Dixon Technologies will start manufacturing mobiles from mid-January under PLI Scheme: Saurabh Gupta, CFO

Saurabh Gupta, Chief Financial Officer, Dixon Technologies (India) Pvt. Ltd., talks about his preparation for Diwali season, margin and expectations, demand in the consumer electronics segment, set-top boxes & medical devices business during an interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

Q: How are you preparing for Diwali and what kind of response you are getting and what change or positive cues have you seen in Demand?

A: The demand is good. And you would have seen that we have posted good results in Q2FY21 and there was a growth in revenue as well as the profit. I expect that the momentum will continue in Q3FY21 and Q4FY21. The orderbook that we have received from our customers seems very good and I feel that Q3 and Q4 will continue to be a good one. All of our factories are running at almost 85-90% level. And, we are going to start a new business of mobile for which approval was granted under the PLI scheme to us a few weeks ago. So, we will be able to start its production from mid-January. Overall, this year’s outlook looks very good and it seems that we will get good growth in terms of revenue and profitability. And, the next year can be a very big one for us. So, the demand is sustainable and we believe that it will demand even after the festive season and our orderbook is very strong in every vertical. 

Q: What kind of expansion is expected in terms of margin and do you think that the margin expansion like Q2Y21 will continue or it can improve further?

A: I think, these margins of Q2 will be definitely sustained in the Q3. Our margin is coming due to an increase in the scale and size of the business, which is bringing operating leverage in the system. Secondly, we have done a lot of work on automation, to improve our productivity in every vertical and manufacturing cost, which is reflecting on the margin expansion. I think you will see a margin expansion in Q3. Next year, this margin expansion at the company level may reduce slightly because of the mix of sales will be more towards mobile, next year, and we will get almost 40%-45% revenue from mobile, which is a slightly lower margin business. It is 3%-3.50% margin business as against our company level margin, which is 5.50%. But the absolute growth, the margin will lie between 4.50% and 5.50% depending on which vertical is contributing the most in which quarter. However, our revenue and EBITDA growth will continue to be a good one next year as well. 

Q: Consumer electronics segment has grown 30% YoY. Do you think that it was a pent-up demand post lockdown or it is a real demand, which will continue, if yes, what are the growth levels that you are expecting, particularly in the consumer electronics segment?

 A: Two-three things have occurred in the consumer electronics segment. 

We do not feel that it is pent-up demand and it is sustainable because our orderbook for Q3 is very big. We will work on 90% capacity utilization in the Q3. 
The government in the recent past made certain announcements where TV – basically a consumer electronics product – was brought under the restricted category. Earlier, it was in the open general category due to which 30% of the TVs were being imported from ASEAN nations, mainly China and Vietnam, and it will make a huge difference on it and going forward TVs will be manufactured in India itself. This will encourage Indian manufacturing, which will also deeper the level of manufacturing. Dixon is the largest payer in India in terms of capacities and we have a capacity of 4.4 million, whereas India is a market of 14-15 million. We are increasing the capacity further from 4.4 million to 5.5 million, which is contributing to around 40% market requirement of India. This is why I feel that the vertical will grow by 30% this year and I feel that we will be able to post a 30% growth next year as well because few more customers are likely to join us in the quarter three and four, who were not with us earlier. And, the orders of the existing customers have increased with us. 

Q: You talked about mobile manufacturing and the street is very excited about it and you have provided the timelines that you will start manufacturing from January under PLI scheme. Now let us know about the kind of impact the set-up boxes and medical devices - in which you forayed in the recent past – will have on your books?

A: The business of set-up boxes will be a good one and its ROC will also be very good because much incremental replacement will not be required there. October onwards, we have received orders for 3 lakh set-up boxes for a month and we have already catered the order of 5 lakh set-up boxes in the second quarter. It can be a very big opportunity next year, which may range between Rs 800-1,000 crore and will provide an EBITDA margin of 3%-3.50%. Its ROC profile will also be a good one. We have also started medical electronics and our first order was of around 40 units and then in October, we have dispatched the order of 150 units. I think the quantities will increase gradually and will reach up to 300 units by December.

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The visibility in this vertical is also very good because the demand is good here from the government and private labs and the margins profile will continue to increase in it. So, the outlook for the two verticals, especially the set-up box, is very good.