Dixon Technologies has capex of around Rs 400-450 crore for this year: Atul B Lall, MD & VC

Atul B Lall, Managing Director, Dixon Technologies (India) Limited, talks about expectations from the New Year 2022, capital expenditure, growth targets and expected profit growth among others during a candid chat with Zee Business' Swati Khandelwal. Edited Excerpts:

Q: The sector is all set to grow further in 2022, even the government has a special focus on it. What are your expectations and how are you looking at 2022 for your company as well as the entire sector?

A: I have a conviction that electronic goods and consumer durable goods that will be sold in India will be made in India. In this, many categories are globally comparative for India and Dixon and will access the global market. So, there is a huge tailwind and we have a conviction and a belief that there is some kind of inflexion point and Y2K movement for the sector as well as Dixon.

You have rightly said that we are on an aggressive growth path. Despite COVID, which has impacted the first quarter (Q1) and there were many supply-chain challenges, our revenue this year, compared to last year, which stood at Rs 6,400 crore, will be around Rs 11,500-12,000 crore.

Next year, we are targeting a revenue of Rs 17,000-17,500 crore. We are a beneficiary of several PLI schemes. In mobile, we are the first Indian company that has achieved the CapEx and revenue threshold and our incremental revenue of around 50-60% will come from the global market, the US.

Similarly, in the IT products, we are a beneficiary and in it, we have already targeted a very big global brand for commercial production of laptops and have started it and it will be a big revenue contributor for our business.

In telecom products, we have made a joint venture with Bharti Enterprises in which Airtel is our anchor customer. Consumer premises of the products includes ONTs, internet-of-things (IoT) devices. Production for Airtel will start in the next quarter, which will be a very big contributor.

Similarly, we have received the government's approval in the white goods in which we have a joint venture with a Japanese company. In it, we will make AC control boards just not for the domestic market but also for the global markets from next year.

In LED lighting, we have received PLI approval in backend integration and this scheme will also start at the start of the next year. Apart from this, in our FATL (Fully Automatic Top Loading) Washing Machine's plant, we have also tied up with the well-known global brand and its commercial production has already started from November 15, 2021. Now, we will roll out a DC refrigerator plant and in it, production is expected in Q4 of the next fiscal.

So, we have a very aggressive growth plan in existing verticals as well as in new verticals and electronics is a core in all these. So, this is our strategy, tailwind and government policies are supporting us and maximum brands are looking forward to outsourcing. Global customers are looking towards India for sourcing. So, the opportunity is quite big.

Q: An unprecedented demand has been seen in the segment. How will you match up with the demand and what CapEx will be required? Also, will it be the right time to have a look at every vertical as a wholesome business because the company has a number of verticals and each of them is performing well, if yes, what will be a strategy to have a specific growth chart for each vertical?

A: The company's balance sheet is very strong and the debt level is quite low. It has cash accruals, return on capital employed is above 30%, has a special focus on working capital intensity, which is at operating cycle (+/-) 3 days.

So, we have expansion plans in which we have plans related to capacity expansion in existing verticals or deepening of manufacturing or entry into new verticals. The balance sheet is supporting these growth plans but we will have to take some debt for these. We have a CapEx of around Rs 400-450 crore for this year. It seems the CapEx intensity will reduce from next year and will stand between Rs 225-250 crore.

We have P&L centres and each P&L centre is headed by a CEO, who are running these businesses independently and report to me and the board. So, there is an organisation bandwidth and there is a continuous focus on talent acquisition.

So, as far as structuring is concerned, it is not a challenge because one CEO looks after one P&L and lighting is different, home appliances are separate, consumer electronics and telecom is separate and mobile is separate. Keeping that in mind, the company has bandwidth.

Q: Will it be the right time, when you will list the individual verticals separately to unlock the value as huge potential is visible in each segment and good business is emerging on a standalone basis for those? So, is there any opportunity to list these separately or unlock them in any way?

A: Currently, we do not have any such plan. The common core in each of these businesses is electronics, so, our asset base is tangible. The machine that is used in lighting can also be used in television and computer monitors.

So, we do not have any plans to demerge the companies/businesses and get them listed. At present, there is a need to bring each together and grow the company to maximize the return on capital employed.

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Q: What will be your targets in terms of the bottom line, top line and margins, by the end of this year or the end of FY22? 

A: In 2020-21, our revenue stood at Rs 6,400 crore. This year, despite the pandemic, we are targeting a revenue of Rs 11,000-11,500 crore. For next year, we are targeting a revenue of Rs 17,000-17,500 crore. So, we have plans to triple the revenue in just two years and are confident that it will be achieved.

As far as margin and profitability is concerned, margins have been under pressure because it has been a challenging year from a perspective of the supply chain, where there has been a shortage in supply of semi-conductors/chips, commodities prices have increased, import freight has increased 8x to 10x.

Now, the situation is stabilising and commodities prices are also softening. So, in an interim period, there has been some pressure on margins and I think the margins will be restored to the original levels in a couple of quarters.  

Q: What will be the guidance on profitability in terms of percentage in absolute terms?

A: It is a significant growth phenomenon in which profitability will increase continuously by 30-35%.

Q: We have talked about the tailwinds and the government's focus on the sector. Now, let us know about the things that you will have to watch and will act as headwinds?

A: We have to be prepared. Last year, the industry and we thought that we are out of the COVID but the second wave stuck in April, May and June and impacted the business as well as people. So, the new variant of the virus is out now and we will have to have a guard against it.

Secondly, still, challenges related to supply chain, semi-conductors, chips and commodities are at a higher level. So by when it will soften and the margins will be restored should be put under a lens.

Thirdly, for any high growth company, the challenge is related to execution, when you are at a high growth then there is a need to acquire talents. The commitments you have made with your customers in terms of quality, cost, delivery, nimbleness and flexibility, should be delivered.

Manufacturing and engineering systems should be strengthened. There is a need to digitalise and talents should be acquired, talent and development are required. So, there are many works and they should be delivered. There is an opportunity and growth, we will make it happen and we should keep these factors in front of us.