Dixon Technologies (India) Ltd
NSE:DIXON
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Dixon Technologies (India) Ltd
Earnings Call Analysis
Q2-2024 Analysis
Dixon Technologies (India) Ltd
The company reported consolidated revenues of INR 4,943 crores for the quarter ended September 30, 2023, marking a 28% increase from the INR 3,867 crores recorded in the previous year's comparable period. Profit after tax (PAT) grew even more impressively at 47%, from INR 77 crores to INR 113 crores. Their focus on long-term value creation and strategic capacity investments has been paying off, with returns on capital employed (ROCE) and return on equity (ROE) climbing to 32.9% and 24.4%, respectively.
The company's venture into consumer electronics has yielded revenues of INR 1,440 crores, with strategic partnerships such as Google and Samsung poised to further enhance product offerings and margins. In addition, the rolling out of India's first ODM-based Google distributions signals a significant advance in their ODM solutions. Their lighting business faced challenges due to a technology shift to driver-on-board (DOB) LEDs, leading to a unit value decline of 30-35% and a slight market share loss despite maintaining competitiveness. Even with these headwinds, they have launched new lighting products and are expanding their export business.
The company's washing machine segment saw operating profits of INR 42 crores and initiated manufacturing of fully automatic washing machines for key clients, showcasing an ability to adapt and grow amidst dynamic market conditions. The mobile segment, the most significant growth contributor, saw revenues soaring by 77% y-o-y, and with an order book featuring 15 million units of Jio Bharat phones, the company is ramping up to meet escalating demand.
The company is exploring new market segments such as set-top boxes with revenues in this domain reaching INR 173 crores. The introduction of android set-top boxes for Airtel and partnerships with global ODMs highlight their diversification strategy. In response to India's revised PLI scheme for IT hardware, they have applied to the government's hybrid category, expecting approvals that would bolster revenues significantly.
Investments in backward integration and operational enhancements in consumer electronics are set to improve margins by 15-20 bps. Additionally, capacity expansion in the JV with Rexxam and a solid order book in the air conditioner inverter controller board business are indicative of strategic foresight and growth potential.
With a projected increase in volume from 3.4 million to potentially 3.7 million, depending on upcoming Diwali sales, the company is preparing for future demand. Simultaneously, they've largely executed the required capital expenditure in the mobile business segment, indicating a focus on future readiness without overextension.
The company is ready to begin mass production of 1.2 million direct cool refrigerators by Q4 of the current fiscal, creating capacity for more than 10% of India's requirement and signaling a robust business outlook. They are also initiating production of critical components in-house, further solidifying their operational backbone and market position.
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Ladies and gentlemen, good day, and welcome to the Dixon Technologies Q2 FY '24 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair. Thank you, and over to you, ma'am.
Yes. Thanks [ Chandu ]. Hello. Good evening, everyone. Welcome to the Q2 FY '24 earnings call of Dixon Technologies. We have the management today being represented by Mr. Atul Lall, Managing Director and Vice Chairman; and Mr. Saurabh Gupta, Chief Financial Officer.
I now hand over the call to Mr. Lall, post which we'll open up the floor for Q&A. Over to you, sir.
Thanks very much, Bhoomika. Good evening, ladies and gentlemen. This is Atul Lall, and we also have on the call today, our CFO, Saurabh Gupta.
Good evening, everybody.
Thank you very much for joining this earnings call for the quarter ended September 2023. Coming to our overall performance for the second quarter. Consolidated revenues for the quarter ended September 30, 2023, was INR 4,943 crores against INR 3,867 crores in the same period last year. This is a growth of 28%. Consolidated EBITDA for the quarter was INR 200 crores against INR 146 crores in the same period last year, growth of 37%.
Consolidated PAT for the quarter was INR 113 crores against INR 77 crores in same period last year, which is a growth of 47%. Our team's focused execution in a challenging operating environment helped deliver a strong earnings and improvement in operating margins year-on-year on account of operating leverage, cost optimization, efficiency measures across all businesses.
We continue to invest in our capacities and diversify into new growth categories to support long-term growth opportunities with huge focus on quality, manufacturing excellence and consistently meeting the needs of our principal customers, and we strengthen our consumer as a key player in the industry. With a strong capital allocation discipline, effective working capital management and earnings improvement, we were able to expand our ROCE and ROE to 32.9% and 24.4% respectively as on 30th September '23.
And we feel confident that the same would keep improving in upcoming quarters and years on account of improved earnings, working capital efficiency, higher asset turns in most of the businesses. The strong balance sheet, high liquidity and enough credit lines from banks enables us to -- direct growth capital swiftly and enables us to invest in the long-term development of our business for long-term value creation.
Our foremost objective continues to be a part of India's long-term story and to write the country's robust consumption narrative and making an initiative to achieve industry-leading growth. Now I'll share with you the performance and the strategy in each of the segments going forward.
Consumer electronics revenues for the quarter were INR 1,440 crores with an operating profit of INR 49 crores that is 3.4% operating margin. Operating profit margin expanded by 50 bps year-on-year on account of operating leverage, continued focus on backward integration and increasing share of ODM solutions.
Revenues for the quarter was 4% lower year-on-year, as it included INR 79 crores of revenue contribution from AC inverter controller boards business, which was subsequently transferred to the JV with Rexxam in the current year. Also the festival calendar shift has led to spillover of some consumer demand from Q2 to Q3 in this fiscal.
We have rolled out India's first ODM-based Google distributions from Google in the quarter under review and we're getting a positive response. We've also entered into partnership with Samsung for their Tizen operating system will be sublicensed for us to offer to other domestic brands and is expected to be rolled out in Q4 of the current fiscal.
We have started injection moulding shop for TV and have also invested in LED bar assembly line in line with our continuous focus on backward integration strategy to deepen the level of manufacturing endeavors. We have also advanced in exploring new products such as commercial displays, news and public advertisements and information displays and interactive boards for use in education institutes and offices and have got some initial orders.
Lighting. Revenue for the quarter was INR 181 crores with an operating profit margin of 7%. Apart from sluggish consumer demand and increasing competitive intensity, reasons for lower revenues year-on-year high reduction in price due to drop in commodity prices and trade rates and migration of LED bulb technology to DOB that is driver-on-board, which are priced approximately 30% lower as against the same period last year.
Since LED bulbs are the largest category in lighting products, it has a major impact on revenue growth. We have launched striped and rope lighting in Q2 and have received extremely good response from our customers. We are on track to launch professional products by Q4 of this financial year, new product introduction across all product categories will continue at rapid pace for the rest of this financial year. We have expanded our export business with new customers coming in, in Germany and U.K. We are expecting to close the some more export customers in the coming quarters.
Home appliances, revenues for the quarter were INR 364 crores with an operating profit of INR 42 crores with expansion in operating profit margin of 11.6% led by passing on impact of commodity costs and exchange rate fluctuations to customers. Improved operating leverage and cost optimization measures in line with the backward integration strategy, we set up our own tool room for inhouse mould manufacturing and already started manufacturing the same for Bosch in semiautomatic categories and Panasonic in fully automatic categories. We have started manufacturing fully automatic washing machine for Voltas Beko, which is a large customer for us in semiautomatic category and also launching new models for Lloyds, Reliance and Panasonic in FETL category in the current quarter.
Mobiles and EMS division. Revenues for the quarter were INR 2,819 crores, a growth of 77% year-on-year, with operating profit of INR 93 crores, a growth of 119% year-on-year with a margin expansion of 60 bps to 3.3%. We've got increased order book from Motorola. One of the recent noteworthy highlights is securing a large order of Jio Bharat phones with an order book of 15 million units. Mass production for same started in September with 1.5 million units already manufactured till date.
We've entered into a strategic partnership with Nokia, and we are manufacturing more than 1 million phones for them per month. We started manufacturing Xiaomi's smartphones in a new 3.2 lakhs square feet facility in Noida. We expect the volumes to ramp up to 0.3 million per month in Q4 and then to 0.5 million per month in subsequent months. Such large order wins showcase our reputation as a reliable and the most preferred manufacturing partner in mobile industries. We are further also in discussion with some other large global brands for smartphones and we are fairly confident of concluding this business in Q4 of this current fiscal.
Telecom and networking products. Revenues in this segment for the quarter was INR 173 crores. Our new facility in Noida got operational in December '22 and is now stabilized in mass production of android set-top boxes for Airtel and partnership with a global ODM has commenced. Also manufacturing of HD Zapper set-top boxes for Airtel will start in current quarter. We've also got a large order from India's largest telecom for Internet set-top boxes, which commences by Q3 of this fiscal and also 5 GCP devices that is expected to start from Q4. We are in active discussions with some large global brands for existing and new product categories and building a strong team for joint R&D with our partners to support our end customers from India.
Laptops and tablets. Revenues for this segment was INR 52 crores. The government has recently announced revised PLI scheme for IT hardware products with higher incentive payout. We've filed the application under hybrid category and committed investments to INR 150 crores with much higher revenue incentive potential and expect the approval from the government to be coming in shortly. In addition to this, the order book has been increasing monthly. We are in now advanced stages of discussions with some large global brands in this category.
Wearables and hearables. Revenue for this segment was INR 385 crores and healthy operating margins and high ROCE. We clocked strong volumes of TWS to BOAT and have healthy order book for upcoming quarters and will be adding smart watches in our product portfolio in the next couple of months in this order book. In line with our strategy of deepen the level of manufacturing, the SMT with PCBA will also be done in-house in the current fiscal and we are also exploring the possibility of starting the manufacturing of battery pack.
Security surveillance systems. Dixon's 50% share of revenues for the quarter is INR 140 crores. Operating profit margins are lower this year in this business due to under-absorption of the duplicated fixed cost structure, both in Tirupati and Kopparthy campuses. We have already expanded the capacity from 10 million per annum to 14 million per annum in our facility in Kopparthy which has already got operational in the first quarter of '24. Further expansion of capacity in Kopparthy plant is planned in line with the increased order book from our principal customers, which will deeply improve our profitability and margin expansion from Q4.
Rexxam Dixon Electronics which are 40-60 JV with Rexxam of Japan to manufacture inverter controller boards for air conditioners. The JV achieved revenue of INR 72 crores in Q2 with healthy margins and 100% ROCE in this business. We have a strong order book for this JV. We supply to Daikin and also we are planning to start exports under this business by next fiscal. We have achieved the CapEx threshold and revenue thresholds for the current fiscal year under the PLI.
Refrigerators, we have created capacity of 1.2 million direct cool refrigerators, which is more than 10% of India's requirement under various product categories of 190 liters to 235 liters with multiple features. Mass production is expected to start by Q4 of current fiscal. The trials have already started. We will further introduce glass door models and also 2 door frost free in the next financial year. We've got a positive response from both global and national banks in this business.
I would like to stop now and me and Saurabh are there to address your questions. Thank you.
[Operator Instructions] First question is from the line of Aditya Bhartia from Investec.
Sir, my first question is on the consumer electronics business wherein if you could guide us how exactly the order book is looking like. Because we are having a delayed Diwali this time around. So what proportion of those seasonal sales are likely to be coming through in third quarter? And within that, you mentioned a bit about backward integration initiative. Is there anything more that you can add to it? What's the kind of value addition that overall increases? And what kind of benefit do you see at the bottom line?
So Aditya, Diwali is around the corner. And a lot is dependent on how the final consumer sale takes place in the next two weeks or so. But overall, we see that in this business, there will be marginal growth in volume on the yearly basis. Last year, we had closed around 3.4-odd million. If things go right on Diwali, we should close this current fiscal at around 3.6 million, 3.7 million. That's what the number looks as of now.
On the backward integration piece, the injection moulding plant has already become operational and in that concerned business, there is an approximately in which we are able to do the injection moulding and expansion around 40 to 50 bps. And in the case of LED bars which is expected to start in a couple of months, there would be another 15 to 20 bps expansion.
Understood sir. That's great. Moving on to the lighting business. That's a business where you have been seeing quite a few challenges and you spoke about intensifying competition. What exactly has happened over there because we didn't have unparalleled scale. So how does that competitors have been able to hurt us and gain market share from Dixon given that their costs are likely to be much higher?
So Aditya, what has happened in this business was that in Dixon's scale, there was large dependence on LED bulbs. Now LED bulbs because the whole technology has migrated to DOB, so the unit value has declined by almost 35% to 30%. And second, the overall volumes have also significantly compressed. That is the reason that we have had this hit. These are the 2 main reasons. As far as the comparative strength is concerned, in these categories, we still maintain that we are most competitive.
Okay. So in terms of market share, are you saying that there is unlikely to be any major loss that we would have for the last 2 years?
So we've grown our numbers, the absolute numbers in the categories of battens, if you compare last year in the categories of ceiling lights, downlighters. In the category of LED bulbs, the absolute number has fallen. Partially, we see it's basically because of decline in the overall market itself. There might be a small loss in the market share. But the main reason for that is the fall in the overall volumes.
The next question is from the line of Deepak Krishnan from Kotak Institutional Equities.
Congrats on a good set of numbers. Maybe just on the mobile segment, the sharp sequential acceleration we've seen in this quarter. Is it largely all related to domestic demand? Or how do you kind of see the outlook going ahead for the full year and the second half?
So it is largely due to the domestic demand. Now we are seeing and expecting export volume also to come in from our largest anchor customer in the smartphones. Also in future for Nokia, we are going to be starting exports. Please appreciate that mobiles is the largest figure of growth for Dixon. And the large customer acquisitions that we have made in both Xiaomi and itel. In itel case only feature phone has kicked in. The smartphone still has to kick in. And in Xiaomi's case, we have successfully completed the trial and the commercial production is going to take -- is going to get initiated in the next month and then the ramp-up will happen.
So the order book looks extremely heavy. And we feel that it is a significant contributor to our growth and revenues in the coming quarters. We are further in discussions with a couple of very large mobile brands. We're fairly confident that we should be able to conclude these large businesses in possibly the next quarter.
So you would indicate that maybe it still has further legs of room given the healthy order book in Xiaomi and maybe itel smartphone we are yet to kick in. Is that understanding correct?
That's right.
The next question is from the line of Renu Baid from IIFL Securities.
Congratulations for the strong results. My first question is on coming back on the mobile segment. While you have mentioned about new customers kicking in, can you also explain would we require to further invest in new capacities because recently commissioned plant is largely for Xiaomi. So what is the outlook of CapEx for the mobile segment? And given that large domestic brands are on board for the domestic market, what kind of growth and scalability can we look in this segment or category over the next 2 years?
So Renu, a lot of CapEx in the mobile business has already been contained. So we have covered what is required to be done. Largely, there would be some additional CapEx, but largely, it has already been executed. On the second part of your question, yes, Xiaomi still has to kick in, which hopefully is going to be a large figure of growth and the other customer that I mentioned is also going to get into the execution mode by Q4 that's what we are aspiring. And then we are working with a couple of other large global brands. If we are able to conclude and we're fairly confident about it that should get concluded by next quarter, and it should come in execution mode by end of next quarter or by bringing of the first quarter, the next fiscal.
And numbers, sir, that we can quantify in terms of the scalability of this vertical for us?
See, we've already shared the numbers of the 2 accounts that we've already acquired. So that is kind of we are fairly confident about. On the new businesses, it's still fairly premature to share the number on that.
Got it. Then strategically, if you look at while you participated within the hybrid category for IT hardware, if you look at the backward integration mandates, it requires quite a bit of capability built up on the PCB space as well as some AT&T activities on various components. So what are the kind of backward integration intensity that we are targeting in the IT hardware PLI 2.0?
So Renu, right from the day 1, we planned to start with the PCB SMB inhouse. Further the road map is going to be the localization and then announce also partnership on the power supply side, also on the display module side and also on the mechanical side. Now these are 3 major inputs that we've not been looking at. But it's still slightly early because one the IT PLI 2 award, still have to come from the government.
And we are in final discussions with another large global brand. Hopefully, the contracts will be awarded to us in the forthcoming quarter because this backward integration plan is finally dependent on the expectations of your end customer because there are various technology inputs required there and global partnership requirement. But largely, the backward integration road map is what I've just shared with you.
Got it. And last question, if I can. Strategically, if you see now with a wide base of customers within the mobile PLI, our positioning within the consumer electronics is very strong. And the business that we have been able to remodel over the years is generating sufficient free cash to not just invest in the current growth, but also look at potential new opportunities.
So strategically, are you looking at from a 4- to 5-year perspective beyond the consumer electronics within the EMS segment, you think there would be other businesses or categories where you would like to explore and look at growth? Or Dixon will continue to be a consumer electronics focused B2C play within the EMS market?
No, no, it's going to be our endeavor, Renu, to look at the higher-margin categories, to look at the possibility of participating in the component ecosystem opportunity. So definitely, because I think we'll be generating enough cash to build those businesses. And in Dixon, we're definitely going to look at it and jump on that opportunity.
The next question is from the line of Venkatesh Balasubramaniam from Axis Capital.
Now we are embarking on this IT hardware PLI, and we are trying to participate in that. Now when we observe this, it seems a little different from other categories that we have participated in the past because in all other categories at some point in time, the government did implement import duties.
So I believe that, that helped us compete with manufacturing happening in China or say, Southeast Asia. Now given that IT hardware we cannot India as a country under the World Trade Organization cannot put import duties, how would the manufacturing cost in India compare with that in, let's say, China or Southeast Asia? And is the IT PLI, whatever benefit between whatever 4% to 6% or 7%, is that enough to make up for that cost difference? Or do you think the government needs to give you more incentives to make this a success, like, say, what has happened in mobiles?
We have done a lot of groundwork on this particular aspect. The point that we have raised is very, very pertinent. And we are confident of offering the manufacturing charges to our potential customers, which are similar to the global charges. And that's the key.
I think we have been able to reach that level of efficiency and on that basis, we are confident that we should be able to get the contracts awarded to us. Anything coming through the PLI route, we feel it's going to be additional leverage for getting into this business. So I rephrase the manufacturing charges offered by us are comparable to the global EMSs.
Okay. So is it because we are saving a lot on -- what exactly it is on staff costs? Is it labor costs which are much lower here? Like how do -- how are we able to compete?
So the efficiency on the lights, the infrastructure that we are trying to build is going to be as efficient as productive as the global EMSs. Second, there's going to be add-on infrastructure on our mobile infrastructure. So we'll be migrating that operating leverage because it'll be on a marginal costing basis.
Okay. Okay. Understood. Now just one last question from my side. When I look at your numbers, the numbers in this quarter have been basically been driven by 3 -- at least revenues have been different -- driven by 3 subcategories. One is mobile with almost INR 3,600 crores of revenues, hearables and wearables with around INR 575 crores and telecom at INR 275 crores. Is it possible to share what is the kind of indicative targets you have for the current year for these 3 subcategories?
So I don't want to share the numbers. Yes, but broadly, Saurabh can separately share with you. But specifically, we don't want to share. We're not in a position to share the numbers.
The next question is from the line of Abhishek Ghosh from DSP.
Sir, just a couple of questions. First is, your top line over the next 2 to 3 years is likely to grow at that 30% CAGR plus. Is that, how should we look at the overall contributions from mobile that should come in over the next 3 years? And also the export piece, if you can just broadly help us understand your option.
Abhishek, so clearly mobile is the largest figure for our growth. So if you look at this quarter also the mobile and EMS has contributed more than 50% of our revenues. And if you look at the opportunities and all the verticals put together, and if you look at the opportunity, mobile is the largest opportunity that we are sitting on both as an industry, so addressable market and for us will be significantly quite all the major large brands that are in discussion with.
So my sense is over the next few years, the number potential of revenue contribution coming from mobile can fall anywhere between 60% to 70% because that's where the largest growth is happening. So this -- I hope this addresses -- answers your question. What was the other question you mentioned, Abhishek?
The exports piece...
Yes, exports last year, we did INR 1,000 crores on a top line of around INR 12,200-odd crores. Hopefully, our export business is one will be led by our anchor customer in mobiles, which is Motorola and also Nokia, which Mr. Lall just mentioned. And I think we have initially just started with some export orders and hopefully, it should keep getting better year-on-year.
We are in discussions with some large chains there and so my sense is this year, the export revenue can potentially look like somewhere around INR 2,000 to INR 2,500-odd crores. So percentage contribution suppose last year INR 1,000-odd crores on a revenue of INR 12,000 crores, percentage was 8%, 9%.
So this year, the percentage goes up. And hopefully, this percentage will continue to go up because the customers, the brand that we're acquiring are initially mostly for domestic markets, but gradually once we execute it well, some of the brands have the potential for global markets as well.
Okay. That's very helpful. Just one other thing. Mr. Lall mentioned the thing that you're also looking at newer clients for the mobile business. If you can help us understand 2 things. Is this for the export market or the domestic? And if it's for the domestic market, since you already have a fairly dominant player Xiaomi as your customer, does it deter you from having some of the other market leader as a customer? Any thoughts on that?
So we are discussing with a couple of large global brands. Initially, it's going to be for domestic market. But as Saurabh mentioned, we are hopeful that it will be executed well then the export opportunities will open up for us. Beyond this, to share details at this stage will be premature.
Got that. And sir, just one last thing. Since you spoke about also you look at newer opportunities in the EMS space, some of the space that we're looking at they're really different from the way your business model is in terms of working capital, the return on equity. So any thoughts of diversifying into businesses, which are capital intensive in terms of working capital? And the return on capital is much lower than the ones that you enjoy. Any thoughts in terms of diversification into those segments of EMS?
So see, Dixon is on a high-growth path. On a blended basis, we are extremely focused on the return ratios, on the strength of our balance sheet. But there are certain businesses in which the margin profile can be significantly higher and also the competitive intensity may not be as intense.
So on a blended basis, we've seen that our return ratio thesis will never be compromised. But in some of these businesses, it might have an impact. So we feel that now we have the capability and bandwidth to explore those kind of businesses also. So it is today at conceptualization and exploration stage, but we are absolutely committed and serious about it to pursue this.
The next question is from the line of Sonali Salgaonkar from Jefferies India.
Sir, my first question is, again, an extension of Abhishek's question. Could you quantify the CapEx that we are expecting in FY '24 and if there is any change in FY '25 guidance?
We have done a CapEx of INR 331 crores till September. A lot of CapEx, Sonali, has already been front-ended. We feel that in this fiscal, we're going to close at approximately INR 500-odd crores. Next year, I think the CapEx intensity is going to be lower. So that's what we see. But the next year budgeting is still to be done and the IT PLI award still has to happen. And some of the new accounts in mobile are still in advance stages of discussion. So to give that number is difficult. But for '24 numbers, we see that overall number going to be within INR 500 crores.
Understand. Sir, my second question is regarding the incentives on PLIs. Sir, could you help us with an update as to how many incentives we have received so far? And what's the quantum of that? And how are we accounting the same?
Yes. So Sonali, we are a beneficial of 5 PLIs. So mobile PLIs, we've already received 3 reimbursements from the government. And so we are absolutely -- I think we got the checks till December '22, December 2022, and our application for the period January to March has already been appraised. What we understand is that we should get the disbursement very soon and in the next couple of weeks, maybe earlier.
Then immediately after the September now, we had just closed our September numbers, we will now file our claim under the mobile PLI for this financial year as well based on 6 months numbers and that should take maybe 1.5, 2 months to get those disbursement from the government. So this is on mobile PLI.
Now in the telecom PLI, again, that appraisal for the period January to March because that's where we started the business in our JV on the telecom side. So that appraisal also has been done. The final meeting of the power committee is pending, which we understand should happen soon, and then we should get a disbursement. And also our investment for the second year under the telecom PLI, which was INR 36 crores. So first year was INR 36 crores and second year was INR 36 crores. We've again done that CapEx because on account of increased order book that we have from Airtel and Jio. And so that also the claim we will file in just after this balance sheet closure once we get the first disbursement. So this is the status of telecom PLI.
On the IT hardware PLI, we are waiting approval under the revised IT hardware scheme. We understand that the approval would come in shortly, and we have applied into the hybrid category with a INR 250 crore investment because we have a good -- so we have some brands, and we are in discussions with some large brands there.
On the lighting components PLI and on the inverter controller board, where we have a JV with Rexxam, again, the numbers for CapEx and revenue thresholds have been achieved. And -- but the PLI mentioned that it can only be filed once the financial year ends. So this financial year -- once the financial year ends. We have achieved the numbers in the first few months only, but what was the ceiling of those committed into the PLI. And once the financial year ends, we will file the claim and then hopefully, we should get the claim by next year and then it should be kind of a regular basis -- on a regular basis. So this is the status.
That was quite detailed, Saurabh. What is...
Sonali mam, I'm really sorry to interrupt you. [Operator Instructions] The next question is from the line of Mr. Mayur Patel from 360 ONE AMC.
First of all, congratulations for a great set of operating numbers performance. Just one question while the company is gaining excellent traction in mobile and some of the new initiatives, new segments. I just want to understand, for the first half, the EBITDA growth was impressive at 35% -- around 35% year-on-year, but the operating cash flow declined, I think it's around INR 150 crores. So that's the kind of decline as compared to the first half of the last year. So can you just give some color about is there any change in the working capital cycle and is it structural or temporary? Or how is it?
So clearly, one, of course, because of the season every year, Q2 historically also has been lot of working capital gets deployed because lot of money gets blocked into debtors which subsequently gets realized once the season ends. So one is that.
Secondly, a lot of our businesses were also in ramp-up phase. So some, for example, some of the new accounts that we have started in mobile business for Jio, for like in telecom for Airtel, those initially, because those business are in a ramp-up stabilization phase, so there's always initial kind of a working capital which gets deployed. But then over the months, what we have seen and like the way it has worked out in other verticals also, over the period, we always bring it down.
So we think that in the next few months, we will be able to bring down the working capital intensity by almost INR 300 crores. So we'll get almost INR 300 crores back into the system, which would happen over a period of 3 to 4 months, we have a plan to it, and we're absolutely working towards it.
So hopefully, this position as of March 31st balance sheet should look a positive working capital that we should generate in the business, and we should have a free cash flow positive by end of March 31st. So we are absolutely working towards it. We had a positive free cash flow last year as well and definitely, we feel confident that we'll have the same situation this year as well.
So we are absolutely committed to it. And internally, we are confident of achieving what Saurabh was just sharing.
Sure. So we -- is it fair to assume that structurally, there is no change in working capital cycle?
No, no, there is no...
No, there is no change in working. Our focus, our commitment on the working capital doesn't change and you will see that in the March 31st financials.
The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.
And congratulations to the team for great results. Sir, question is on the mobile segment. So as you mentioned about Xiaomi and for time line, and itel as well. So I think these clients are going to ramp up more towards the end of the financial year. So the kind of jump that we have seen in quarter 2's revenue in the mobile, are there just a timing difference since they were not there in Q1 then came up in Q2? Or there is a change in order visibility from existing clients like Xiaomi, Itel and Motorola. So just clarity on existing client order books which led to this state of growth.
In Q2 and also in the coming quarters, and the order book of our anchor customer Motorola is very healthy. And also, there has been a significant volume increase of Nokia. Itel feature phone has already started, and as Saurabh shared that we have already started executing the Jio order. The smartphones of Xiaomi still has to kick in, which will start from next month, but the ramp-up is going to take some time and then itel. So this is the sequence.
Just one clarification, you mentioned first Xiaomi and then itel smartphones. Is this correct?
Yes, almost parallel hopefully.
The next question is from the line of Mr. Rahul Gajare from Haitong Securities.
Now you did give us the ramp-up plan for Xiaomi. Do you have a similar ramp-up plan ready for itel also that you could share?
So we are working on it. We feel that sometime in the next quarter and in the quarter 4, the manufacturing will happen with us.
Okay. Sir, my second question is on the laptop. I mean this is continuing with the earlier questions around the laptop manufacturing. Where you did indicate Dixon will be fairly competitive compared to those manufactured in China or elsewhere. Based on your discussion with the potential clients, what are the thoughts of assembling these laptops? Is this going to be restricted only for Indian market or even export opportunity is being deliberated at this point in time?
So the discussions that we have had with our global customers is that we feel that we have almost matched the China manufacturing process. So that's a big positive for this business. Responding specifically to your question for which market we feel to start with is going to be the domestic market only. Because in Dixon we have to prove our credentials of executing this business to our principles, only then there can be a possibility of doing exports, but initially is going to be confined to domestic Indian market.
The next question is from the line of Swati Jhunjhunwala from BOB Capital.
Sir, just on the top line side. So currently given our H1 numbers, we are on task to do somewhere around 17,000 to 18,000 for FY '24. Now given that Xiaomi's smartphones are coming up and itel and all the others, the laptop PLI and everything is coming up. Can we expect to see these numbers double in the next 2 years?
While we are extremely buoyant and optimistic about to do this, but Swati to give a specific guidance will be difficult, but yes, we are extremely optimistic, committed and excited about this opportunity.
Okay. Just one more thing like, is there any kind of guidance that you can give us any over the next 2 years, 3 years?
No, we are not giving any guidance anymore, but we are confident that our growth is going to be extremely aggressive.
So Swati, broadly, the comments of the opening speech that we have given broadly you can relate that we have strong order book across most of the verticals. So whether it's telecom, whether it's IT, hardware and potentially and then hearables, wearables and also the largest piece mobiles. So clearly we will have a very strong growth. We're sitting on a large opportunity, but to share that in numbers, we would like to refrain from that.
Congratulations on the big set of numbers.
The next question is from the line of Natasha Jain from Nirmal Bang.
Congratulations on a good set of numbers. Broadly, my questions have been answered and I just have one question...
Ma'am, sorry to interrupt you. Your voice is very low. Could you please speak a little closer to the mic.
Am I audible now?
It is much better. Please go ahead.
Sir, broadly, my questions have been answered. I just have one question on the home appliance segment. Sir, our channel checks suggest that there has been a broader slowdown in the washing machine segment. So basis ODM player, can you tell us how the demand or the order book looks like for this particular segment? And secondly, has there been a premiumization that's been happening? Or has the orders for fully automatic front load, taking the front seat, just broader color on the segment will help, sir.
So in the first 6 months, our volumes have grown 14% in the semi-automatic category. How the demand is going to pan out, we are waiting again for Diwali that how the final consumer and sales takes place. Only then we'll have more clarity on our order book and the business plan. But we've internally budgeted a number of 1.7 million in semiautomatic against last year's number of 1.4 million.
As far as the premiumization is concerned in semiautomatic one has seen that the market and the consumer preference has shifted to the higher-end models. Yes, that is happening. As far as the fully automatic is concerned, we have just started this business. There has been a 4% growth in the volumes. We are in the process of acquiring more customers, and we see a positive traction in the coming 6 months. So that's the way it looks. But how the next 2 quarters are going to pan out let's wait how the Diwali happens.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, both on mobile and EMS, can you tell me last year, which is FY '23, how many mobile phones did you do for each of your customers, the larger customers for Motorola, for Nokia?
We would like to give you the overall number, not customer wise please.
Okay. So last year, what is the total mobile numbers you did but split between feature and smartphone, sir?
So Pulkit, if it's fine can I share you after this call, I wouldn't be having it handy right now. But I can give you is the H1 number, the Q2 numbers in case you are interested. For the full year numbers, maybe I can give you after this call.
Okay. Okay. If you can just give me the H1 numbers between feature and smartphones for this year so far, whatever you've done?
Yes. So for smartphones for H1, excluding Samsung, so Samsung, I'll tell you separately. So we did 2.5 million smartphones and almost 12 million feature phones. And the Samsung, we did almost 4.2 million smartphones.
Understood, sir. My second question is, can you talk about what is the total capacity today that you have after setting up factory for Xiaomi and all both again for smartphones and feature phones, just the capacity.
So if you leave aside our Samsung plant, our smartphone capacity in the 3 plants is going to be almost 2.5 million of smartphones and almost 5.5 million to 6 million of feature phones.
This is monthly capacity. That's right, yes.
That's right.
Monthly. Monthly.
The next question is from the line of Ashish Shah from JM Financial.
Can you talk a bit about the refrigerator capacity that you are setting up? By when do we expect that to be up and running? And what is the kind of volume revenue margin expectations that one should start building in from that business?
So the capacity that has been set up is for 1.2 million units per year. And this is basically for DC refrigerator 190 to 235 liters. At present, the factory has been set up and the trials are going to be on in the next week to 10 days. In the first lot of 2,000 refrigerators, we plan to run the production sometime in second week of November. It requires BE and BS approvals and also the customer approvals take time. So we plan to start the commercial production. We are targeting December, but that looks to be slightly difficult but definitely the next quarter. As far as I am concerned, it's going to be almost similar to our other routine businesses.
Right. And sir, in terms of the volume, how the ramp up you would expect in terms of whatever kind of insight you may have from the production schedule or any guidance from the customer side? What's the kind of ramp-up one should expect from this capacity?
See, the year 1 is going to be slightly slow because the approvals in refrigerators particularly for large global brands to whom we are talking it takes some time. And I think we're going to miss the season for refrigerators because the season starts picking up from January to March. We are going to be in it but not absolutely around them. So to give exact numbers for the next fiscal, I think we're still in the preparatory stage, it will take some time please.
The next question is from Kuvam Chugh from Birla Mutual Fund.
My questions on -- first question is on the home appliance side. You mentioned we've done 14% volume growth in semiautomatic, and mix is also premiumizing. Does the industry see some sort of price erosion because in the first half, revenues have been more or less flat?
Yes. So there has been some kind of price erosion because of the fall in commodity prices and also the fall in the fed rates.
Can we pass that on to our customers?
Yes. The prices were adjusted.
Okay. And the second question is on the...
There has been a margin expansion in this business.
Okay. The second question is on the mobile phone and EMS side. So now that business accounts for over 50% of overall revenue, and that number would drive as Xiaomi and Itel scales up. But value addition in this segment is significantly lower than other segments that we're doing. Are there any plans just doing a value addition in this segment as well?
So in this case one, the full objective is customer requisition, executing their business well, ramp up the volumes and generate an operating leverage because it's going to be at very large scale. Please appreciate that we are talking about a capacity of almost 80 million, 85 million, which is more than 30%, 35% of the total Indian requirement. And that in itself and Dixon is going to consume a lot of bandwidth. Once we are able to stabilize that operations, then the focus is going to be that how we can add more value. But as of now, the whole focus is to gear up the whole organization to review this large business opportunity.
The next question is from the line of Shrinidhi from HSBC.
Just one clarification on the itel business. The itel brand, which is owned by Tecno it seems like they operate 3 brands in India. Just wondering, Dixon has got contract to assemble only the itel brand or the other 2, which includes Tecno and Infinix.
It's going to be for all the brands.
Okay. And last one, if I may. Saurabh, you elaborated on PLI incentive scheme, just wondering -- I just wanted to confirm, is it correct that there is no incentive that has been booked in this quarter as well as full year -- first half of this financial year?
No, no, no. Incentive has been booked. So that part got missed. So clearly, the way we do is that we create a receivable from the government based on accrual basis and we create a payable to the customers on the liability side, which has to be paid for whatever we agreed on a sharing mechanism with them.
And the difference between both of them it gets booked in the P&L. So the first 6 months of this financial year is INR 17 crores of PLI incentive, which is our share across this 2 PLIs because that's where we have been -- almost across 4 PLI because IT Hardware has not kicked in has been booked.
Okay. And may I ask how much is it in Q2? What does the INR 17 crores?
Yes. So 17 in H1 and Q2, it's around 11.8.
The next question is from the line of [ Omkar Gangurde ] from Sri Investments.
Hello?
Sir, you're not audible. Could you speak a little louder, please?
Am I audible?
Yes, you're audible now.
My question was regarding the business of refrigerator and other things is margin accretive for you as compared to other businesses. So any specific plans to enter into businesses which are high-margin category or any specific plan for this business to grow further? That's the first question.
So refrigerator business is about to pick up. It's going to be a large opportunity for us to build up that business. As I shared in my earlier response to the question, it's going to be margin accretive business. Once we are able to stabilize this business definitely, we're going to look at the opportunity in this particular segment. We will get into side by side and frost free also. That is going to be the next expansion of this business. Apart from this, any other category, we are continuously evaluating the opportunities to increase the margin profiles are better, we're definitely evaluating those opportunities.
Just a follow-up on that. In the AGM, Chairman mentioned that we would be looking for -- looking to enter into categories like automotive, defense in the long term, so what's the plan on that front?
So we are evaluating both and both in automotive and defense electronics. Some discussions at initial stages have already started with our potential partners.
So this is at very basic nascent stage you mean?
That's right.
Okay. Just one last question. You had mentioned that with this IT 2.0 PLI, you would be investing INR 250 crores and the potential revenue would be INR 48,000 crores in the next 6 years cumulatively. So just wanted to know, this is even if you get the approval for PLI 2.0 or even if you by chance if you don't get the approval, this is still on, the target of INR 48,000 crores in the next 6 years, given the visibility you have with the Acer and the new brand?
This is linked to PLI.
This is linked to PLI. But we feel confident that we should be a PLI beneficiary. Of course, we have approval needs to -- approval is awaited, yes.
Correct. And in one of the media interaction, you had mentioned that you have been awarded the -- you have been awarded with the client and you would be producing in 4, 5 months. But you are mentioning right now that you haven't been awarded yet for the laptop?
It's almost in the final stages and we are confident that the contract that has been awarded to us is going to mature.
So we would be expecting the disclosure from your end very shortly, right?
That's right.
The next question is from the line of Venkatesh Balasubramaniam from Axis Capital.
Just a follow-up question. I just noticed that your AC PCB business, which was almost INR 140 crores last year, has come down this year to something like INR 40 crores. So why is there a decline in your AC PCB business?
No, no, no, no. So basically, it has not come down to INR 40 crores. So last year, we transferred this business to the JV, joint venture with Rexxam. And so that business was transferred towards the end of Q2 last year. So that's why we had the revenues of INR 140-odd crores. But since the JV is around 60-40 JV. So in the financials, we only book our share minority profit and we don't account the revenues. The INR 40 crore revenue, I don't know -- the INR 40 crore revenue is a small revenue, which is based on some intercompany things. But apart from that, the revenue, it doesn't get -- it's not reflecting in the financials. Our share of minority, which is reflecting in the share of profit as a line item is reflected in the financials.
Okay. I was asking you because in your presentation, it is mentioned that if you exclude the AC PCB business, your underlying consumer electronics business is growing at a certain pace. So you can actually back calculate and get -- it looks like AC PCB is getting accounted, maybe I'm confused anyway.
No, no, no. So basically, there's some confusion there. So basically, the numbers that we have reported for last year is INR 5000-odd crores, out of which we are saying that there was an AC PCB revenue because by that time, we had some numbers coming in Dixon only and that by that time, the JV was not created, last year I'm talking about.
So if you exclude the AC PCB revenues, that makes the consumer electronic revenue, which is LED TVs as around INR 1422-odd crores. And if I see the growth the number this time which is INR 1440 crores, there is a small growth of 1% is what we have reflected. And similarly, the operating profit, which is reflected at 14%, if I exclude the impact of the AC PCB, the operating profit growth year-on-year is 19%.
Last question for the day is from the line of Nikhil Agrawal from Vt Capital.
Sir, just wanted to know your set-top box number revenue for the quarter?
So set-top box, broadly, we sold around 6 lakhs set-top boxes and the average selling price is around INR 900, INR 1,000-odd, so it should be INR 54 crores, INR 55-odd crores, yes.
Okay. And this is included in the mobile segment, right, mobile and EMS segment?
This has included in mobile and EMS segment.
Okay. Got it. And sir, your TV volume year-on-year, if you can please help me with that?
The TV volumes in H1, we have done a volume of 17.9 lakhs TVs as against 18.4 lakh in 6 months last year.
Okay. And sir, what would be the open-cell prices year-on-year?
So open-cell prices have gone up. In fact, the way you should look at that, if you look at our revenue growth in consumer electronics, it is almost flat. And if you look at by volume degrowth it has happened in this particular quarter because the festive season also spilled to quarter 3. So my revenue degrowth is minus 7% and there's a plus 7% increase in the value in the prices of the selling prices mainly on account of the open-cell. So that's the reason we're having a flat revenue growth.
Okay. Sir, just a clarification. You said 17.9 volumes for H1 FY '24?
H1, yes, but if I talk about specifically quarter 2, it is 10.8 lakhs as against 11.6 lakhs in Q2 last year.
11.8 lakhs.
11.6 lakhs.
As there are no further questions, I would like to hand the conference over to Ms. Bhoomika Nair for the closing comments. Over to you, ma'am.
Yes. I would like to thank the management for giving us an opportunity to host the call and all the participants on the call as well. Thank you very much, sir.
Thank you, Bhoomika. Thank you, everybody.
Thank you, Bhoomika. Thank you so much.
Thank you so much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.