Dixon Technologies (India) Ltd
NSE:DIXON
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Dixon Technologies (India) Ltd
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Ladies and gentlemen, good day, and welcome to the Dixon Technologies India Limited Q2 FY '23 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.
I would now like to hand the conference over to Mr. Pulkit Chawla of Emkay Global Financial Services. Thank you, and over to you, sir.
Thank you, Seema. Good evening, everyone, and welcome to the Dixon Technologies Q2 FY '23 earnings call. I would like to welcome the management and thank them for this opportunity.
We have with us today Mr. Atul Lall, Vice Chairman and Managing Director; and Mr. Saurabh Gupta, Chief Financial Officer. Without further delay, I shall now hand over the call to the management for their opening remarks. Over to you, gentlemen.
Thanks very much, Pulkit. Good evening, ladies and gentlemen. This is Atul Lall. And we also have on the call today our CFO, Saurabh Gupta.
Yes. Good evening, everyone.
Thank you very much for joining this earnings call for the quarter ended June '23 -- September '23. Coming to our overall performance for the second quarter. Consolidated revenues for the quarter ended September 30, 2023 -- '22 was INR 3,867 crores against INR 2,804 crores in the same period last year, a growth of 38%. Consolidated EBITDA for the quarter was INR 146 crores against INR 111 crores in the same period last year, a growth of 31%. Consolidated PAT for the quarter was INR 77 crores against INR 63 crores in the same period last year, a growth of 23%.
Now I'll share with you the performance and the strategy in each of the businesses going forward. Consumer Electronics revenues for the quarter was INR 1,501 crores with an EBITDA of INR 43 crores and an operating margin of 2.9%.
We have seen a margin expansion of 50 bps, mainly because of large ODM JDM business. In this business, there is a volume growth of 54%. However, the revenues look flat on account of the prices of open cell decreasing significantly in the international market.
We have the largest capacity in India of 6 million sets, including backward integration in LCM and SMT lines and catering to almost 35% to 38% of the Indian requirement. Our JDM business with our anchor customer has shaped very, very well, and we are in active discussions with other existing customers to offer ODM JDM solutions.
A significant development in the last quarter was closing of the ODM sublicensing rights with Google relating to Android and Google TV, which will open up a lot of opportunities for us since almost 65% of the Indian market is on this platform. We should be able to roll out the same by Q1 of the next fiscal.
We are also investing in setting up an injection moulding plant in this particular category in line with our strategy of deepening the manufacturing and backward integration. This should be operational in Q4 of the current fiscal.
Monitors, we have got orders from Dell and the commercial production has already started. We expect the volumes to be around 0.2 million in this particular category.
Coming to Lighting. Lighting revenues in this quarter was INR 290 crores with an operating profit of INR 24 crores, with an operating margin of 8.2%. In margin, there is an expansion by 1% against the Q1 numbers, which is in line with what we have been guiding.
The demand in this business is normalizing, led by liquidation of inventory in the channel and reduction in input prices, which will result in improved revenues and profitability in coming quarters. We are the India's largest ODM player in Lighting and have the largest capacities in various SKUs.
In LED bulb, we have capacity of 400 million, which is 45% of Indian requirement. We already have expanded the annual capacity in battens to 50 million and further in downlighters to almost 18 million. We're getting into new product categories like starting strips and rope lighting, which will be launched by Q4 of the current fiscal.
Our first supplies against exports to UAE is being executed in Q3 and we're working on some large RFQs for an anchor customer for U.S. market, and we are confident of winning this business soon.
We are in the process of acquisition of a smart lighting company, which is cutting edge blue edge -- cutting edge Bluetooth mesh technology that is in the process of development of WiFi-based technology solutions for lighting products. This acquisition, we will be closing in the current quarter.
New products leveraging this cutting-edge technology will be launched in -- by Q1 of the next fiscal. We are in the process of hiring a very senior person in this division as Lighting R&D head to further churn out more ODM solutions in different lighting categories.
We have also started work on investing under the PLI scheme for LED lighting components in line with our backward integration strategy. We are confident that this capacity of LED lighting components will be set up by Q4 of the current fiscal. The capital employed in this business has been significantly reduced to almost INR 85 crores year-on-year on account of better current sales management.
Home Appliances. The revenues for the quarter was INR 363 crores with an EBITDA of INR 33 crores. This is it 9% operating profit. The margins have improved year-on-year and quarter-on-quarter, led by passing on the impact of commodity cost to the customers, improved operating leverage and cost optimization measures.
We have 160-odd models in semi-automatic category ranging from 6 kgs to 14 kgs with an annual capacity of 2.4 million, and we achieved the highest ever production of almost 1.6 lakhs in the month of September.
In fully automatic category, we have got a capacity of 0.6 million with 96 variants across 6.5 to 11 kg with Bosch as our anchor customer. In addition to Bosch, we are also manufacturing for Lloyd and Croma and some other brands. We've already started touching a well -- volume of almost 22,000 to 25,000 per month.
We are also in final stages for getting a large contract with a large Japanese brand in FATL category for both domestic and global markets. We'll be introducing more designs with new features in both semi-automatic and fully automatic category. The order book in this business looks very healthy, and we're looking to add more customers in this particular business.
Mobile phones and EMS division. Revenues for the quarter were INR 1,594 crores with an EBITDA of INR 42 crores, 2.7% operating margin. For Motorola we did 1 million volume in Q2, and now we are also setting up a line for LED assembly in line with our strategy for backward integration and to deepen the manufacturing.
In addition to solar, we are manufacturing smart and feature phones for Nokia and feature phones for Airtel. We are also hopeful of getting more business from Nokia in coming months for both the smart and feature phones for both domestic and global markets.
As I have communicated to you in the last call, we are almost close to closing a large order with a couple of brands in mobile as well as [ LED ], both for domestic and exports market. I feel fairly confident that the production for these new brands is more to take off in Q4 of the current fiscal.
We manufactured 3.3 million and 2.6 million of 2G and 4G phones respectively for Samsung in Q2. We have started the construction activity in our new [ 5 weather ] integrated mobile facility in Noida.
We have also embarked on an ODM journey in mobiles. We have recruited a very senior resource as our R&D head for mobiles and a new team and a lab will be built in Hyderabad for that.
Security surveillance, Dixon's 50% share of revenues for the quarter was INR 118 crores with an EBITDA of INR 3.6 crores at 3.1% operating margin. The order book in this segment looks healthy, and we are going for further capacity expansion from 10 million per annum to 14 million per annum and we're also relocating our existing footprint from Tirupati to Kopparthi in Andhra.
In this particular business also, we will also start working on backward integration for mainly moulding and power supplies. Telecom and Networking products as a JV with Bharti for Airtel. The telecom piece is also looking very promising because Airtel will also keep on shifting more from imports to domestic manufacturing. We have started commercial production for them for an ONT category.
We have also bagged a large order from Airtel for HD Zapper set-top boxes and the mass production should start from Q2 of next fiscal. The PLI scheme has also been extended by 1 year along with additional hybrid set-top box and other telecom products added to the same.
We have taken up a new facility for this particular business, and this facility should be operational by December of the current fiscal year. We are in active discussions with some large global brands for existing and new product categories in this particular business.
We are also building an R&D and we've recruited a senior resource as R&D head for telecom devices. Laptops, tablets and IT hardware products. In addition to manufacturing laptops for Asus, we are also in the process of starting manufacturing of tablets for Lenovo whose volume, it's going to be almost 300,000 per year.
We are expecting that the government is going to roll out a revised more attractive PLI scheme for IT hardware products with higher incentive outlay, we are awaiting the same. Inverter controller board for air conditioners, a 40-60 JV with Rexxam to manufacture inverter controller board for air conditioner is now operational in manufacturing facility in Noida.
The revenue potential in this is quite immense with the strong EBITDA margins, both for domestic and export market. We are committing to make an investment of INR 51 crores over 5 years in this, in this Dixon share is going to be 20-odd crores.
Wearables and hearables. On the wearable side, the Indian market is the third largest market globally and is one of the fastest growing. In this, we have a partnership and JV with boAt, and we have already achieved a milestone of manufacturing 1 million devices per month. That's the number we touched in the last month. In terms of TWS and very shortly, we'll also start manufacturing neckbands and model watches. A new facility in Noida is being set up for that. We are hopeful and confident of, in fact, setting up this facility and making it operational by December this current year.
In line with our strategy in this particular category also we'll be setting up the SMT lines and at some point of time, looking at backward integration in the polymer processing space. In addition, we are about to start manufacturing of TWS smart watches for Samsung also in the dedicated plant in Sector 90 of Noida.
Refrigerators, we have started the construction on 20 acres of land in Greater Noida, where we are creating a capacity of 1.2 million DC under the categories of 190 to 235 litres with multiple features. We are in final stages of closing an agreement with a large brand with commitments of almost 0.6 million, which is 50% of our capacity. The trials of this particular product line are expected to take this by Q2 of '23/'24.
So thanks very much, and now me and Saurabh look forward to responding to your questions, please. Thank you.
[Operator Instructions] We take the first question from the line of Mr. Aditya Bhartia from Investec.
Sir, my first question is on the lighting business, wherein we have seen some challenges in the last couple of quarters. Just want to know how are you seeing things over there? Should we be anticipating an improvement in that business? What exactly have been the issues and some of the steps that you have taken to tackle that?
So as I say, if you recall, in our last interaction I had shared that there were certain internal challenges. We had an execution and we have a new management team taking over. Business is coming back to normal being reflected in the numbers. The margins have improved. We have come back to almost original level of 8% plus. Sales is improving. We have added new customers, the customer product portfolio is being expanded. New resources for exports have been making -- have been really acquired and have been deployed.
We have significantly improved the financials of this business. As I shared with you in my opening remarks that we have been able to reduce the working capital intensity by almost INR 85 crores. Exports to certain markets have taken off. So I think it's going to take a quarter or more to come at exactly back to normal into a growth path, but it's definitely come back to -- it's on the correct path. That's what I can share with conviction.
Understood, sir. And you referred to some exports to the Middle East region. If you could just elaborate how large is the opportunity? And are we seeing that ramping up over the next few quarters?
So this is the first export order being executed of multiple home solution lighting products. The shipments are going to be made in the current month.
I'm very sure that we're going to have repeat orders in this business. We are also pursuing, as I shared with you some large orders for our anchor customers for ceiling lights in the U.S. market. We feel and we feel confident that we can meet their target prices. So I think export business will definitely be the high point of lighting as a vertical but it will take some time. It will take a couple of quarters or so to ramp up.
Understood, sir. Sir, my second question is on the TV business. So this movement towards JDM and ODM contract, does the Google license make it even more lucrative and easier for us to follow a JDM opportunity? That's my first question.
And second question relates to questions that you mentioned that you're looking to move some of the other customers to JDM contracts as well. Are these existing customers who would get kind of upgraded towards JDM contracts? Or are we looking at new opportunities altogether as well?
So responding to the first part of your question, almost 65% is on -- of television market is on Android platform. And that -- I think that's the question, right? You had the first one?
No, I wanted to understand, sir, that with us having this Android license, does it become easier to follow the JDM opportunity to offer an ODM kind of a solution on the TV side?
So what I wanted to share was, one, what is the opportunity like? So almost 65% of the Indian TV market is on Android Google. And some of the large existing brands were also our existing customers are on Android Google platform. And they have already started engaging with us for migrating from prescriptive mode to a JDM ODM mode. That is one big plus.
Further, there were many brands, Tier 2 and Tier 3 brands, which were on USP, which would like to migrate to Google Android platform because the performance of the sets and also the cost competitiveness with an Indian partner like Dixon enhances. So there is a large opportunity undoubtedly. And we have already signed up with some brands like Acer for that. The existing brands with whom we are in discussion for migrating from prescriptive to JDM ODM. Sorry, I'm not able to share the names, but please be rest assured the dialogue is on and the response is positive.
We take the next question from the line of Sonali Salgaonkar from Jefferies India.
Congratulations on a great set of numbers. Sir, my first question is regarding the guidance for revenue and margins in FY '23. Now from last quarter to this quarter, we have added a lot of customers, a lot of initiatives, including the Google TV Android. So would you like to probably give us the guidance again? Or do we maintain that?
So Sonali, I think just hold it for some time. To be very candid, we're in the process of concluding certain large contracts. And you know very well the large piece of our business is the mobile opportunity, which is in the process of concluding. So just wait for some time for Saurabh and me to come back on these numbers. It's at the final...
Sonali, we'll have a better visibility in another month or...
A couple of weeks to a month.
A couple of -- yes, month, yes. So then we'll be able to better guide the market. So as of now, you should stick to our numbers, which we have guided for.
Sorry Saurabh, could you just for the benefit of all repeat the numbers of guidance as of last quarter?
Yes. So we stick to a guidance of around INR 15,000-odd crores, and we maintain that guidance.
Understood. And the margin at about 4%.
3.8% to 4%.
Yes, 3.8% to 4%, yes.
Okay. Got it. Got it. Sir, secondly, how is the demand scenario shifting up? I mean we concluded the initial Navaratries and we are just about to begin the Diwali. What are your initial [indiscernible] of the festive demand or the demand for the quarter?
So Sonali, we find as in certain categories the demand has been very good. We find that in televisions, the inventories of the shares with the retail outlets also both online and off-line. We find the demand of washing machines, particularly with some large brands who are our anchor customers to be very, very good.
We find the demand for hearables and wearables to be extremely good. However, I don't find in certain other categories to be demand as strong as these particular product categories that I'm talking about. So I feel that Diwali should be good for certain products. In fact, very good for certain products and average for some other products.
But we need to wait and watch for Diwali to get over because undoubtedly, the month of November is going to be muted. But I see the forecast that are coming to us for the month of December, we start going back to [ launches ], and the next quarter looks definitely much, much better and good. So is that kind of response I would like to share with you.
Got it. Sir, very clear. Sir, thirdly, on the price hikes, have we taken all the price hikes required to fully pass on the raw material cost calculation that we saw up till a quarter back? Of course, the commodities have started softening from now. But are we in a position to take further price hikes if required?
So if you see in our main ODM businesses that are washing machine and lighting and also the new business in which we have a step-by-step marketing to ODM JDM batch of TVs, the margin profile has improved.
We have touched 9% in washing machines, which is almost back to normal. And in lighting also, we have touched 8-odd percent. You will see that there is a 50 bps expansion also in the LED television as a category, which is primarily because of ODM business. So margins have almost normalized. That's what I would say.
We take the next question from the line of Mr. Dhruv Jain from AMBIT Capital.
Congratulations on a good set of numbers. Question on this the ODM opportunity in television. So how should we look at the margin here? So there has been a significant in terms of the ODM share on a Y-o-Y basis. So if we look at the margins you have in home appliances? Or what's going to be the margin profile here?
So Dhruv margins in ODM JDM business in television is going to move up in steps. I feel that when we migrate in Phase 1, the margin expansion is going to be somewhere in the range of around 50 to 70 bps. But then as I shared with you in my opening remarks that we are setting up the backward integration footprint of induction moulding and possibly later the metal processing, which will be operational in a couple of quarters. And once we're able to ship the toolings into India and the margin should expand by another 50 to 70 bps. So in 2 phases, I think the margins can expand by 125 to 150 bps.
And sir, I had a question on the Home Appliances piece. We've seen a fairly good growth on a Y-o-Y as well as on a quarterly basis. So -- and we've had some decent contribution from the FATL piece.
So if you could just quantify what's been the contribution of the FATL. And how do you see this panning out, say, in FY '23, the mix between FATL and semi-automatics in the [indiscernible].
In the current fiscal, Dhruv, we are targeting somewhere between 1.7 million to 1.8 million washing machine. Out of that, 1.5 million to 1.6 million is going to be in the semi-automatic category. 200,000 is going to be in the category of FATL.
If you recall in the last fiscal, we had done 1.1 million. So from 1.1 million to 1.7 million, 1.8 million, that's a significant growth. In the next year, I see the major growth is going to come from FATL. I'm aspiring that this 200,000 number should reach around 450,000, 500,000 because now we have a complete product portfolio and the customer acquisition is being worked upon.
In the semi-automatic category, that's a category which is kind of normalizing. We are working on some new customer acquisition, but let's see. In that category, I think the growth is going to be muted from 1.5 million, 1.6 million is going to be somewhere around [ 8 million to 10 million ]. So total, what we can aspire from 1.7 million to 1.8 million to reach around 2.2 million.
And sir, just a bookkeeping one, if you can just give us the volumes of -- volumes across categories?
Dhruv, LED TVs, the volume was 11.6 lakhs.
So that's a growth of 54% from Q2 of last financial year.
So as against 7.5 lakhs last year, there's a growth of 54%. But clearly, the revenues have not grown mainly because the selling prices of the portfolio come down from INR 18,000 to INR 11,500 and the significant portion of that is on account of the display or the open cell, which is corrected in the open market in the international market. Otherwise, in volume numbers, we have grown by 54%.
Our bulb numbers are around 42 million, 43 million. Batten was around, again, 4 million. Downlighters was 1.4 million. And then we had some small other categories.
Semi-automatic washing machine we sold around 4.6 lakhs. Fully automatic washing machine, we are now clocking a run rate of almost 22,000, 23,000. So it was around 64,000, 65,000 in this quarter.
Smartphones outside Samsung was around 10 lakhs. Feature phones outside Samsung was 13 lakhs. Smartphones for Samsung was around 26 lakhs. Feature phone for Samsung was around 33 lakhs. CCTV was around 14 lakhs. DDR was 13 lakhs -- DDR was 3 lakhs. Yes. So this is broadly the quantities that we sold. And for boAt, the wearables and hearables we did around 2.3 million.
So in BoAt, we ramped up our production to almost 1 million devices a month. And in the case of telecom devices that's the ONTs and modems for Airtel, we have touched a production level of 100,000 a month.
[Operator Instructions] We take the next question from the line of Mr. Sujit Jain from ASK Investments.
Compliments on a good set of numbers. Sir, when you speak about this export opportunity -- first of all, congratulations, after a lot of hard work that has opened up for us. But the categories that you speak about Home Solutions, strips, rope lighting, ceiling lights, et cetera, these look like smaller in terms of opportunity. So I just wanted to see that and check, on a medium-term basis, how large this opportunity could be?
So Sujit, please appreciate that Dixon's main focus till now has been on bulb as a category. And also, then we got into battens. Both bulbs and battens in India are reaching some kind of flattening sales because particularly in bulbs, because the government's program under EESL, a lot of coverage on the ground has been done.
And the market undoubtedly is shifting more and more towards ceiling lights. That is downlighters. And also, there is a lot of potential on the strip light's perspective. So both -- I mean on the downlighter side, ceiling light side, we are expanding our capacity to 30 million. And this 30 million should give us an additional revenue of almost INR 300 crores.
And the strip lighting wherein we are making an investment of almost INR 6 crores for setting up a new line should give us a revenue of almost INR 50-odd crores. This additional revenue of INR 350 crores from these 2 categories should come in, in a couple of years.
This you are talking about domestic opportunity, INR 350 crores?
I'm not looking at exports at all. Because exports, I'm not able to put the number in the budget. But if we are able to crack export then each RFQ is around INR 200 crores.
And that will be mainly in traditional products or these 2 new lines is what I'm trying to get at.
Ceiling lights. [ We appreciate ] in ceiling lights in U.S. market, there is a tariff differentials. When you import from China, the duty is 25%. When we import from India, the duty now is 5%. So there's a 20% arbitrage.
Right. and in terms of the margins in lighting division, is the issues in terms of high cost inventory et cetera is finally completely behind and so therefore, now we see sustainable margins in lighting division?
So as I shared in my response to Aditya's question, we humbly accept that there were certain execution issues at our end. And those have been addressed and those have been corrected. We have got a solid management team now running this business. And yes, we feel that there can be some temporary shocks here and there because there are so many moving parts in business, but to a very large extent, this business is on a stable note now.
Yes. So Sujit, we feel confident that margins going forward should be sustainable.
Right. But when I see we used to -- so we've done a margin of in lighting product at times a little higher than this on a full year basis also, including, let's say, FY '21, 8.8% margin. So do we get back to those kind of margins?
So getting into specific numbers might be a slight challenge, but we've already touched 8%. So yes, the teams are working with a lot of value engineering, consolidating the industrial footprint, automation, productivity improvement, backward integration, give us some more time.
I'm very sure that the margins are going to climb up once we start accruing the PLI benefits, so with the investment of INR 20 crores is being made in the current fiscal, once that factory becomes operational, the margin expansion will take place.
Right. and in TV, this Google Android license opening of opportunity has opened up an opportunity for us in terms of ODM solutions. But our main client, he has his own OS. So therefore, to that extent, the rest of the business have this opportunity. Is that a correct understanding?
Yes, yes, you're correct.
Yes, Sujit, that's the right understanding.
Sure, sure.
Like I mentioned 60%, 65% is the addressable market for us, which also if you look at in terms of volumes, we're talking about 14 million market and 60%, 65% would be 9 million, 8.5 million. So that becomes an addressable market for us. That will be a combination of some of your existing brands and also some of the potential customers, which are not with us today.
We take the next question from the line of Mr. [ Sandeep Sabharwal ] from ASK Investments.
I have 2 questions. The first question is, how does the pricing work with your large OEMs. So -- because the raw material prices are volatile so is it a quarterly reset with the annual pricing, how does that vary?
Saurabh?
Yes. So in almost 80% of the business, it is a prescriptive part of the business, the other understanding is that Dixon will not take any currency or commodity days. So that's immediately passed on. And we were not impacted with any kind of a commodity or the input price increases. It's only in the 20% of the business, which is predominantly the lighting, washing machine business and now some portion of the TV business share the commodity or the currency risk are passed onto the lag. Now it's a different understanding with different customers and some customers it is 1 month, with some customer it is 3 months. But -- so that's broadly the way we work with those customers.
And for this quarter, what would be the kind of PLI benefits you received or accounted for?
Yes. So in the first 6 months of this financial year, we have booked an income of almost INR 4.5 crores on account of the mobile PLI. Because as you know, we've already -- we're the first company under the mobile PLI, which has already received the first check from the government pertaining to last year.
And now the whole system is very much stabilized. And clearly, we see that the way it will work going forward is that whatever -- in whichever period you are able to achieve those revenue and CapEx ratios you apply, within a couple of months, we'll now get the PLI from the government. So that system is absolutely stable. So we have -- we feel confident and so we have accounted for around INR 4.5 crores in the first 6 months of the financial year.
So that's what you have accounted for -- so you account for when you receive or you keep on accounting for that?
Yes. So the way it works is we have accounted for our share of income. And the way -- as far as the balance sheet is concerned, it will be a receivable from the government only that receivable gets knocked off when the cash comes into the system.
And on the liability side, we'll be payable whatever our understanding with the various customers is there will be a payable on the liability side. So as and when the cash keeps coming in, would receivable and payable gets adjusted with that cash amount.
So in the first 6 months, only INR 4.5 crores has been accounted for, right, that's what you're saying across certain categories.
Actually, we had booked an income of INR 9 crores, out of which some portion has already come in as cash to us. And this year, yes, we are -- first 6 months we have booked INR 4.5 crores.
We take the next question from the line of Mr. [ Onkar from Shree Investments ].
Yes. My question was regarding the recent launch of 5G. So how would it exactly benefit Dixon? We would be the first to manufacture 5G devices?
Are you talking about the 5G rollout?
Yes, yes.
So 5G rollout, there are 2 potential opportunities for Dixon. One of course is on the mobile devices. So Dixon is one of the first few companies which has started manufacturing 5G and our infrastructure is all geared up. This is both for the domestic market and export market. That is one.
Second, on the telecom devices front, we have already registered under the telecom PLI scheme for the networking products, both for 4G and 5G. It is at a very basic level, but we are definitely exploring the EMS opportunities and dialogue with certain potential partners has started for doing these 4G, 5G networking products in our new factory. But it's at a very basic level. But undoubtedly, we have started dialogues with the potential partners.
How big this opportunity can be as per the management has been upcoming...
High qualification, and this is going to be a complex process. To put a number to this potential, I think it's too early at present. But we recognize this opportunity. It's a large potential opportunity. And the teams under our new CEO for this business, Sukhvinder, who was earlier with Tejas, the work has already started.
So there might be a better clarity in the next 6 months?
I feel that possibly something in this area, we should be able to conclude initial stages, but should be able to conclude by Q4 of the current fiscal, that is March quarter.
Okay. All right. In terms of the free cash flow generation, you have done pretty well this quarter and because of that ROE and ROCE has expanded well. So how do you see the trend for this ROE and ROCE for the full year as well? And for the rest of the year as well as for the next upcoming 2 years.
So we feel -- yes, if you remember last year, it was a bad year for us as far as the working capital was concerned because clearly, you had the shortage of components, supply chain issues last year on account of COVID and we ended up deploying money as the working capital.
So now clearly, those headwinds are behind us. And we are putting -- internally, we are putting a lot of effort to reduce our working capital intensity in lighting. So as you see the numbers, INR 85 crores of working capital is [ year marked ], and that has been significantly on account of the inventory reduction, which has happened.
Clearly, we need to do a lot of work -- further work on the -- on some of the working capital intensity that has been deployed in mobiles, which we're working on, and we feel confident that, that should also come down. So my sense is the ROC should only be on an upward trajectory side.
You should see better numbers as far as 31st March financials are concerned because clearly, we have the earnings visibility with us. And clearly, we see that more working capital intensity should come down because there's a huge amount of focus internally on managing that.
And as you see that if more customer additions and significant part of the growth area is in mobiles, which is predominantly will be a [ descriptive ] business and the working capital intensity as per the nature of the business would be small. And if that business contributes 40%, 45% of the revenues and even the other verticals like telecom and with the revised IT hardware scheme, all these businesses are businesses with low capital intensity, high asset turns.
So we see that the ROC profile of the company should keep going up. Very difficult to give you a number. But yes, it's what we are aspiring for in the next couple of years. If we continue on our plans and achieve our plans, I think so it should be a 40% plus ROC business for us.
40%? Okay. The overall business has Dixon as a company you are saying?
Dixon as a company, right.
ROC of around 40%?
40%, yes.
Okay. And as far as the cash and cash equivalent is concerned, you have around INR 200 crores cycles? And what would be the CapEx for this year or any planned CapEx for the next year?
Yes. In the first 6 months, we have done a CapEx of around INR 185-odd crores. And what we have budgeted for this year is somewhere around INR 320 crores to INR 330-odd crores. So broadly, we will land at that number only. And one needs to finalize the plans for next year, but my sense is broadly it should be in the similar lines for next year as well.
[Operator Instructions] We take the next question from the line of Mr. Gopal from SBI Life Insurance.
So the question is, in the last quarter, our revenue guidance were at INR 17,000 crore, and we were pretty confident on 4% margins. Are we revising our guidance down to INR 15,000 crores and even revising the margins down? Whereas if you have seen a decline in the commodity prices, ideally, it should have helped in terms of improving margins. So can you just help us, which are the segment would have kind of disappointed in terms of scale up?
Yes. So Gopal, we had -- of course, we had corrected the guidance last quarter only. So yes, you are absolute right, when we started this financial year somewhere around April and all, we were at INR 17,000 crores.
But within a couple of months, we had brought it down to INR 15,000 crores. And really, today, also, you are absolutely right that, of course, commodity prices have come down, and that is -- that you have seen that, that is reflected in our better margins for our lighting and washing machine business.
But at the same time, the Indian currency has also depreciated -- Indian rupee has also depreciated, which is again kind of -- have some kind of an impact on our ODM business where I mentioned that currency also gets passed on with a lag.
Now what has changed in our numbers? Clearly, we see that the mobile market was slow and the numbers that we'll end up doing for our anchor customer there for the domestic market. And it's not only true for our anchor customer. Overall, the mobile market was slow especially in the first quarter.
So clearly, one of the reasons for bringing down the guidance was our low sales on the -- of our anchor customer in mobiles. And also, we realized that the prices of open cell, which is also very dynamic globally, they had corrected significantly. And one is not an expert once started, the price is corrected further during the year.
So the revenue -- the volume growth in TV has been very good. And clearly, we have a plan for ODM, we have a plan for backward integration. But clearly, the price of open cell is corrected, which would lead to lower revenues or may not give to a revenue growth despite the volume growth this year. So these are 2 fundamental reasons.
And third, I would say some of the businesses that we thought would start up in the first or second quarter has taken slightly more time for us to ramp up and stabilize some of the new businesses. So I think it's a combination of everything put together, I think so, we reduced our guidance to INR 15,000 crores. But yes, that number is also dynamic.
We -- if we -- as mentioned by Mr. Lall, if we get 2 customers in place and the production for mobile start in Q4, the numbers can be potentially slightly higher. But yes, we don't want to commit on those numbers.
Second, the margin -- yes, margin, I think, so we still feel that it should be somewhere in the range of 3.8% to 4%. On a conservative basis side, I think so we are keeping a margin of 3.7%, 3.8% because there are a lot of moving parts right now in the business.
So also as Saurabh just explained, let me illustrate the TV business. In the last quarter, the volume has grown from 7.2 million, 7.3 million -- 7.3 lakhs to almost 11.5 lakhs. That's 54% growth. But the value growth has only been 3%. Now there are certain -- these are the moving parts in business which are beyond our control. So that's the reason. In any case, as Saurabh is sharing, we had corrected our guidance to this number of INR 15,000 crores in the first quarter itself, in the opening of the second quarter, yes. And the margin is -- dollar appreciation margin impact is because of the product mix, a combination of various factors.
Okay. Sure, sir. And so earlier in the call also, you said you'll give more color in the coming months about revenue guidance and all. So there, is it like upside on the revenue or that can be further downside to INR 15,000 crores?
So just wait for 2 to 3 weeks. We are in the process of concluding certain contracts. We are very optimistic of concluding, but there can always be a slip between the cup and the lips. So wait for some time.
Sure, sir. And the second question is on the margins for Home Appliances business. So we used to make 11.5% to 12% margins. Obviously, it has been improving for last couple of quarter. But by when should one expect a double-digit margin for this segment? Because even earlier, you were giving some indication of margin improvement because of FATL coming and mix improving. So if you can just give your...
Clearly, ramp up is -- commercial production has already started. As we shared in our remarks that we've already reached 20,000 to 23,000 per month kind of level. But still, the capacity is being utilized only at 40%, 45%.
It's going to take some time to reach a capacity utilization of 70%, 80%, which might take 3 to 4 quarters more because new customer acquisition is a long drawn process. There are technical approvals, technical audits, some new toolings. So I think further expansion, some minor expansion in operating margin in washing machine might take place in a quarter or 2. But to go back to a double-digit number, would take 3 to 4 quarters.
And sir, should one look at mobile division margins, should it be in the similar range of 2.7% to 3%? Or there is a scope for further improvement?
No. As of now, they would have been similar range.
We take the next question from the line of Mr. Bharat Shah from ASK Investment Managers Limited.
Two questions. One, given the way there has been lot of moving parts and operating change in the environment. And given the kind of business that we manage with long supply chains and deferring products, multiple centers in which we need to do our manufacturing.
Our [ returns ] earlier, so far, we've not probably fully reflected our potential. And I suppose you too would agree with that. Can we say now finally in terms of the size of opportunity, the way our operating teams have been set up, the benefit of PLI, the contracts that we have with the clients. And despite -- while still remaining in a very difficult and volatile world that we know, overall, we -- can we say this quarter is kind of a departure into the kind of Dixon that we want it to be and the strength at which it is supposed to perform.
In other words, would you say that we are kind of out of the kind of little slump that we were stuck in for a variety of reasons. Some internal, many external. But probably despite some of those factors remaining, is the current quarter period of now departure into a far more robust looking Dixon.
So Bharatji, undoubtedly, last few quarters, you very correctly stated that largely due to the external factors, somewhat to the internal factors were challenging. However, I think internally, the team has done well, executing some large projects, expanding our capacities, expanding our design capabilities, rolling out new factories, becoming an ODM player in televisions, getting into the verticals of telecom devices and doing it well, getting into the vertical of hearables and wearables and ramping up well, new talent acquisition, migrating to JDM ODM in the business of televisions.
So I think these are very significant positives, correcting the stress that we have had in the washing machine margins, a good rollout of FATL as a vertical. Similarly, lighting in which we had a lot of challenges is on a correction path. So I think those have been very significant positives.
Now have we covered the complete ground? I would say that we have covered 70%, 75% ground. There are certain large opportunities for which one has to close some more large contracts, particularly in this space of mobile, which one is fairly confident of cracking.
So once we have that, then undoubtedly, we are at next level of stability, which I'm confident that we'll be able to fructifying. On a medium- to long-term basis, undoubtedly, the opportunity is humongous, the kind of opportunities that are there in front of us. And also, we feel that we have the bandwidth and we are in an inflection point for that kind of thing. So that I'm very candidly sharing my viewpoint and thoughts on this.
Sure. I appreciate, Atulji. The second question, Saurabh mentioned that in a couple of years' time, we should be catching a return on capital employed of 40%, if not higher. Structurally over the years I have -- in many interactions, I have consistently heard that 40% or higher is something which is within the [ corrector ] infrastructure of the business and the way we run the business model.
Of course, due to very difficult volatile period of last couple of years, things have been different. We understand that. But these attainment of 40% now in a couple of years is a reasonable degree of certainty or it is still subject to kind of imponderables?
So Bharatji, you see, a lot of CapEx has been front-ended. For example, mobile, FATL plant, refrigerator, telecom devices, backward integration piece of lighting. [ The loss ] CapEx has already been made and in the current fiscal also, almost INR 330 crores, INR 340-odd crores of CapEx is going to be made out of which INR 185 crores has been made.
And in spite of this CapEx, particularly in the current fiscal, the borrowing, both at gross and net level has come down. And ROCE has improved by almost 250 bps. We feel that now we have to [ sweat ] those assets.
And as Saurabh shared in his response, that these are all high asset turn businesses. By nature and the DNA of what Dixon is all about, we are extremely focused on our working capital intensity on our operating cycle and current effects.
So one feels confident that in the existing canvas of business, our aim of touching a 40% ROIC is very much achievable, possible, and we have committed to it.
However, I'm not talking about the moving parts or challenges that any business environment can have, that is something separate. This particular industry of ours electronics manufacturing is on a high growth path. So if a large opportunity comes and it requires another round of CapEx, then we'll not shy away from it. Then again, the ROIC can be impacted for triggering the next round of growth. However, with the same canvas in which we are playing the game at present, we are fairly confident.
Sure. And basically, our size and scale will improve and therefore, operating leverage will kick in, that in turn should improve our margins plus the kind of mix of the business with their own design or pure manufacturing also further should improve our margins.
And therefore, will the principal source of improvement in return on capital employed will be the margins led by operating leverage or in addition, margins, which has generally improved due to the less hostile raw material and other situation, plus improvement in the working capital efficiency. So will all the levers are expected to work in this assumption? Or what is the principal assumption we are making as a source of improvement in return on capital employed?
There will a combination of everything, you would absolutely put it right. So on the numerator side or on the earnings side, yes, it will be a combination of operating leverage kicking in. Also, absolute ODM revenues going up, so the margin increase happening on account of the ODM migration to our own design solution because there is a strategy to migrate more and more to our own design solutions in every category.
Third, we are committed to do more and more backward integration in each of the verticals. So that should lead to margin expansion. On the denominator side, yes, the verticals that we have added. So just to give you an example, mobile, we have already done a CapEx of INR 200 crores. So a lot of CapEx has been front-loaded.
And there is a significant focus on managing their working capital. So on the denominator side, it will be a combination of better working capital management and also since a significant portion of CapEx has already been done on the opportunities that exist today.
We take the next question from the line of [ Amit Vadi ] from Metaverse Equity Fund.
Yes. So sir, my question is what demand trajectory in different verticals you are expecting in next financial year? And do you feel it will be hampered due to global uncertainty?
So what we feel is there is definitely a positive outlook in the vertical of television because of Google opportunity. I have already shared in response to my -- to the earlier question on home appliances that it is going to be a normal growth of around 10% to 12%, and which is going to come mainly from the FATL as a category.
In mobiles, we are working on new customer acquisition, which I've just shared that we are very confident of concluding soon. So that will be a significant figure. Existing businesses of CCTV is again going to see normal growth. We are expanding our capacity there.
Lighting, let's just wait and watch because at present, largely our business is in the domestic side, which is having a normal growth. In that, we are adding new product portfolios in ceiling lights, and strip lighting, which is going to give us growth in that business.
New verticals, undoubtedly, are going to be a high-growth area for us because the base is small, namely, the hearables, wearables, telecom devices. And we feel that by Q3 of next financial year, we are also going to have the commercial production started for a refrigerated volume. So it's difficult to put a number form, but this is the contours of growth one foresees.
We take the next follow-up question from the line of Mr. Gopal from SBI Life Insurance.
So if you can just give some color on this Xiaomi issues on the SMA side and all, does it have any impact on Dixon's television business? And second is on the competition side, we have seen a lot of companies investing into television manufacturing in India. So does that have any risk to our customers?
Xiaomi side, they are our large, large customer. And 95% to 98% of the requirement is done by Dixon. With the developments happening on the regulatory front, undoubtedly, we were also concerned. I personally had a deep dialogue with the India leadership team and also Beijing leadership team.
They've repeatedly assured me that there is no impact on their India business. The budget forecasting and the business that we have done till now, there has been no impact. There has been no impact on the payments or lifting of stocks.
In fact, they're revising upwards their forecast for coming quarters. So that's the insight I have. However, it's a large disruptive development for any government. So I don't have an insight, but this is the status of our current business.
Responding to your next question of comparative intensity. Yes, undoubtedly, the competitive intensity is increasing, and Dixon has to and is gearing up for meeting that competition. So one is, the capacity would generate an operating leverage for us.
Second is the deepening of manufacturing and backward integration. So we will be, and we already are the most backwardly-integrated plant. Third is owning the design. So in this year itself, almost 25% to 30% of our manufacturing in television is going to be Dixon design solutions. This enhances the stickiness with our customers.
Fourth is owning the Google Android license. This gives us a much larger leverage because no other ODM player in India has that license. Next is that as on date, we are much ahead of our competition. We're at least 2.5 to 3x the #2 player and I think almost 6x the #3 player. So we have that advantage. But yes, of course, we are in a good position, but the hubris should not settle. And we have to keep on working to keep on satisfying and adding value to our customers so that we enhance the stickiness. That's it.
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to the management for closing comments.
So thank you very much for participating in this call and wish you all a very, very happy Diwali. Thanks once again.
Thank you very much. Happy Diwali to, everyone.
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.