Ladies and gentlemen, good day, and welcome to the Dixon Technologies India Limited Q1 FY 2022 earnings conference call hosted by Emkay Global Financial Services. As a reminder, all participants in the lines will be in a listen-only mode and there will be an opportunity for you to ask questions after the presentation is concluded. Shoud you need any assistance in the confence, please signal an operator by pressing star then zero on your touchtone telephone. Please note that this this conference is being recorded. I will now hand the conference over to Mr. Naval Seth of Emkay Global. Thank you, and over to you, sir.
Thank you. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. From the management 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 Mr. Lall for his opening remarks. Over to you, sir.
Thank you, Naval. Thanks very much. Good evening, ladies and gentlemen. This is Atul Lall, and we also have on the call today our CFO, Saurabh Gupta.
Good afternoon, everyone.
Thanks very much for joining this earnings call for the quarter ended June 2021. While headline numbers during Q1 indicate the effect of second wave of COVID-19 pandemic, we believe that the business has demonstrated a resilience in facing these extremely challenging times and is reflective of its inherent strength and sound strategy. Our factories were operational in the quarter after ensuring that all safety measures and guidelines were adhered to. Health and safety of our employees continues to be of utmost importance to the company.
We successfully conducted vaccination drive in our office and factories for our employees. We have also selectively assisted the infected members with COVID-19 related emergencies. The demand of LED TV was resilient. The peak season for the washing machine segment is expected to be good as the monsoon kicks in. Lighting being a low-value product, we expect the utilization to go back to almost 85%-90% levels by August. Across all the verticals, we have an extremely healthy order book for the Q2 ahead of the festive season.
Now coming to the financial and operational performance of the quarter, which needs to be contextualized around the second wave of pandemic, which was undoubtedly horrific, and the growth slowed down from second week of April with further deceleration in May. The recovery has started from June, and in July, we are almost back to normal. These numbers are reflective of a very low base last fiscal. The consolidated revenues for the quarter ended June 30, 2021, was INR 1,868 crore against INR 517 crore in the same period last year, which is growth of 261%.
Consolidated EBITDA for the quarter was INR 48.3 crore against INR 17.1 crore in the same period last year, which is a growth of 182%. Consolidated PAT for the quarter was INR 18.2 crore against INR 1.6 crore in the same period last year, which is almost 1,000% growth. Gross margins and EBITDA margin contraction year-on-year was primarily driven by substantial change in the segment mix with higher increase in the share of business during the quarter for LED TV, which is prescriptive with the lower margin. Also because there's the lower turnover, and there was an unfavorable operating leverage across the businesses and higher commodity prices impacting our OEM business.
A rapid and large increase in commodity costs, which has been escalating sharply since last year November and continued the trend in Q1 FY 2021 impacted the operating margin of the OEM business. However, we have been able to a large extent address the margin pressure, partly through combination of calibrated pricing action, inventory planning, and value engineering. Margins will start normalizing in Q2 with the scale of business returning to normal. Our frugal cost structures in large scale also gave us a competitive edge in this challenging situation. We strongly believe that we have a platform to sustain strong revenue growth moving forward with strengthening in the overall demand environment.
The company has always maintained a conservative financial profile with an optimum capital structure and investment-grade credit rating. We are well-positioned with a robust balance sheet with a cash balance of INR 174 crore and net debt of INR 54 crore as on 30th June 2021. Our balance sheet strength and enough credit lines from banks enabled us to weather any future uncertainty and invest in the long-term development of our business. It has enabled us to continue to invest in our organization and in people through the entire challenging period of COVID-19.
The inventory levels have increased due to weak demand and advances made for securing components and raw materials due to supply chain challenges across various businesses. This remains the key focus area of the company, and it is expected to normalize in the coming quarters with the scale of business returning to normal levels and a good order book. Capital allocation in RCA will always be driven by bandwidth, with a huge focus on cash conversion cycling and working capital management. Working capital stood at zero in the June quarter also. Our basic approach to capital allocation policy emphasizes on return on invested capital and financial stability, and has successfully delivered a strong ROCE and ROE of 31.5% and 27.1% respectively at the end of Q1.
We keep confidence the same will be sustained in the coming quarters and years. I'll share with you the performance in the strategy mix of the verticals going forward. First, Consumer Electronics. From this quarter onwards, Consumer Electronics segment will also comprise of the revenue generated from reverse logistics business in addition to our AC PCB business. This vertical and its momentum and demand proved resilient, with revenues for the quarter under review growing more than 3.6x to INR 1,262 crore against INR 1,047 crore in the same period last year, led by both volume and pricing growth.
In the current quarter, the revenue of AC PCB and reverse logistics business was INR 39 crore and INR 1.7 crore respectively out of INR 1,262 crore. Operating profits saw extremely good growth of 43%, that is INR 30 crore against INR 8.7 crore in the same period last year. We presently have a capacity of 4.4 million tests, including backward integration in LCM and SMT line, which is the largest capacity in India. We have started production of large screen sizes like 70', 75' and 85' in the current quarter for anchor customers.
Our expansion plan of the capacity to 5.5 million will be executed by next month, adding new automated 65' integrated lines with LCM and SMT, and one more high-speed SMT line to meet customer demands. The increased capacity of 5.5 million will take care of 35% of Indian requirement. Further capacity of our SMT line has been increased to 2.7 million per annum from 1.8 million earlier. We have a total area of more than 400,000 sq ft in our integrated campus at Tirupati, which is completely backwardly integrated with deep manufacturing infrastructure.
We are also investing in injection molding within the campus, soon to be completely self-sufficient in this aspect also. We are more vertically integrated, and we have the largest capacity in LEDs as compared to any of our peers in this particular vertical in our country. Monitors. We have got orders, as I had shared with you last time, from largest global brands for manufacturing of LED monitors, and the production is likely to commence from Q3 of this fiscal.
The lines are under installation, and this will be completed by August end. This will create a capacity of 1 million LED monitors, and the production will be commencing by Q3. The expected volumes in year one will be in the range of 0.5 million. We expect the order to grow significantly from year two onwards, up to almost 1 million a year. The revenues and profitability numbers are being worked out, we expect the margins to be in the similar range as ATP.
Lighting. Revenues for the quarter witnessed a growth of 19% on a low base. The revenues were INR 153 crore in Q1 against INR 78 crore last year. Now we are back to strong growth trajectory, which we have been demonstrating. We are having a very strong order book in this vertical in Q2. Operating profit witnessed a growth of 19%, that is INR 6.9 crore against INR 5.8 crore in the same period last year. The margins in the lighting business have contracted due to the adverse operating leverage due to the reduced volumes and the impact of input costs as there is always a lag in passing on the price increase, some of that has been passed in Q1.
The margins will start operating and normalizing from the current quarter, with the scale of business returning to normal levels. Almost 80% brand in the lighting business is with us on an ODM business, and also a large percentage of the sales is being sourced from Dixon today. We are India's largest ODM player in lighting and have the largest capacity in various SKUs. In LED bulb, we have a capacity of 300 million, which is almost 50% of Indian requirement. We have also developed solutions for a smart LED bulb that is downlighter than LED bulbs for various customers. We have expanded our capacity in batten to 5 million against the total Indian requirement of 9 million per month.
In downlighters, we expanded our capacity from 600,000 per month to 1.5 million per month. The total Indian requirement is around 3 million. We are in the process of developing outdoor lighting solutions according to the demands for September 2021, which also includes street lights. We have studied the PLI of LED lighting components and have narrowed down on mechanicals, inverters, and LMS, that's Light Management Systems. The numbers and CapEx and profitability are being worked out, and we'll be filing our application before the deadline of 15 September 2021.
Excuse me, this is the operator. Sir, I'm sorry to interrupt. The audio is going low from your line.
Okay.
Thank you.
Coming to Home Appliances, revenues for the quarter saw a growth of 193% year-on-year on a low base. That is, it increased to INR 71 crore from INR 24 crore last year. Operating profit increased to INR 4.4 crore from INR 1.2 crore last year. The operating margins were lower at 6.3% due to unfavorable operating leverage. Although we are confident the margins will normalize in Q2 since the order book is very healthy from the current quarter, and we've also been able to pass on the increased commodity prices to our principal customers. We currently have 161 models across semi-automatic category, which is the largest portfolio right from 6 kgs- 14 kgs and w e are further expanding our capacity in semi-automatic from 1.2 million- 1.5 million. This will be executed within the month of August this year.
We acquired a new property which is joining our current infrastructure setup, which will help us in meeting the increased demands from our customers. The facility for manufacturing fully automatic washing machines in [Pulapili] is now ready with the machine installed. The trials are completed, samples have been shared, and the mass production will start in September 2021. We have approximately 96 variants across 6-10 kg category, which is the largest product portfolio available with any brand or manufacturer in the country, with an annual capacity of 6 lakh. We have already closed the agreement with a large MNC for this, and some new contracts are also in the works.
Mobile Phones & EMS division. Revenues for this division for the quarter in review was INR 306 crore against INR 53 crore of mobile revenues in the same period last year. In the current quarter, the revenue of set-top box business and medical equipment business was INR 5 crore and INR 3.5 crore out of INR 306 crore. Operating profit was INR 4.2 crore in Q1 FY 2022, against INR 2 crore in the same period last year. The margins have contracted in this business on account of adverse operating leverage and initial ramp-up costs in our new factory from where we are executing Motorola and Nokia.
The order book again looks very healthy, primarily focused on exports. The margins will normalize from Q2 onwards. Production commenced for our anchor customer, Motorola, in mid-March 2021 in the new factory, and export to Southeast Asia and North America has already started. Production for Nokia commenced in February 2021, and we are in the process of adding a new line as our volumes will increase from Q3 onwards.
The tie-up with Motorola to manufacture a smartphone is for both global and domestic market, almost 65%-70% of our ceiling revenues in the PLI will come from this customer, with a large portion coming from the export markets. We have a strong order book from Motorola from Q2 onwards. We'll be the first Indian mobile manufacturing company to manufacture and export 5G mobile phones after U.S. We have started investing to increase the capacity to 15 million phones annually in the next couple of years for meeting the threshold as against 3 million as on today. We are confident of crossing the ceiling revenues in current fiscal from mobile PLI.
We are also in discussions with another customer in North America for manufacturing smartphone for their supplies to the various carriers. Production started for Samsung 4G phones, and now we have a very strong order book of almost 1 million 4G phones per month in Q2. We have already taken a land bank of five acres in Noida and plan to make a big integrated mobile factory in this facility. Set-top boxes. We have manufactured almost 6 lakh set-top boxes for Jio, Dish TV, Sun Direct and others in Q1. We reported revenues of INR 55 crore against with 2.9% operating margin.
The order book in this vertical again looks very healthy with 0.5 million set-top boxes per month. However, in this business also, there are supply chain challenges due to availability of semiconductors. Our latest customer acquisition in this vertical is Sun TV, and we start manufacturing set-top boxes for them from September onwards. Medical electronics. We have sold 145 units of the RT-PCR machine to Molbio.
The revenues in this vertical were around INR 3.5 crore with an operating margin of 28% and a strong ROCE. Security surveillance systems for this quarter, it estimates a very strong growth of 462%, that is INR 75 crore against INR 13 crore in the same period last year. The operating profit also increased from INR 2 lakhs to INR 2.6 crore in this quarter. The vertical has come back to the normalized utilization level. The order book in this vertical looks strong and we'll be further expanding our capacity in this vertical.
Apart from this, I would like to update about the opportunities which the company is pursuing. The refrigerators, as we have been guiding, the company has kicked off the refrigerator project. We got the market study done, finalized the technology partner, product design is under progress, and we have started building a team and got the project and R&D head. We'll be initially creating a capacity of 0.6 million DC category, which will be further ramped up to 1 million against the total requirement in India of 10 million under various product categories, right from 170 L- 220 L.
We are in the process of acquiring 10 acres of land in Greater Noida for the manufacturing facility, and we are confident of receiving the regulatory approvals for the same shortly. We have started engaging with various potential customers, and the mass production is most likely to commence from Q3 next fiscal. Laptops and IT hardware. We are now listed beneficiary under the IT hardware PLI. Our factories have been approved and qualified by one of the largest brand for manufacturing of laptops and tablets. Over the next few weeks, we will work out the remaining potential cost structures to arrive at the operating profitability for this particular vertical.
We are also in active discussions with leading global brands. Telecom and networking products. Dixon has entered into MoU with Bharti Enterprises to form a joint venture through a wholly owned subsidiary, Dixon Electro Appliances Private Limited. The JV company has filed application with the Ministry of Communications to avail benefits under telecom and networking products PLI scheme for IoT devices, modems, routers, set-top boxes, etc. , for telecom industry. Airtel will be the anchor customer. We keenly look forward if we are going to be a beneficiary under this scheme.
Post execution of mutually acceptable agreements by the parties in the next one month, the JV company will be 74% owned by Dixon and 36% owned by Bharti Enterprises and the operations will be managed by Dixon. We have finalized an agreement for supplying modems and routers. Should start supplying by Q3 of this fiscal year. The PLI scheme for AC components, PCB assembly for controllers. We are working with our existing partner, who is one of the main suppliers to Dixon, to form a JV to jointly apply under the PLI to manufacture PCB assembly for controllers before the deadline of 15th September 2021.
Presently, our business with our existing partner is around INR 125 crore- INR 130 crore annually. It can become a big opportunity for us if our existing partner can shift its supply chain to India for servicing the global markets. Wearables and hearables. On the wearables, the Indian market is the third-largest market globally and one of the fastest-growing market. We have started manufacturing TWS for boAt and we're in the process of further deepening our relationship with boAt to a different strategic level. This is an opportunity for us to back an emerging brand locally for India for global markets. In India, we think the PLI scheme also for this category to boost domestic manufacturing, and it is a high-growth category and we definitely pursue the same with aggression. That is what I wanted to share, and now me and Saurabh are there to respond to your questions, please. Thanks.
Thank you. Ladies and gentlemen, we will now begin with the question- and- answer session. Anyone who wishes to ask a question may enter star and one on their touch-tone telephone. If your questions have been answered and you wish to withdraw yourself from the queue, you may enter 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. To ask a question, you may enter star and one. We have the first question from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Hi, sir. Good afternoon. My first question is with respect to the new segments that we are planning to get into, laptops, telecom, AC components, wearables, et c. What kind of revenue we can expect over a two to three year period? Even a broad sense it will be great. If possible, the profitability of these segments also. If you can dwell upon this a bit more, it'll be great.
Ravi, the numbers are being worked out. However, I'll share with you the broad numbers. In the telecom venture, we expect to reach a revenue of almost INR 2,000 crore in a couple of years. In the PLI for AC PCB, we aspire to reach around INR 400 crore to INR 450 crore in a couple of years. In the case of PLI for IT products, the revenue is going to be around INR 800 crore-INR 1,000 crore. Refrigerator, once the production is stabilized and we reach a level of 0.5 million-0.6 million, it's going to be around INR 500 crore-INR 600 crore a long with some PLI benefit, the operating margins are going to be in the range of 2.8%-3.5%. In the ODM business, we feel like refrigerators, it's going to be somewhere between 8%-10%.
Right. PLI numbers?
You get to know fairly well.
Got it, sir. The wearables business, how much revenue over a two-year period?
Wearables business, already the revenues of boAt are in the range of around INR 1,500 crore-INR 2,000 crore and t hey're growing very fast. The manufactured supplier revenues are going to be almost 60% of that. We feel that in the year one itself the partnership is going to be formalized, is going to be somewhere in the range of around INR 700 crore-INR 800 crore.
Got it, sir. What kind of capital investment, CapEx alone that you will be required to do for all these new products?
The number crunching is happening because we are still waiting the PLI approval and the agreements to be formalized.
Okay.
It will be slightly premature to share the CapEx numbers. That number is still.
Ravi, we'll be in a better position to share the numbers on CapEx in the next couple of months, maybe our next earnings call, because lot of things are getting finalized on the approval that we have received and the approvals that we will receive in the next couple of months.
Got it. With respect to the existing segments, especially the margins in lighting and home appliance category, it has kind of taken a hit during the first quarter. Assuming the passing on of prices to end customer plus the mix improving, what kind of EBITDA margins we can expect in these segments? Can they go back to the margins that we had seen, say, last year or the year before last, like 9%-10% range?
We are fairly confident that in the coming quarters, partial recovery would take place in Q2 itself. From Q3 onwards, the margins in lighting would be somewhere between 8%-9%. In the case of washing machines, it's going to be between 9%-11%.
Got it. We have-
Mr. Swaminathan. Hi, this is the operator. I'm sorry, but we have participants in queue. Can you come back with your questions, please?
Sure.
Thank you. We have the next question from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Atul, these are early days for PLI scheme, I just wanted to get your overall opinion because you have the inside view of how these schemes are being formulated. I wanted to understand, how do you see these schemes in terms of approach, practicality, speed, efficiency, any other observations on any of these aspects to get an idea whether there is real chance of altering the manufacturing footprint or not?
Sure. Undoubtedly, we see a very significant level of conviction and commitment from the government side in establishing the footprint in these PLI sectors. I think, let's look at what's happening on the mobile side. Initially, there were challenges. However, those challenges are more external than internal. The government has been flexible, and they accepted the base year. They've extended by one year. Large global brands have already started sourcing from within India.
In Dixon's case itself, you see, we got approval sometime only in Q3 of last year. We have been able to set up our factory within a very short time of four to five months, and production has been ramped up. Nokia is going to shift almost 8%- 10% of their global requirement to this factory. That is first major achievement for the industry, for Dixon as well.
My sense is there would be some execution challenges, but the government is committed to make it a success. Now, the same rollout has happened for IT products, although there the canvas is much smaller. There my sense is it's only going to be focused more on the domestic market to start with, at least for domestic players and t hat's where we're going to be participating. Also, what one is seeing is that once the large manufacturing of the final product takes place, the deepening of manufacturing through more value addition creation and also creation of component ecosystem even works.
One has to keep fingers crossed that things go as per plan, but I'm positive about it. Same is the case with the telecom PLI, and same is the case with the AC and LED lighting PLI. Definitely, one is convinced now that the goods being sold in India would be manufactured in India. The manufacturing depth will expand. Also in some of the categories, India will become a base for exports, which will be a typical China Plus One situation. That's what my sense is. However, next two years are going to be extremely important, both for the beneficiaries of the scheme and also the government, because what we are committing to the stakeholder has to be delivered upon. That's the situation there.
In terms of speed, flexibility, responsiveness, whether the schemes are formulated in a practical way, keeping in mind industry, vertical dynamics, any comments there?
I think that is a very transformational kind of a change with the present dispensation, that there is a lot of interfacing happening between the industry and the government. They are looking at the industry's viewpoint. They're flexible. They genuinely want to create this footprint in India. There will always be some gaps, but there is a very significant positivity around this, at least in the electronic sector.
Sure. Thank you, Atul.
Thank you. Thank you, Mr. Shah.
Thank you. Participants, if you have a question, you may enter star and one. We have the next question from the line of Aditya Bhartia from Investec. Please go ahead.
Hi, good evening, sir. Hi, Saurabh. My first question is on the Consumer Electronics business, wherein capital employed appears to have turned negative this quarter. Just want to understand what are the changes that we've made, and is this something which is sustainable?
This is basically the management of current affairs. It's a significant improvement in the operating cycle, which has led to this kind of an operational metric for us there and w e feel it's sustainable.
If I remember, sir, earlier there used to be this issue of us paying customs duty or some GST- related charges and recouping that from our anchor customer with a bit of a lag. Have there been any major changes that you have made in those contract terms?or i s it something else?
Basically, I think it's because of our operational efficiency in managing that we have been able to turn this around. In a prescriptive business, otherwise, our creditor days are always higher than the debtor days. Through our internal efficiencies, the point that you have raised, now that has been addressed. In fact, we have bettered those things in our favor.
Perfect. For the mobile phone business, you mentioned that we should be surpassing the ceiling limit for FY 2022. Just want to clarify, are we looking at the original limit of INR 4,000 crore or the revised limit after the base year being moved forward by a year?
As per the extended norms and the policy guidelines, the ceiling is INR 2,000 crore for current fiscal. We'll be aiming to be close to the original ceiling of INR 4,000 crore. That's what we are aspiring for, somewhere close to that.
Perfect. That's great, sir. Lastly, are you facing any significant component shortages? I do understand that you have increased your inventory levels to tackle that. Do you expect any significant shortages still impacting any of the segments? Thanks.
Aditya, there are significant supply chain challenges in every vertical. Let's say in lighting vertical, there is a huge shortage of the driver IC, but we have been able to accumulate adequate inventory for that. I think we are ahead of industry there. In the case of televisions, again, there is a shortage, but that because we are associated with large principals, we're able to cover it up. Lately, there are challenges because of the typhoon in China, right? Also the component suppliers from Vietnam because the factories are struck there due to COVID. In mobiles, again, there are challenges in display and semiconductors. The kind of order book that we have and what I'm seeing that our people have been able to cover, we are in a good position. There are challenges, but I think we have been able to cover it to a very large extent.
Aditya, just to add to it, what we have done, we've also accumulated inventory to take advantage of increased order book. As the business is now returning back to normal, and if you see our inventory levels have gone up. That is on account of certain advance payments that we have made to accumulate those inventories. This is more strategic in nature, and that will put us in a very advantageous position. Gradually, you will see that inventory levels also coming down as and when they get converted to finished goods and they are sold out. Clearly, we have taken a strategic call to build the inventory of some of the components and semiconductor there.
Perfect, sir. That's very helpful. Thanks.
Thank you, Aditya.
Thank you. We have the next question from the line of Renu Baid from IIFL. Please go ahead.
Yeah. Hi, good evening, sir. I have three to four questions. My first question is, when we look at the broad portfolio on the lighting side, where are we today in terms of the approval for exports for which you are working? How do we see the lighting exports portfolio ramping up? We're expecting growth coming in from 2021 onwards, so where are we on that?
Renu, we require certain safety approvals from the countries that we are targeting. Safety and the laboratory approvals, I'm expecting that we'll receive them somewhere around mid of August or end of August. That business can take off because the business is undoubtedly looking more healthy lighting export front.
Sure. In terms of customers, would it be starting with largely the U.S. market or will it be far more broad-based in terms of the end agents that we are looking at?
It's going to be a mix of U.S. and Western Europe.
Sure. Secondly, when we look at the OEM portfolio in this quarter, both lighting as well as washers almost half on a sequential basis. The inventory buildup, which Saurabh also mentioned, was largely on account of both these business segments, or there is also some share of inventory stocking by customers in the EMS business. Should we expect the volume in these businesses, both the OEM portfolio reverting back to normalcy in 2022, 2023 with strong order backlogs?
Renu, in our EMS business, the inventory buildup does not have an impact on our balance sheet. It's almost operating cycle neutral. Except for certain inventory buildup in Motorola and some working capital intensity increasing in Motorola because of the initial ramp-up phase. The main inventory increase has been on the raw material side in both lighting and washing machines, primarily because of order book dwindling from 15th of April, and May was even worse. I will just share with you some data points.
On an average, we do approximately two bulbs a month. In this quarter, the volume has fallen to 54 lakh a month. In the case of washing machines, we are doing almost 90,000 to 1 lakh washing machines a month. In this quarter, it decreased to 54,000 a month. That is what happened to demand after the lockdowns. The order book is extremely healthy. In lighting itself, in July and from August onwards, we are back to almost 85%, 90% of our capacity utilization. In the case of washing machines, it's much ahead. Normally, we do around 100,000, 110,000. In the month of July, we shipped close to around 125,000. In the month of August and September, the order book is almost 150,000. The order book is very healthy, and I think in this quarter itself, the situation will come back to normal.
Got it. That's pretty encouraging. Lastly, when we look at the LED TV portfolio, while the OEM business has been doing fairly strongly, we were also working on a smart TV portfolio on the ODM side. Where are we in terms of the design approvals and getting the customers on board, and how do we expect the ODM portfolio within the LED television segment to improve?
Renu, on the TV ODM side, our solutions are ready, Android-based solutions. However, the customer acceptability is there at least from the tier 2 side. However, we are having an issue with Google on the IP side. We've still not been able to get their go-ahead on the Android and Google TV license. We are pursuing with them, but that has still not materialized. I cannot give you any visibility there. On the analog side, the demand has dwindled, so it's mainly smart, and that's also on the Android platform. The solutions are ready, and the solutions are acceptable. We're still waiting for an Android and Google TV license from Google. That's what the status is.
Got it. That said, thank you so much, and all the best.
Thank you.
Thank you.
Thank you. We have the next question from the line of Sonali Salgaonkar from Jefferies. Please go ahead.
Thank you for the opportunity, and good afternoon to both of you. My first question is regarding the IT hardware PLI. We understand these are initial days for you as well. If you could share the broader contours of the PLI and the sort of ceiling revenues per year as well, that would be quite helpful. Also a ancillary question to this, to another participant's question. You mentioned some revenue from the upcoming opportunities across each of the segments. Just to clarify, this is the per annum revenue we are targeting over the next couple of years, right?
That's right.
Sonali, on IT hardware, the basic contours are that we need to make an investment under the PLI for INR 20- odd crore over a period of four years. The incentive also over a period of four years is around INR 110 crore for domestic companies. Here also they created a separate track for domestic companies, similar to the way it was done for mobiles, where the government wants to create domestic champions as well. This is the number that I mentioned to you as for domestic companies, and they clearly bifurcated and said that any laptop costing less than INR 30,000 at a factory level. These are factory-level prices, and a tablet costing less than INR 15,000. That will be a separate track for domestic companies, T hat's where Dixon comes in. We just recently got the approval.
As Mr. Lall mentioned in his opening remarks that we have signed an MoU and our factories have already been audited and qualified with one of the largest ramps. I'll be not in a position to take the name because till the time the agreements are closed. We are working with that partner, customer to finalize the numbers on revenues, cost structures, and the profitability. We are also in discussion with other brands as well. If you look at the ceiling revenues that have been defined under the PLI, basically the ceiling revenues over the next four years is around INR 4,900- odd crore.
The way it happens, the way year-wise it is INR 300 crore, INR 600 crore, INR 600 crore, and INR 2,000- odd crore. Broadly, just the first-year numbers is INR 300 crore. We would definitely make an attempt to achieve the ceiling revenues in each of the years. One of these things will be materialized over the next few months. We will have a better visibility once we finalize the numbers with the brand that we are talking to. Here also, if you look at the government's objective is to create a component ecosystem. There is a laid-down guidelines for that.
Give me a moment, sir. Participants kindly stay connected while we check the line. Ladies and gentlemen, this is the Chorus Call conference operator. Kindly stay connected while we try to reconnect with the management. Please stay online. Thank you. Ladies and gentlemen, this is the operator. We now have the line for the management reconnected. Please proceed, sir.
Extremely sorry we got disconnected. Hello.
Yes, Saurabh. Hi.
Sorry. I don't know where last we were before we got disconnected. Broadly, yes, Sonali, the way I was saying that there is a separate track for domestic companies. We need to do a committed capacity of INR 20 crore. The incentive outlay for a domestic company is INR 110- odd crore. There are also certain laid-down guidelines for valuation, which is linked to getting that incentive. We will definitely make an effort to achieve the ceiling revenues, which is basically INR 4,900 crore over a period of four years, starting with INR 300 crore in the first year.
Got it, Saurabh. My second question is, what kind of normalized margin should we look on a consolidated level from the coming quarters now that once the business again scales? Are we expecting 3.5%-4%?
Yes, Sonali. It will be in the similar range. 3.5%-3.75% is what I think will be the margins because our growth going forward will be happening more in the prescriptive business. A significant portion of the revenues will be coming from mobile, then it will be laptops, wearables, then into telecom. These are all a prescriptive business, the margins are going to be in the range of 2.5%-3%.
Got it. My last question is, how is the demand scenario looking at right now? You did mention that July, we were back to normal. How are we expecting it to pan out, especially also in the context of the festive season? That's it from my side.
Sonali, in the current quarter, the order book in the forecast looks extremely healthy. As I shared with you in the lighting segment, we are back to almost 85%. The LED bulbs is back 260 lakh, 170 lakh. In the case of batteries, this month we're going to do highest ever of almost 25 lakh batteries. Downlighters, we're going to do 5 lakh. Same is the case in washing machines. This month we're going to close at 125,000. The order book is 140,000, 150,000 which is going to be the highest ever for us. In television again, in this month we'll be at 200,000. The next month is going to be around 275,000. In September, we feel we're going to be somewhere close to around 400,000. The demand looks very good.
Even in mobiles, not for domestic, but also for exports. We're going to be significantly ramped by time. I'm talking almost 400,000, that's INR 300 crore of revenue from Motorola for exports to the U.S. It looks good. However, as far as the domestic market is concerned, one has to keep the fingers crossed because we are still not out of the COVID impact and whether third wave is going to be there or not there, what impact is going to be there, one has to wait and watch. I'm staying sanguine about it. I'm cautious about it. As of now, the forecast looks very healthy.
Got it, sir. Thank you. That's it from my side.
Thank you. We have the next question from the line of Bhoomika from DAM Capital. Please go ahead.
Yeah. Good evening, sir. Most of the questions have been answered, just one or two things. In terms of TV, we have seen a very sharp ramp-up in volumes, and revenues continue to remain quite strong. Given that you're meeting a lot of the customer requirements and India's requirements higher screen TVs, how can we see growth going forward over a medium to two to three years perspective?
Hi. I'm sorry to interrupt, but we've lost the line for the management. Bhoomika, kindly hold on. Participants, please stay connected while we reconnect the management. Excuse me, ladies and gentlemen. We now have the line for the management reconnected. Bhoomika, please could you repeat your question?
Yes, sir. Sir, I was just asking on TV, more from a medium-term perspective, two to three years, where we've actually already grown quite aggressively and added a lot of customers. While I understand there will be some value growth on higher screens, in terms of volumes, if you can give some outlook on how quickly or how the growth could look like.
Bhoomika, customer acquisition is an ongoing exercise, and also getting a larger share of customer wallet is a continuous effort. We feel that this capacity that we are creating of 5 million or 5.5 million, in next two years will be somewhere near to 4.5 million. That is what our internal estimation says. Further, in the same infrastructure, the LED monitor lines have been. That will be on a very minimal CapEx that further enhances the operating leverage. The next step is the deepening of the manufacturing.
The SMT and the PCBA capacity has been increased by almost three times in the last two years. The next step is to deepen the manufacturing of the plastics and mechanicals, and then metals. We're very confident that for some of our anchor customers, the unit cover, the back cover, and the front bezel is going to happen in Dixon packing. That's the strategy, scale and deepening of manufacturing. If at all we are getting the Google license, then migrating to ODM.
Okay. Sir, in terms of the fully automatic washing machine, we already are having an anchor customer. If you could just comment on additional customers engagement and how quickly do we see this capacity being ramped up or volumes being ramped up to the capacity of 0.6 million?
Our supplies to the anchor customer is going to start from October, November. To the other customers, it's going to start from September, before the testing period, t hat's what we are targeting. Now what we're starting is with the platform one, that is from 6 kgs- 7.5 kgs. The toolings for the platform two, that is from 8 kgs- 10 kgs, would be arriving by December or January. I expect the capacity utilization up to 85%, 90% of the installed capacity of 0.6 million would happen on the monthly run rate basis, the second half of next fiscal year.
Sure. That's it from my side, sir. I'll come back in the Q&A. Wishing you all the best.
Thank you.
Thank you. We have the next question from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Atul Lall, the second wave obviously has come as a bit of a rude interruption to our plans. Originally we were considering that, when do you think we are touching that five-digit growth turnover number now, and hopefully double of it thereafter? At what particular state do we think now we are hitting that?
Mr. Shah, the final goal and the journey is the same, which we have been sharing with our partners who are the stakeholders. We are confident that in this fiscal itself, the revenue growth would be significant. We should be somewhere around INR 11,500 crore-INR 12,000 crore this fiscal itself, in spite of the first quarter getting impacted. We feel that as compared to the original numbers of last fiscal of INR 6,400 crore, we should be 3x of that in two years' time.
Two years after the current year.
That's right.
My fiscal 2024 is what you're saying?
Yeah, 2023, 2024.
This is a year when we should be hitting closer to $3 billion turnover.
That's it.
Hopefully, given the kind of a change in the product mix, our profitability as well as capital efficiency both, should improve from where they are today.
That's what we are aspiring for. Sure. The trajectory and the strategy, there's absolutely no change. This quarter was a blip because of the pandemic.
Capital efficiency also, which has always been a hallmark of Dixon. Superior capital efficiency, lower net working capital, and very frugal manufacturing, strong emphasis on cost containment. All that has resulted into very salutary performance on capital efficiency. Are we saying that with this growth in significant scaling, the return on capital employed per se should hit fresh benchmarks or it'll be in a similar range, though already it is a superior level?
My sense is that it should further improve. At present, we are going through a phase wherein we are ramping up various verticals and any ramp-up has initial challenges. Finally, when we stabilize, I feel the returns ratio would improve.
When we are touching, say about INR 20,000 in total turnover by 2023, 2024, will it be fair to say our return on capital employed probably should be crossing 50%?
It's difficult to put in a number to that. From our present level of 30%, it will significantly improve. To define the trajectory and how it's going to pan out, and put it in number terms is slightly difficult at this stage, but the path in front of it is clear, and there will be improvement in the return ratios.
Sure, Atul Lall. Thank you so much.
Thank you.
Thank you. We have the next question from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Many thanks, sir. I just missed the number regarding the EBITDA margin that you indicated in the new products as well as at the consolidated level. Roughly, where do you see the EBITDA margin numbers?
Yeah. It's a prescriptive business, which is basically your telecom, laptops, whatever else and all. The EBITDA margins will be in the nature of 2.5%-3%. Depending on how much deepening of manufacturing we keep doing, the margin should improve from there. Overall company level, I think so since our growth on a prescriptive business will be more, and as a percentage of overall revenues, the prescriptive business will contribute more in the future years. My sense is the margins in a good year can be 3.75%-4%. Here, which has got impacted like the way this year, I think should be in the range of 3.5%-3.75%.
Okay. Yeah. That was my question. Thank you.
Thank you. We have the next question from the line of Onkar Ghugardare from Shree Consultancy. Please go ahead.
Yeah. My question was regarding negative operating leverage kicking in. You had the advantage of PLIs coming, that's why you have significant revenue upside this year. What would have been the case if this were not there and significantly the revenue would have gone down and again, effectively, the profit would have been much, much lower than this. What comment do you have to offer on that?
No. If you look at the quarter one numbers, our significant revenues are coming from LED TV business where there is no PLI. Almost 68% of the revenues are coming from LED consumer electronic business, where there is no PLI. I actually don't get your question properly.
No, your negative operating leverage kicking in. It's almost the PAT is at a percent margin.
Yeah, because it is ultimately function of your fixed cost. The demand got impacted, and it impacted our lighting and washing machine business, which is basically sold offline. They're basically sold in the markets, and the markets were, of course, locked down because of the second wave. There is always a fixed cost that you have created in the business so t hat's why the margins have come down. Yeah, with the order book now coming back to normal in July, and we have a strong order book overall in Q2, and we'll keep getting better. The margins will come back. We should go back to our normal margins that we have guided 3.5%-3.7%. Please appreciate what Saurabh is sharing. This is irrespective of PLI.
Lighting, television, washing machines, set-top boxes, medical electronics, security surveillance systems, and with PLI. They're also on a significant growth path, except for the blip of last quarter, I think.
Correct. The guidance that you shared for next two, three years, say 2023, 2024, what kind of EBITDA or PAT margin would you expect?
We feel that on a blended basis, it should be somewhere in the range of 3.75%- 4%, 4.5%. Because on the ODM side, we're going to have lighting, we're going to have washing machines, we're going to have refrigerators, and we are also going to have, hopefully, a small portion of LED television coming from ODM. We are also going to be investing in the backward integration piece, particularly in PLI and in lighting. I feel that on a blended basis, it should be around 4.5%.
Okay, 4.5% of EBITDA margin you are expecting.
That's it.
Okay. The last question is on equity raise you have guided for or taken an approval. What is the status on that, and are you comfortable with your net debt levels?
If you look at the net debt level, we're just talking about INR 54 crore in an INR 1,000 crore balance sheet. We're absolutely comfortable. There is enough cushion in the balance sheet. The balance sheet is strong, and we can easily fund our growth going forward from controlled debt and from our internal accruals. We expect certain money to also come in from the stock options that we have issued to our employees. Through a combination of all these three, I think we should be able to fund our growth.
Yes, there are more opportunities that are coming. That's why, because it's more of an enabling provision that we have taken from the board, and we will, of course, get it approved by the shareholders in our upcoming AGM. Yeah, we feel confident that it can be funded from our internal accruals and some form of controlled debt because the debt-to-equity ratios are still very low.
All right. Thanks a lot. All the best.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. We will now close the question queue. I would like to hand the conference back to the management for closing comments. Please go ahead, sir.
Thank you so much for being with us. All the best. Please be safe. Special thanks to Naval for conducting this conference. Thanks very much again.
Yeah. Thank you very much. Thank you, Naval.
Thank you.
Thank you, gentlemen. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.