Q2 Review: Dixon Tech Revenue Rises By 28% Year-On-Year
#DixonTechnologies sees mobile volumes jump up but reports muted performance in other divisions.
In conversation with the compa
In conversation with the compa
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00:00 New client addition, Saan orders in the mobile segment, which is 57% of sales, helped drive
00:06 Dixon's Q2 profits by over 45%.
00:11 The other segments on expected lines and as per guidance have shown a bit of a moderation,
00:18 sort of Gupta Johnson to put the quarter or the half year into perspective and what happens
00:23 in the times to come.
00:24 Saurabh, great having you.
00:25 Thanks for taking the time out and happy with the quarterly performance or would you have
00:29 hoped for more?
00:30 So, overall happy with the quarterly performance.
00:31 I think so we have achieved what we had budgeted for.
00:36 However, certain verticals like lighting and all, it was a slightly disappointment in terms
00:41 of revenues.
00:42 We need to do a better job there and I would say even consumer electronics would have been
00:49 slightly better.
00:50 Okay, but I thought, I mean the last time that we spoke, which was non-results, you
00:54 had spoken about the possibilities of lighting division, slowdown coming in and so I thought
01:01 in part it was expected.
01:02 By here you say that you could have done a better job.
01:04 So what do you mean by that?
01:05 You know, I mean to say, yeah, so clearly I thought that the markets will recover.
01:10 It is clearly a case where it has been almost eight, nine months where the markets have
01:14 been quite sluggish and which is reflected in other companies' results as well.
01:19 And nearly there's a big price erosion which has happened in the LED bulb portfolio, which
01:23 is a significant part of our portfolio.
01:25 So we have launched some new product categories.
01:27 Hopefully that should have a positive impact in the next upcoming months.
01:31 But yeah, lighting we need to do, lighting we need to really come back to our historical
01:36 levels.
01:37 Of course, the market also needs an improvement on that side.
01:40 So here's the question therefore, I'll come to mobile sort of because that was the big
01:45 shining point, but just a question here on lighting or on LED.
01:49 Would consumer demand be the driving force here?
01:53 Or do you think that even if that remains maybe sluggish or marginally higher, you still
01:59 have the ability or the right to increase the performance of these other divisions?
02:06 So one, the market needs to improve.
02:08 Secondly, the LED bulbs with a larger dependency is there and a significant portfolio is there.
02:12 There we are seeing a degrowth in the market.
02:15 Maybe the replacements or cycle is slightly longer than the historical bulbs there.
02:19 But yeah, clearly we're expanding capacities, increasing our market share in battens and
02:25 downlighters.
02:26 And we're also getting into new product categories, like strip lighting, smart lighting solution
02:30 and professional lighting.
02:32 And we've got some export orders.
02:33 So clearly my sense is every quarter it should keep getting better from here.
02:38 But yeah, we need this market to improve also.
02:41 So surprisingly, a small category product is not selling in the market and the high
02:47 end products are seeing a good sales.
02:49 So this is a kind of a phenomenon that we are seeing across categories.
02:53 Across categories, indeed.
02:54 Now the mobile segment, very strong performance.
02:58 You must be happy with that.
02:59 What's the reason?
03:00 Because I also see in brokerage notes that not only are larger orders coming in, but
03:05 new client additions have helped.
03:07 And is there something to look forward to in terms of client additions or logo additions
03:10 in quarter three?
03:11 Yeah, so this clearly is the largest piece for us and the largest driver for us, both
03:16 on the revenue and profitability side.
03:18 One, we have been able to take higher share of wallet from our existing customers, like
03:22 Motorola.
03:23 They have been shifting higher volumes to us, both for domestic market as well as for
03:27 exports.
03:28 And also we have acquired large brands in the last few months, which is Xiaomi, Itel.
03:34 We have entered into a large partnership with Nokia and now we're looking for exports for
03:38 Nokia as well.
03:39 And we are also in discussion with some large global brands and hopefully we should be able
03:43 to conclude it by Q4 and the production or the manufacturing should start by next financial
03:49 year.
03:50 So clearly mobile piece as a whole, the opportunity size is larger as compared to other verticals
03:55 and we are well positioned because we've really acquired a lot of customers in this category.
04:01 Yeah, well, so a note says that the order book for Nokia has increased and the production
04:05 has ramped up to a million pieces per month now.
04:08 Now, again, on expected lines, is this part one and part two, what is the game plan for
04:14 the next six months in terms of either orders from certain clients or in terms of the production
04:19 facility or the production ramp up that we're talking about?
04:22 One million pieces a month right now, does it stay this way or does it ramp up even more?
04:28 Yes, so probably one million feature phones for Nokia, one million feature phones for
04:33 Transition Group, Jio again, Bharat 4G phone.
04:36 We have a very strong order book there.
04:38 So clearly those are pretty much, I would say out of that, Itel and Nokia are pretty
04:42 much ramped up.
04:43 We'll continue to deliver decent volumes, hopefully some export volumes from Nokia.
04:48 Jio Bharat 4G needs to ramp up more, the order book is more.
04:51 So we need to execute well, ramp up more.
04:54 And then from here onwards, I think so the biggest client is Xiaomi.
04:58 So maybe the production has already started, but yeah, initially next two months, it will
05:01 be in a ramp up, stabilization kind of a phase.
05:04 And by January Q4 of this financial year, we should go to a decent volumes and then
05:10 the volumes should keep picking up.
05:12 And by Q4, hopefully we should be able to conclude with another couple of large brands
05:17 and their execution should start by next financial year.
05:20 So this 5 to 6 million monthly capacity of feature phones, if I'm not wrong, and 2 to
05:24 2.5 million of smartphones, is this now getting ramped up meaningfully in the next six months
05:29 or would it happen largely in FY25?
05:31 It will get ramped up in the next 2 to 3 months and then we'll go for another round of expansion
05:37 by Q4.
05:38 So clearly we will have almost, if you look at the total Indian market size, around 230
05:42 million and broadly we'll be creating a capacity of almost 85 million out of that.
05:47 So almost one third of India's capacity will be done by Dixon in the next few months.
05:52 So talk to us about CAPEX sort of here, because are you doing all of this plus, if I'm not
05:58 wrong, you've applied for the IT hardware PLI, where most people say because it's a
06:02 six-year PLI, thereabouts the CAPEX might be slightly larger as well.
06:06 What is the CAPEX requirement, getting funded easily by internal accruals and cash flows?
06:11 Talk to us a bit about that.
06:12 Yeah, so we have applied into the hybrid category and hopefully the government approval should
06:17 come out in the next few weeks.
06:19 So the hybrid category, we have committed an investment of almost 250 crores.
06:23 We have committed a revenue of almost 48,000 crores for a period of six years, cumulatively,
06:30 and starting next financial year.
06:32 So the CAPEX will also happen over a period of six years, both on the first, the final
06:35 assembly and then as part of the PLI scheme, you need to invest more and more in backward
06:39 integration and localization.
06:41 So we are looking at power supply, we're looking at display module.
06:44 This year we'll start with PCBA and clearly we have one customer, Acer On-Port and we
06:49 are in the final stages to get a large local customer on board.
06:54 So clearly, yeah, it should happen and we feel confident that it can completely, the
07:01 CAPEX can be done from the internal accruals.
07:04 Got it.
07:07 Almost every major consumer category, and I mean, let's say smaller categories, but
07:11 a paints or food, etc. is starting to show some softness in volumes.
07:16 Even Colgate had that softness in volumes.
07:19 I heard you say that the higher categories are doing well, but the smaller categories
07:22 are not.
07:23 I mean, just a basic question to you guys, because you guys are such behemoths when it
07:27 comes to electronics, which is now almost consumed as much as food.
07:31 How do you see this slowdown impacting the market at large?
07:36 And there might be the impact coming on to players like you as well.
07:40 Could it be materially impactful over the course of the next six months?
07:44 What are the signs on the street?
07:47 Yeah, so there has been a mixed response.
07:50 So markets were slow, but then you had good sales on the Big Billion Day, on the Rakhi
07:54 Festival, Onam Festival and all.
07:57 And recently on the Dussehra Festival, I would say.
08:00 Now the real test for us is how the final sales, because Diwali is just around the corner.
08:04 So how the final consumer sales happens in the next two weeks.
08:08 Our order book with the principal customers is fine, but ultimately it all boils down
08:13 to how the final consumer sales happens.
08:16 And whether the distributors are stuck up with inventory or whether it gets liquidated
08:23 fast.
08:25 So that's the thing that we are closely watching on.
08:28 But to your overall point, Neeraj, I would say demand is not that great.
08:33 And that we are seeing in the lighting category.
08:36 In our TV category also, we are seeing that there has been some kind of a softness in
08:41 demand.
08:42 So in our case, we have grown majorly on the part of either taking higher share of order
08:46 from customers or adding more customers in the category.
08:49 And then the margin expansion is happening mainly because of more focus on our own design
08:53 solutions and also backward integration.
08:56 Got it.
08:57 Saurabh, any risks to estimates of, well, what's the last one?
09:03 Okay.
09:04 16,500 odd crores for FY24.
09:08 That's what people estimate by and large, maybe FY25, 20,000 odd crores.
09:14 And that's a bit far off in this fast changing world.
09:16 But a half year done, you reckon 16,000 odd crores possibility?
09:22 So Neeraj, I would refrain from giving any number.
09:24 But clearly, I would say we have done well in the first six months, what we had budgeted
09:30 for.
09:31 And things are looking promising in the next six months, mainly on the part of the mobile
09:34 vertical.
09:37 So I would say, yeah, we'll definitely work towards achieving our budgeted numbers for
09:42 this year.
09:43 And my sense is Q4 should be a better quarter.
09:46 Q3, immediately after Diwali, there's always a kind of a slowdown that we see every year.
09:53 But Q4, because by the time some large customers will be ramped up in mobile category.
09:59 And also hopefully, yeah, the other verticals should also start performing by Q4.
10:03 Got it.
10:04 My final question, Saurabh, maybe I should talk to you about this at the end of the year,
10:07 but I'm tempted to ask this.
10:08 We'll repeat this again at the end of the year.
10:10 But your space from a listed market perspective is now well and truly developed, because there
10:17 are nine listed players currently, maybe six others coming.
10:20 So it's a very large sector that has gotten formed.
10:23 And a lot of people say that maybe EMS is where IT was in 2000.
10:28 And there is not just next few years, but maybe decade or two decade of period of growth
10:34 ahead of us.
10:35 Do you guys at Dixon, because you're the largest out there, look that far out?
10:40 Do you believe that that's the kind of runway of growth that exists?
10:44 Yeah, we also have the same convictions.
10:46 If you read the CLSA report, they have clearly mentioned that India's share in global electronic
10:52 manufacturing space is just 2%.
10:54 China is at 45%.
10:57 And they're saying by 2030, that number will go to higher single digit.
11:01 And then by 2040, the number can go to potentially 20%.
11:04 And if India has to become a manufacturing hub, not only for serving the large domestic
11:09 market, but also a global market, you need 7, 8, 10 companies similar to what you have
11:14 in IT sector, to take India to a global level.
11:17 So clearly, we have the same conviction.
11:19 And that is a whole reason that we are significantly expanding our investments, putting on more
11:23 capacities, getting up our organization, investing in more systems and processes.
11:29 So clearly, we think we are sitting on a very large opportunity.
11:33 And next 10 years is India's decade, is electronic manufacturing decade is our decade, I would
11:40 say.
11:41 Yeah, that's a great place to be in then, Saurabh.
11:44 Thanks so much for taking the time out and giving us a lowdown as always, Saurabh.
11:47 And wishing you and team Dixon a very happy festive season.
11:50 Yeah, you too.
11:51 Happy Diwali to you and everybody in BQ.
11:54 Thank you.
11:55 Thank you so much.
11:56 And viewers, thanks for tuning into this conversation.
11:57 And we'll see you next time.
12:05 Bye.
12:06 Bye.
12:06 Bye.
12:07 Bye.
12:07 [BLANK_AUDIO]