we have seen virtually no growth in the, you know, the business profit. If you take the nine months of the current year compared to nine months of the last year, both the periods have spent some time in pandemic in some way or the other. Business has expanded by 70% to 75%. If you look at our pre-tax profit, and pre-tax profit will be more meaningful way to look at it because all the cost of expansion of the turnover, depreciation, interest, all that is part of that number. Pre-tax profit is virtually just crawling at a small single-digit number. Where do we see eventually?
Because we can keep getting bigger, we can keep expanding into territories, into product category, we can keep getting larger with new customers. But whether really our profitability and the core, strengths, in the business model, will it reflect eventually into the numbers?
Mr. Shah, what you're saying, I really appreciate it. However, what I would like to share is that this year has been very very different. It has been very different on account of the inflationary pressures on the commodity side and on the freight side. Just to give you certain numbers, a 40 container which used to cost $600, for some of the consignment one has paid even $8,000. Polymers like polypropylene have shot up from INR 95 a kg to INR 137 a kg. Copper from INR 670 to INR 860. Aluminum from INR 150 to INR 250.
Now, with these kind of inflationary pressures, and particularly when there is a COVID scare and the demand is under pressure, even for the brand owners to pass on the price increase to the customer is a challenge. In our case, when that kind of pressure is there in our ODM business, to pass on that price increase to the customer, to our principles, it takes time. Let me assure you that, partially it has been done in Q4 and will be reflected in the numbers. I'm fairly confident that to a very, very large extent, it's going to be passed on almost completely in the next quarter, in the forthcoming fiscal, which is going to significantly improve the margins and profitability.
The second is that we have embarked on a very high growth journey, and new factories have been set up in two domains. One is the mobile phones, and the second is the fully automatic top loading. Any new set up to stabilize, it takes some time, and there is a ramp-up cost to it. That has an impact on profitability. The third also is if you see the growth in revenue, it is primarily coming from prescriptive business, which is mobiles and also revenue growth over a nine-month period in televisions, in which the operating margins are relatively lower, which over a period of time are going to stabilize.
In the case of televisions, I've already shared with the house that now we've got a large project on the ODM side with one of the largest global brands which is going to improve the margins. So, you will find that the profitability coming back not to the same level of margins because the sales mix has changed, but there'll be a significant growth.
Would it be while quarter-to-quarter shorter-term challenges, some factors here, some factors there, those are matters of details and, in some sense, important details in a narrow period measurement of the performance. If you take a more longer-term point of view, ultimately, as we get bigger in this, as we get more specialized, we get economies of scale, and we are able to make those tiny improvements in the profitability because of the cost containment. Plus our ability as a reliable supplier, business model, financial footprint, all of these eventually has to translate into over meaningful period, a meaningfully superior financial performance as well.
Let's say from the current year business, whatever that will be in 2020 and 2022, in all probability in three years' time from now, that's let's say by FY 2025, I would assume that business might be 2.5 to three times as much. Will we say our profits would be at a rate higher than that or materially higher? And by profit, I don't mean operating profit only because there will still be investments, there still will be other costs that will be incurred at a pretax level. Basically, proof of the pudding will be whether our core profits will expand at a rate higher than the top line at some stage or not.
There would be a significant increase in the profit. As far as the absolute numbers are concerned, please be rest assured. As far as the margin as a percentage of revenue is concerned, because the sales mix is changing and it is more and more tweaking towards the prescriptive business, in the next two to three years, margin profile will be lower than what it used to be. We had almost touched 5%. It's going to be lower than that. On the absolute side, there'll be a significant growth. Please be rest assured on that.
No, I was not talking of margin percentage, Atul sir. I was saying if the business grows by X multiple, whether profits will grow at X plus Y or not over a three-year journey, four-year journey that we are talking of.
You're basically talking about the percentage-wise?
No. Supposing on INR 100 turnover, we make, let's say, INR 10 today is the profit before tax. Just a number I'm saying. In three to four years' time, our business becomes instead of 100, 300, 350, then legitimately, profit should be instead of 10 being 30, 35, probably should be more like 40, 45, 50. Is that something likely in evidence or that is not what business model will accommodate?
No, no. It's not going to be like that. The profitability growth will not be in the same linear way as the revenue growth. The return ratios are going to be significantly higher. When you look at the overall financial perspective, the return ratios are going to significantly increase. Because the tilt in the next three years is going to be more and more towards the prescriptive business.
Bharat ji, Saurabh this side. The two things which will significantly change, and I'm sure I'll, I don't know whether that answers your question or not. Two things which will change for the company in the next two top three years. One is the asset turn will keep increasing because more and more we go into the prescriptive business, the asset turns are higher. Second thing which we feel confident about is the ROC profile will keep getting better.
Sorry, what will keep getting better?
ROC, return on capital employed will keep getting better. Yeah.
Okay. What kind of improvement are we talking about?
Mr. Shah, sorry to interrupt you, but we would request you to come back in the queue for any follow-up questions.
Bharat ji, this is not a follow-up. The first question I'm raising, it needs to be detailed out.
Yeah, yeah, sure, Bharat ji. I'll tell you. We feel confident internally that over the next three years, the 30% ROC that we have been delivering, I think should be somewhere in the range of 40-odd%, if not more.
Right. Essentially what we are saying is that top line may grow. The mix of the business could be such that top line may grow faster. Some of those businesses will mean lower margin, but our capital efficiency and other financial parameters will show greater superiority.
That's right, sir.
You got it absolutely right.
Good. Awesome. Thank you, Atul sir.
Thank you, sir.
Thank you. We have the next question from the line of Mr. Ankur Sharma from HDFC Standard Life Insurance. Please go ahead.
Yeah. Hi, sir. Good evening. Thanks for your time. A few questions. One, you know, on the consumer electronics/TV segment. I believe the sales growth during the quarter is about 4% odd, which is a sharp slowdown, right? What we've seen over, say, the last four, five quarters.
Sure. One, if you could help us, you know, volume versus value growth, or the pricing growth, I'm sorry, in this segment. Is it that last year we saw this surge in TV sales driven by COVID that's kind of slowed down? Is that the reason why we're seeing this, you know, slowdown in turnover in our sales as well?
Yeah. So Ankur, your point is absolutely right. We saw volume reduction in this quarter as compared to same period last year. Just to share some volume numbers. In quarter three of last year, we did volumes of around 9 lakhs, and this quarter we did volumes of around 8.3 lakhs. There was almost 8% kind of a drop in volumes, which is, but there has been a pricing growth. Overall, yes, there has been a marginal growth of three odd percent.
Fair to assume even the industry would have seen a similar or maybe more kind of a volume decline.
Yeah, I think so. Even the industry post the festive season. October was good for the industry. If you look at November and December, I think so it would have been that phenomena would stand true for the entire industry. The volumes would have been lower for all the brands as well.
Ankur
Mm-hmm.
Last time, if you recall, Diwali was later.
Mm-hmm.
The festive period got extended into Q3 more.
Mm-hmm.
This time Diwali was earlier, so that also has an impact. Always in the case of televisions, post-Diwali, post-festive period, there is a decline. Okay. How are things kind of looking up? You know, obviously comments on TV, but you know what we're seeing from deals and data, what we talk to a lot of brand OEMs as well is that obviously November, December were negative volume growth. Even, you know, things haven't really picked up so much in January either. Would love to hear, you know, obviously for TVs, but also other categories, washing machines, lighting. What kind of demand are you seeing or hearing from your OEMs?
On the television side, demand I would say is normal.
Mm-hmm.
We are having a run rate in this quarter of around INR 2.3 lakhs a month.
Mm-hmm.
It should be somewhere around INR 700 to 750K.
Mm-hmm.
Which is normal. In the case of other products like washing machines, the demand for us is extremely good. We are at a run rate of around 115 to 125K a month, and that's what the order book looks like. Which would be a significant growth from last fiscal Q4. Even beyond that, the demand in the order book looks good. In the case of lighting, it's normal. We are somewhere around 160K, 1.6 crores of bulbs every month and almost 3.5 million of battens every month. It's kind of normal, not heady growth. It's kind of normal. In the case of mobiles, our anchor customer is doing exceedingly well because we are servicing not only the domestic market but also global market.
Mm-hmm.
Particularly the global markets order book is extremely good. In the case of CCTV, the order book continues to be healthy, particularly for our customer because he's dominating the market. It's a mixed kind of bag.
Mm-hmm.
Across the various verticals.
Okay, fair. Just one more question. If you could quantify the CapEx numbers, you know, 2022, 2023, 2024. Also which areas you're spending and the gross debt on the books, you know, and do you see that going up significantly over the same period? Yeah. Thanks.
Yeah. Ankur Sharma, our CapEx in the nine months we have done a CapEx of around INR 280 odd crores. In last quarter, we should add another INR 80-INR 90 crores. We should close this year somewhere around INR 370-INR 380 odd crores of CapEx. The significant portion of CapEx has gone into mobile business, where we've really expanded the capacity for our customers. Then followed by consumer electronics business, where we have again expanded the capacity to 5.5 million TVs.
Sure.
Some land parcels that we have bought for our expansion and diversification. Net debt number as on 31st December is somewhere around INR 100 odd crores. I expect a similar number, 125 crores kind of a net debt as on 31st March as well.
Mm-hmm.
The next year CapEx should be in the range of around INR 225 crores-INR 250 crores. We are looking at 2022, 2023.
Okay.
A lot of CapEx is being front-ended.
Mm.
For our expansion plan in the current year.
Got that. Okay. All right, sir. Great. Very helpful. Thank you so much.
Thank you.
Thank you. We have the next question from the line of Bhoomika from DAM Capital. Please go ahead.
Yeah. Good evening, sir. Just, you know, on TVs, you know, would it be fair to say that we're hitting the peak as what we've seen in the current quarter, given that, you know, we're already a very large player and having all the key customers, with us? Within this, you know, as the ODM customer that we've added, is it an existing customer? Would it be more of a shift from EMS to ODM, which would thereby not particularly may not drive volume, but it actually drives, margin expansion? Is that the way to look at it from a TV perspective?
Bhumika, the ODM business is for an existing brand, but it's getting the largest share of his wallet, so it's gonna increase the volumes.
What will be our wallet share with that customer today, and what can it possibly expand to?
Currently we do for this customer around 450,000 to 500,000.
Okay.
If we are able to execute the two products, one is on ultra-high definition TV and the other one is a normal lower size televisions, it could add almost INR 700,000 to 800,000 more.
Fair point, sir. The second point was in terms of mobiles. You know, clearly there has been a decent ramp-up in terms of the overall revenues. If you could just talk about the volumes that we did in the current quarter from the mobile segment and what is the expected, you know, ramp-up that you're seeing, you know, as we move ahead, you know, into the Q4 or in terms of 1Q 2023.
Yes. Bhumika, Saurabh this side. Smartphone volumes that we did in this quarter was around 9 odd lakhs. 2G phones volume was around 11 lakhs. We have an anchor customer, which of course is not part of that whole PLI scheme. There the smartphone volume was around 23 lakhs, and the 2G phones volume was around 29 lakhs. As we mentioned in the opening remarks, Bhumika, that clearly Motorola business has now ramped up and stabilized. We already started clocking a run rate of 2.5 lakh a month, which should further increase to 3 lakhs, somewhere around 3.5 lakhs, in coming months.
The order book should further increase by Q1 of next financial year.
We feel under the PLI scheme, we should be touching in bracket almost 7 million smartphones in the next fiscal. As far as the feature phone is concerned, we should be somewhere around 11 to 12 million.
Got it, sir. Just one, if I may squeeze in. In terms of the you know the fully automatic washing machine that you said has started off. If you can just give a sense of you know how quickly can we see the volume ramp up while we have a capacity of 0.6 million. You know in terms of FY 2023, given our conversation with our anchor customer plus the new customers that we are looking at, what can be the potential volumes that we can look at in FY 2023?
The current run rate, Bhoomika, is around 10,000 a month.
Mm-hmm.
I feel that in the next fiscal we should be somewhere around INR 300,000.
Sorry, sir. How much?
INR 300 thousand.
Got it, sir. I'll come back in the questions queue. I have more questions. Thank you so much and all the best.
Thank you. We have the next question from the line of Renu Baid from IIFL. Please go ahead.
Yeah. Good evening, sir. The first question is on the LED TV side, can you throw some inputs in terms of how have the open cell prices moved? And, are there any signs of softness, in the prices? And if so, what kind of implications are we expecting on the ASPs and, the margin thereafter?
Oh, sorry. Hi, Renu.
Yeah. Hi, sir.
On the open cell prices, the prices have definitely softened.
Mm-hmm.
For the 32 inches, it has come down to almost $42 to 43. At this level it has stabilized. I am not seeing at least immediately any further softening of the price. Now, in our case it's a pass-through, so it doesn't make a difference. The unit price has definitely come down significantly.
Right. Technically, optically, since we get a conversion rate, our margins as percentage may actually start improving as we go in the next couple of quarters with similar kind of open cell prices.
That's right. That's it.
Got it. Secondly, on the mobile, coming back on the mobile PLI side, at the onset when we started the year, we were targeting something like INR 3,000 crores of total max revenue ceilings. Obviously there were various electronic parts and chips shortages issues which were there. For the current fiscal year, the nine months, we've already done INR 1,600 crores plus of revenues in the mobile phone segment. What are the expected numbers in terms of the PLI targets that we are expecting for this fiscal? For next fiscal, would we be broadly on track to do INR 4,000 crores kind of incremental revenues?
Our sense, Bhoomika, or sorry Renu, is that in the current quarter, or finally in this fiscal, we should be somewhere around INR 2,500 crore.
Got it. This would be incremental revenue or total revenue?
Sorry.
INR 2,500 crores will be approximately total revenues under the mobile division or under PLI?
Under PLI I'm talking about.
Got it.
In the next fiscal we are very, very confident that we're going to be much, much ahead of the upward ceiling of INR 4,000 crores. That kind of order book is there.
Got it. Lastly, if you can help us understand on the FATL side or the FATL portfolio, where are we in terms of getting our new. Apart from the anchor customer, are the other customers also on board or the other brands with whom we were discussing will probably take some longer in this space? Margins in FATL, after the initial stabilization cost, et cetera, from next fiscal, should be close to double-digit levels, same as semi-automatic washers or should actually be slightly better than semi-automatic portfolio?
Bhumika, we have already finalized with three more customers. I'm sorry, Renu, we have already finalized with three more customers.
Mm-hmm.
The commercial production and delivery is gonna start for a couple of them in the next month. We are in discussion with three more customers. As far as the margin is concerned, one feels that it's going to be in a similar range, Renu, as Twin Tub for as of now.
Get it. That should be good, sir. Thanks much, and all the best.
Renu, thank you.
Thank you, Renu.
Thank you. Participants are requested to restrict your questions to one question only. Participants who wish to ask a question can also press star and one to join the queue. We have the next question from the line of Girish Achhipalia from Morgan Stanley. Please go ahead.
Hi, sir. Thanks for taking my question. This other expenditure that we've seen jumping, can you explain why exactly that has happened? Like, is it freight cost, which is a major expenditure which has jumped over there, or is it something more specific?
No. Girish, freight cost is part of our cost of material consumed only, which is reflected in the gross margins. If you look at other expenses as a percentage of revenues, it's pretty much in control. Whether you look at quarter three and compare it with same period last year or even if you look at nine months, it is around 3% of our operating revenues.
Okay. The receivable days that have come down, I would imagine that you would have done some receivable factoring. That's why there is a corresponding increase in interest costs sequentially or on a Y-o-Y basis. Is that a fair assumption?
Yeah, absolutely. We do some factoring of that. Interest costs also reflect the Ind AS 116 investment as well, which is both reflected in depreciation as well as the interest cost on our leased properties.
What could be the total quantum of factoring that is outstanding or done as of end of the quarter on receivables?
Our amount of factoring was somewhere around INR 200-odd crore.
Okay. Thank you.
Thank you. We have the next question from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Sir, thank you for taking my questions. Sir, my first question is on the structure of the contracts that you have with these OEMs. Is there any sort of volume discount that you give, which is over a period of, say, three to four years? See, basically what I'm trying to understand, if you were to model your margins, would it be sort of similar margins across year, obviously with the advantage of operating leverage wherever we can get, or these margins could be sort of front-loaded or back-ended or something like that. If you could just talk about anything you can talk about in terms of how the contracts are structured in terms of margins that we'll earn with these OEMs. That would be question number one.
Pulkit, there is no such element in the contract that we are gonna be giving any volume discount over a period of three to four years. There's nothing of that kind. It's in the EMS, the conversion cost is well-defined. In the ODM piece, the price negotiation is there, in which there are clauses built in looking at the period, you know. In some contract it's three months, in some contract it's six months, on the fluctuation of currency and commodity prices. That's the way it works. There is no front-ending or anything of that kind.
Sure, sir. That's clear. My second question is on our margins in terms of commodity prices. While I understand in ODM business, there is a lag, which obviously should reverse as we get into the next few quarters. But on the OEM side, since our brand is very sophisticated in terms of knowing how freight costs are and where commodity prices are, what is the kind of lag that should take for margins to sort of catch up? From next quarter onward, should we assume that all the margins that we've lost should actually be recovered, or how should it work?
In OEM business, even in the last quarter, it's a pass-through. There is no lag in that. Whether it's a freight cost or currency fluctuation impact or the commodity price increase, it's a pass-through. What can happen as a percentage is that if the commodity price increase has happened, the unit price of the product goes up, but the conversion cost is not as a percentage of the unit price. It's an absolute figure. That can get impact as a percentage. On the absolute side, it remains the same and all the cost either increase or decrease on account of any costing element in the value chain is a pass-through.
Understood, sir. Basically, this is value of the product going up, and since our conversion margins remain same, that's why these margins look a lot lower.
Just to give you some numbers also, Pulkit. Basically, the way you should look at on consumer electronics, more and more we are moving, and the industry is also, and the market is also moving toward higher category TVs. 43 has become a new normal now. Our average selling price for the portfolio was around INR 14,800 in Q2 to Q3 last year, which has now increased to INR 16,200. Clearly, it's also a function of at the value, the margins optically would look lower. In this business, one has to look at whether the growth, absolute growth in EBITDA and the ROC profile. That's more important in this business.
No, fair point. I mean, that is the reason I wa-
Mr. Pulkit, this is the operator here. We request you to come up with your follow-up question back in the queue, sir. We have other participants also in queue.
Sure. Not a problem.
Thank you. We have the next question from the line of Aditya Bhartia from Investec. Please go ahead.
Hi. Good evening, sir. My first question is on LED TV wherein you mentioned that you have got a recently sized contract on the ODM side. Just want to understand how exactly the margin profile of ODM business could be in this particular segment. You’ve been speaking about increasing backward integration in the form of injection molding. Want to understand how exactly the value addition increases and what kind of an impact it could have on margin.
Hi, Aditya. On the ODM side, there should be an impact or expansion in the margin of somewhere between 0.7% to 1%. On the injection molding side, the number crunching still has to be done. There'll be an impact of approximately around 0.2% to 0.3% in the value additions.
Sorry, ODM, how much had you mentioned, sir?
Around 0.7%-1% I'd say.
Sure. Understood. My second question is on the mobile phone side, wherein it appears that the ramp-up for Motorola business, while it's been at a fairly best pace, but it has somewhat been still slower than what our initial expectations were. Has there been any impact of supply side shortages or is it all about teething issues which should get normalized over the next few quarters?
Undoubtedly the supply chain issues were there and they were there till Q3. Situation is getting slightly better now. It's combination of both the supply chain issues and also the ramp-up normalization, which to a large extent has been achieved on both the elements. Our current rate, run rate is around 250K, which from this month will be 700 K. The next quarter, that is the first Q1 of next fiscal, we start doing around 1.6 to .7 million a quarter.
Understood. Sir, thank you so much.
Thanks, Aditya.
Thank you. We have the next question from the line of Rahul Jha from Bay Capital. Please go ahead.
I see a lot of improvement on the working capital side, especially on the debtor days. What has really happened between the two quarters?
Hello?
Yeah. Debtor days, of course, as I mentioned, there is a factoring element involved in this, so which was also clearly reflecting in the debtor days. Broadly, if you look at cash conversion cycle, it has been in a similar range of 0- day for the last three to four quarters.
Also in the new businesses of mobile, that's Motorola, the collection days, the payment terms from the anchor customer is significantly better, which is getting reflected here.
Okay. Thank you. Thanks.
Thank you. We have the next question from the line of Sonali Salgaonkar from Jefferies India. Please go ahead.
Sir, thank you for the opportunity. My first question is regarding the white goods PLI, both in AC components and LED components. Broadly, what is the kind of revenues and margins that we are expecting and from when can they start accruing to our financials?
Thanks, Sonali. In the case of PLI for white goods, that is the AC control board, the JV with Rexxam has been formed. I feel that it's going to be operational by Q2 of next fiscal. The revenue...
Basically, Sonali, revenues initially, it will be in the next couple of years. We think that JVs should start generating INR 300 crore of revenues. It's a 60/40 JV, so Rexxam has a 60% shareholding and we have a 40% shareholding. The margin profiles should be significantly better. It should be in the range of 7%-8%. Since it will be a prescriptive business, there'll be hardly any working capital employments. The ROC profile will also be good.
LED component. Yeah.
In LED lighting, the investment over a period of five years is INR 100 crore. The revenue generation is mostly somewhere in the range of around INR 130 crore-INR 140 crore. The PLI incentive is 6% in the first year. The EBITDA level is gonna be somewhere around 9% to 10% of that.
Got it. Our second question is regarding the margins. You mentioned that we should expect the margins to normalize in the next fiscal. What are the normalized levels that we are aiming for?
Yes. Basically, Sonali, normalized, we mean the normalized margins, which we were delivering, pre-COVID level, before this whole commodity prices started to escalate or elevate. My sense is, yes, in lighting, if we have delivered in the past around 8.5% margins, and in this quarter we have done 6.5% margins. Ideally, the normalization means going back to those 8% kind of margins. Washing machine again, we have done 6.7% margins, and normalized margins would be again somewhere between 8% to 9% kind of margins.
At a group level, at a company level, margins of around 3.5% that we delivered, I think so gradually it can move towards 4% to 4.2% kind of levels.
Got it. Lastly, what is the?
Ms. Salgaonkar, sorry to interrupt, but we would assure you kindly take your follow-up questions in the queue again. We would need to proceed with the next question.
Sure. Thank you.
Thank you. We have the next question from the line of Mr. Rajesh Kothari from AlfAccurate Advisors. Please go ahead.
Good evening, sir. Thanks for opportunity. I have two questions. My first question is it possible for you to give the volume growth for each of the segments?
Yeah, sure. LED TV, I mentioned there was 8% degrowth from 9 lakh. LED TVs, this quarter was 8.3 lakhs. In LED bulb category, again, it was flat year-on-year at around 5.7 crores. Battens, downlighters, which are other indoor lighting products. Batten was around 78 lakhs, which had a growth of almost 73% year-on-year. Downlighters was 23 lakhs, 69% growth year-on-year. Home appliances was 3.1 lakhs, which is 27% growth year-on-year. On a combination of, if I look at this, smartphones all put together, we did around 32 lakhs from 3 lakhs last year. There is a significant growth. Feature phone side, there is a small degrowth from 61 lakhs.
We did around 39 lakhs or something. There was a degrowth in the 2G phones. Again, on CCTV and DVR, there was a good growth of almost 90 odd %. CCTV was around 17.5 lakhs. DVR was 3.8 lakhs. Set-top box quantity was around 6.5 lakhs.
Okay. Thanks for that. My second question is, you know, you mentioned that, in many of your segments the pricing has gone up and therefore optically EBITDA margin looks down. One should look at EBITDA therefore in absolute terms. Your absolute EBITDA, even if I look at Q2 , even Q3 it is down. At the same time you mentioned that, you know, you can pass it on the entire price hike to the, customer, you know, whether it's a freight cost, whether it's a raw material cost. There is some confusion because in opening remarks you said that you are in the process of pass-through. Then, you know, you mentioned that you have already, you know, you can pass on entire freight and entire raw material and one should look at the volume rather than value.
I'm actually getting confused. How we should look at it?
Basically there are two business models. One, that question was specifically for the consumer electronics business.
Okay.
Consumer electronic business, mobile business, set-top box business, security surveillance business is a prescriptive business where there is a complete pass-through to the customer.
Yeah.
There is no currency or commodity impact to us.
Correct.
When we said in our opening remarks on the margin pressure thing because of the commodity prices and also because of the logistics cost.
Okay.
We were clearly mentioning on our ODM business.
Understood.
The lighting and washing machine business, where there is a significant pressure and where we have not been able to pass on the entire cost increase to our principals, which we think we gradually pass on in Q4, but we'll be further passing on in Q4 and we expect the margins to start normalizing by next fiscal.
Okay. If the raw material price comes down, do you think you will get then some benefit as well? Because this time you have probably managed your customer, you know, compared to-
Yeah.
I mean.
In ODM business, yeah, if the prices come down, commodity prices soften, yeah, we'll definitely get benefit like the way it has happened in the past. Generally it evens out over a year, over a period of one year. Yeah, this time the commodity cycle has been slightly on an increasing trend. This time it has slightly been delayed, I would say.
Okay. If it keeps increasing, let's assume that, you know, commodity remains tight environment, inflation remains tight say for another two to three quarters, then what will happen? Then do you see further pressure on margins on ODM side?
As I mentioned, in our ODM business it's clearly we pass on to our customers, with a lag. Now lag can be one month, three months. Now if we are in a continuous increasing scenario from here onwards also, then the pressure on margins would be there because, the entire pass-on will not happen. There is a lag in passing on.
Okay.
It takes three to six months to pass on.
All right.
If there is an increasing trend continuously, there will be a pressure.
Oh, I see. Great, sir. Thank you, sir. I'll come back in queue.
Thank you. I would now like to hand the conference over to the management for closing comments.
Thanks very much for being with us and exchanging thoughts. We are committed to whatever we have shared with all the stakeholders. That's our journey. Thanks very much once again.
Thank you very much. Thank you.
Thank you.