Dixon Technologies (India) Ltd
NSE:DIXON
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
5 277.85
15 698.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Dixon Technologies (India) Ltd
You don't have any saved screeners yet
Ladies and gentlemen, welcome to the Q4 and FY '22 Results Conference Call of Dixon Technologies hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now hand the conference over to Mr. Naval Seth, Emkay Global Financial Services. Thank you, and over to you, sir.
Thank you, Peter. Good evening, everyone. 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.
I shall now hand over the call to management for their opening remarks. Over to you, Saurabh.
Yes, good evening, everybody. Good evening, ladies and gentlemen. This is Saurabh Gupta. Of course, we also have on the call, our MD, Mr. Lall, he's slightly unwell . So I'll be sharing the opening remarks.
So thank you very much for joining the earnings call for the quarter ended March 2022. We are very pleased to report a strong performance in the fourth quarter with a 60 bps improvement in operating margins sequentially.
So as we have been guiding on the earnings call, our margins -- operating profit margins improved from 3.4% in Q3 to 4% in Q4. And this has been on account of operating leverage and continuous improvement in the cost structure across all businesses and continued implementation of the strategic price increases across ODM business of washing machine and lighting, which of course, if you negate the cost pressure on the inflated raw material prices. The further price increases are being implemented as we speak , wherever gaps still exists, and we have instituted cost optimization and efficiency measures across all our operations to support and to restore the margins.
Our cost optimization initiative and proven working capital management will help us to sustain growth, profitability and even make the balance sheet even stronger.
Overall, we are very happy that we could end this year on a good strong note with healthy growth across all the verticals despite many headwinds. Headwinds leading to raw material inflationary pressures, geopolitical concerns and consumption setbacks caused by the COVID disruptions.
Now coming to the overall performance for the quarter 4. Our consolidated revenues for the quarter ended March 31 was INR 2,953 odd crores as against INR 2,110 odd crores, which is a growth of 40-odd percent. Our EBITDA for the quarter was INR 120-odd crores as against INR 81 crores in the same period last year, which is a growth of 49-odd percent. And PAT for the quarter was INR 63 crores as against INR 44 crores in the corresponding period previous year, with a growth of again, 43-odd percent.
Now I would like to share the performance and strategy in each of the verticals going forward. So let me start with consumer electronics.
So in this vertical, the revenue for the quarter was almost INR 1,000-odd crores with an operating profit of INR 28 crores, and there is a sequential Q-on-Q improvement of 60 bps in operating margins to 2.8% as against 2.2% in Q3.
In the current quarter, the revenues -- within this INR 1,000 crores, the revenues of AC PCB and Reverse Logistics business was INR 76 crores and INR 1.6 crores, respectively.
Now we have expanded our annual capacity to 6 million sets out of the total market in India from 15 million. And we are fully backwardly integrated in LCM and SMT line, and we have the largest capacity in India, taking to almost 35% of India's requirement.
The now have a total area in Tirupati campus of almost 450,000 square feet, which is fully backwardly integrated. We are now further investing in additional SMT lines and complete SMT line of TV and injection molding line in the campus, in line with our backward integration strategy.
As mentioned in the call last time, we've got a huge order for LED TV under our own design solutions from one of the largest brands globally, and I'm glad to share that the business has commenced in this month of May, and we expect significant volumes from that brand in the current financial year.
We expect that LED volumes this year should grow by another 40%, mainly on account of this big order win. And from the 3 million sets that we have closed in FY '22, '23 and we should see further improvement in margins or the margin should be almost similar to what we have reported. This is on account of the operating leverage, as well as more backward integration that we are planning.
As far as monetize is concerned, we got orders from 2 of the largest global brands for manufacturing LED monitors and the production for one of the brands has already commenced in the month of April. The expected volumes this year should be in the range of around 0.5 million. And we expect that the order book will significantly increase in the coming years. The margin profile in monitors should be almost similar to what you are seeing on the LED TV side.
Next vertical, lighting. The revenues for the quarter were INR 305-odd crores with an operating profit of INR 22 crores. And there has been a Q-on-Q improvement in margins from 6.5% in Q3 to 7.1%, which has been on account of passing on the input cost increase to the customers and the various cost efficiency measures, which have been taken.
We are hopeful to bring in operating profit level to normalized level by Q2 of the current fiscal year. So it will take us another quarter or so, and then the margin should be slightly better that have been reported.
We are the India's largest ODM player in lighting and has the largest capacity in various SKUs. In LED bulb, we have a capacity of 300 million, which is 50% of India's requirement. We've already expanded the capacity in batten to 5 million against a total market of 9 million a month and downlighters, we've have a capacity of 1.5 million against the total Indian requirement of 3 million a month.
We are closely working with now some global customers and hopeful that we should get the necessary factory and product approvals in coming months and exports should happen in this financial year.
We are still investing under the -- we're also a beneficiary of the LED lighting components, and we have made our subsidiary to do that business with Dixon Technology Solutions Private Limited in line with the backward integration strategy, and we will be making our investments in the first year of around INR 20 crores this year. And overall investment for 5-year period is to the tune of INR 100 odd crores.
The next vertical, home appliances. So this vertical saw growth of 30% year-on-year from INR 147 crores in Q4 FY '21 to INR 234 crores in Q4 FY '22.
Out of this, revenues in a fully automatic machine, which we started -- fully automatic washing machine, which we started only in December. Between December and March, the revenues was around INR 33 crores. So that business is also getting ramped up and stabilized and volumes are increasing month on month.
The operating profit increased by 81% year-on-year from INR 10 crores in Q4 FY '21 to almost INR 19 crores in Q4 FY 2022. The operating margins have also improved, expanded both at the Y-o-Y level and Q-o-Q level at 7.9%. Again, this has been possible because of passing on impact of commodity cost to the consumers -- to our principal customer, on account of improved operating leverage and also on an account of cost optimization measures.
Presently, we have 160 odd models in semi-automatic category with the largest portfolio In India from 6 to 14 kg category. We will have the largest -- now we are further expanding the capacity and taking the capacity in washing machine to 2.4 million, and our additional infrastructure footprint in Dehradun will be ready in the next couple of months to meet the increased demand ahead of the festive season.
We have added more customers in this category and order book in this vertical looks very healthy, and we are expecting a 30% growth. So again, growth in volume in the category.
So as against 1.1 million that we have closed, we are expecting volumes to be 1.6 million in semi-automatic category this year.
In fully automatic category, we have a capacity of 0.6 million, again with 96-odd variants from 6.5 kg to 11 kg and Bosch is an anchor customer there.
Recently, we have added customers like Lloyd and Thompson and also got into agreements with big customers whose production is likely to commence by Q2 this fiscal.
We are now increasingly focusing -- increasingly now focusing and investing on making this segment more R&D driven. We serve the industry with a latest and innovative technologies. The next division mobile phone with the EMS division.
So in this vertical, revenues were around INR 1,290 crores with an operating profit of INR 46 crores and operating profit margin about 3.5%.
So here, of course, in the mobile business, the anchor customer is Motorola, and that business is now completely ramped up and stabilized with monthly volumes touching almost 4 lakhs. And we have a strong order book of 1.5 million in Q2 this fiscal, and that will be both for domestic and export markets.
We've also started manufacturing Nokia feature phones in addition to the smartphones that we are already manufacturing. The expected monthly volumes once stabilized will be almost 0.5 million per month.
And in addition, manufacturing for -- we've got another customer on board called Itel in the feature phone category with annual volumes expected to be around 1 million, and that production is likely to commence by June -- by next month, June 2022.
So for this, meeting the demand for this new order book or new customers, we have also taken a new 200,000 square feet facility in Noida. Apart from this, in addition to the 2G phones that we are doing for Samsung, our order book with Samsung on the 4G and the 5g phones are increasing, and they have already increased from 1 million a month to 1.5 million a month, and we expect it grow to around 1.7 million a month in coming months. So we are making more investments in this category for Samsung 4G and 5G smartphones.
And also, I would be happy to share that we are the first domestic company to achieve the ceiling revenues for FY '21, '22, which is the first year under the PLI, both on the CapEx and the revenue, CapEx and investment thresholds and our working -- the whole numbers have been audited and appraised by the project management agency, which is IFCA in this case. And they've already submitted the report to the Ministry of Electronics and we expect to get that incentive claim to come into the system in the coming months.
As far as the set top box business is concerned, we manufactured 6.6 lakhs set top boxes for Jio, which is through the company Den and Hathway, DishTV, SITI Cable, Sun TV in Q4 and reported revenues of almost INR 77 crores with a 2.3% operating margin and order book in this vertical also looks stable.
Now the next vertical of security systems with Dixon as a JV with Aditya Infotech. So Dixon's 50% share of revenues for this quarter was around INR 110-odd crores with operating profit of INR 3.8 crores and a 3.4% operating profit margin. The order book in this segment also looks very healthy, and we are going for further capacity expansion from 10 million per annum to 14 million per annum by Q2 this fiscal.
For this, we are relocating from our existing setup in Tirupati to Kopparty Electronic Manufacturing Cluster, where we have taken 2 lakh square feet constructed facility.
So this is all about the existing verticals, and I'd also like to take -- update you about the opportunities with the company's pursuing on the new verticals that we have recently started.
So I'll start with refrigerators. So refrigerators, now we will be creating a capacity of almost 1.2 million direct-cool category, which will be ultimately expanded to frost-free category as well. The Indian market for direct-cool side is around 10 million. So we probably will be around 10% to 12% of the Indian market. And the balance 4 million is the frost-free and other categories.
Our product portfolio will be from 190 to 235 liters with multiple features and different star ratings. The product designs have already been made. The technology partner has been finalized. We already have the land bank with us -- 20 acres land bank in Greater Noida. The construction is expected to commence soon. And the orders for the machinery will be placed in the coming weeks.
We have started engaging with potential customers, and we expect the mass production is likely to commence somewhere around Q2 of FY '23, '24.
Now on the IT hardware products, we started manufacturing for Acer in December 2021. And the volumes -- they started small, but they're expected to increase. And we are also in advanced discussions to close an agreement for manufacturing of tablets with one of the largest brand, and we expect that the production for them should commence by Q2 of this fiscal.
And as you know, we are again a beneficiary for the PL -- under the PLI for IT hardware products. And in Q4, we have achieved both our revenues -- the threshold revenues, and we have also done our investments in Q4. So we've also qualified for an incentive claim in Q4 FY '21, '22.
On the telecom and networking products, we started manufacturing ONT for Airtel and the production has already started. And this is again, we have a very strong order book from Airtel in this category. As you know, this is a 51:49 JV, which has been made with detail, and we are beneficiary under the PLI scheme for telecom and networking products.
Another venture, which is inverter controller boards for air conditioners. So a JV has been formed with Rexxam to manufacture inverter controller boards for air conditioners. As you know Rexxam is a design and technology partner for Daikin, and they bring a lot of strength in PCBA designing. And clearly Rexxam wants to make India as a manufacturing hub for its customers of both the domestic and global markets. And this JV company, which is a 60-40 JV is a beneficial of PLI. Total investment that is required to be made over a period of 5 years is around INR 51 crores. So Dixon's share of investment will be around INR 20-odd crores.
We have finalized the manufacturing location in Noida, and the production under the JV is expected to commence in Q2.
Again, the revenue potential is quite commenced in this vertical as well, and we should have some healthy EBITDA margin and strong return ratios.
On wearables and hearables, as you know, on the wearable side, the Indian market is the third largest market globally and one of the fastest growing markets. Our 50:50 JV has been formed with larger marketing for its flagship brand boAt for manufacturing wearables and hearables. Currently, we are manufacturing the largest selling SKU, which is TWS with an estimated -- and we have an estimated yearly volume order of around 7 million units, and we'll soon start the production of neckband, which is another high selling SKU for both with an estimated yearly order of around 4.4 million units at Noida manufacturing facility.
As the partnership strengthen, we expect that more categories will come into the JV, like bluetooth speakers and smart watches. Smart watches is another category which we see is a very high-growth market.
So all of these products will also, over a period of time, will come under the JV.
So I would like to now stop here and would like to answer any questions along with Mr. Lall. So...
[Operator Instructions] Our first question is from the line of Bhoomika Nair with DAM Capital.
Congratulations on a good set of numbers. I just want to understand the mobile business a little better, given that we are looking at a very sharp ramp up. If you can just talk about what are the kind of ramp up that we are looking on Motorola specifically. How was when we exit in March? And how is it scaling up right now? And if you can also talk about Samsung given that they're looking to scale down their feature phone business as well.
So Bhoomika, as I mentioned in the opening remarks, so clearly, our volumes in Motorola are ramping up, and we have already touched closer to a level of 4 lakhs. And we have an order book with Motorola for almost 1.5 million in next quarter, and we expect that the volume should -- the monthly volume should go to around 5 lakhs for us.
So clearly, ramp-up is happening at a faster pace now, and we are expecting that as against INR 3,000 crore revenue that we have done in the Mobile and EMS Division, out of which a significant portion has come from the Mobile business. Our mobile business in itself, this fiscal year should translate into almost 7,000 to 7,500 crores revenue, which will be significantly led by Motorola as an anchor customer. And within Motorola significant portion, 60% of the proceeds from Motorola will be exported to North America markets.
So clearly, that's the outlook on the Mobile side as far as Motorola is concerned and also -- as I mentioned that we have also added customers like Nokia on the 2G phone side where they have a decent market share, and also Itel. Again, they have a decent market share as far as the 2G phone of the feature phone market is concerned.
Now to your second question on the Samsung side. Yes, clearly, yes, Samsung is planning to exit out of the feature phone business, and they should exit either by December or March this financial year. Clearly, our volumes were already coming down for feature phone business as far as Samsung is concerned, but they were increasingly shifting more and more smartphone business to us, 4G and 5G phones to us.
So as far as the overall revenue and profitability is concerned, clearly we see that since the realization on a smartphone is much, much higher than what we are making on feature phone, and they're increasingly shifting volumes, they started with 5 lakhs, and now clearly, we're looking at a number of almost 1.5 million and then gradually even increasing beyond that.
So we should be fine as well the overall profitability and revenue potential is concerned, in case of Samsung business. So they will be reducing their feature phone volumes, but at the same time, they're increasing their smartphone volumes for us.
Also, Bhoomika, coming in here, customer acquisition is always a very focused excise in Dixon. So on the smartphone side, we are in advanced stage of discussion with one of the largest global brand operating in India. We've successfully qualified the technical audits. We are awaiting the commercial negotiation to be launched very shortly.
So please be rest assured mobile as the vertical is going to be the largest trigger of growth for Dixon in the forthcoming fiscal -- in the coming years.
Got it, sir. So the other question is on the washing machine side, you spoke about the scale up in addition of customers, et cetera, out there. What kind of volumes can we look at in FY '23? And the second aspect is on the margins. Why? Yes, it is an improvement over 4Q '21 and also over the previous quarter. The margin profile still remains lower than the double digit that we have been seeing in the past. So when do we see these margins coming back to the double-digit profile or closer to that 9% to 10% kind of range.
So Bhoomika, last year we closed in washing machine at 1.1 million in volume. We are budgeting 1.6 million in the current fiscal.
In addition to that, we're budgeting 289,000 from fully automatic top loading. So the combined figure is almost going to be 1.9 million, which is a significant increase from 1.1 million of next year -- of last year.
Now margins, the teams have worked on the cost optimization. And also, there has been -- we have been able to pass on partially to our customers the cost increases, but these are challenging environments. And the excise on, I don't think in the current fiscal, we'll be back to double digits. But definitely, there will be some improvement from the existing operating margin levels. But back to double digits, I don't think so. What we'll get is absolute number increases and some improvement in the operating margins.
Right. But just on the top line, we're looking at 1.6 to the 1.1. Like the TVs, is the demand still holding on or just purely driven by new client additions, et cetera?
So it's a combination of both in getting the larger share of existing customers' wallet, and also new customer acquisitions, a combination of both. The order book looks pretty healthy.
Our next question is from the line of Aditya Bhartia with Investec.
So my first question is on the Lighting business, wherein growth has been a bit disappointing in the last couple of quarters. Just want to understand what is that on account of? And how we're seeing traction building up in batten and downlighters?
So Aditya, in last 2 quarters, one saw significant headwinds in this business. And we have gone through significant cost optimization exercises and there was a minor improvement. However, I see a lot of work needs to be done. We have a good order book, but the inflationary trend, we were not able to pass on to the customers. Somewhat we have been able to achieve that in the last quarter and also in the current quarter. A lot of consolidation exercises, form improvement, taking advantage of the operating leverage at the scale, all that has happened. You will see some improvement in the current quarter. But I think it's going to take a couple of quarters to come back to the original levels of 8.5%, 9%.
Sir, my question was not so much on margins, but on absolute revenue numbers, wherein lighting business, growth has been a bit lackluster. So just trying to understand, is the market itself -- has the market itself slowed down significantly, especially as far as bulbs are concerned? And with all the expansion that we've done on the downlighters and batten side, how is the traction over there?
So market indeed has slowed down. I don't see a very significant volume growth in this particular vertical. But yes, our quantities, both in downlighters and battens, the kind of order book one is seeing, will keep on improving month-on-month. So you will see some improvement. LED bulb would be kind of constant, but there will be improvement in battens and downlighters in the forthcoming months.
Sir, on the TV business, you have spoken about a large customer moving to -- moving on -- giving you larger quantities on ODM business. What exactly does the ODM part of the business entail in case of TVs, given that still a lot of components, I guess, would need to be imported. And what could that really mean for margins? That's point #1.
And just on the same segment, are you seeing any issues from your largest customer in the segment after some of the actions that were taken by the government against them?
So responding to the first part of the question, Aditya, I mean, we talk about ODM or what we call as ODM and also JDM with the largest global brand. You see more and more global brands are looking at outsourced solutions. Now we are working on 4 SKUs. We are working on 55 inches, ultrahigh definition and 43 inches ultrahigh definition. Wherein the PCBA, because Samsung operates on Tizen operating system. The technology is from Samsung; however, the mechanicals, the displays, the audios, it's all designed by Dixon, aligning with the Tizen software, operating software of Samsung.
So this product has already been launched, and the commercial production has started just last week. Then there are 2 other solutions, which is again in 32 inches and 43 inches HD in which the PCBA is also Dixon's offering. So that's a kind of complete offering from Dixon's table.
Now that is it. So these 4 SKUs, our Dixon ODM and JDM solutions to Samsung. Now it's a big up for us, please appreciate that we grew from 2.7 million to almost 3 million in the last fiscal and we are targeting almost 4.2 million in the current fiscal. This is when the market is not exactly growing. So there is a big plus for us. Now as far as margin is concerned, I expect the margins to expand a bit, but please if you see Dixon trajectory, whenever you launch a new product, it takes some time to stabilize. Just like you would have seen lately in mobile, but I feel that a quarter or so, one needs to ramp up and stabilize. And after that you'll see some improvement in the margins on the ODM, JDM side, by the time the supply chain and sourcing stabilizes.
When you're looking at our other large anchor customer -- yes, it was a setback, and I am personally engaged with the leadership in Beijing and in Bangalore. And they have assured me that there is no dilution. And I also see no change in their forecast plan. It continues to be at 1.8 million, 1.9 million in the current fiscal year. And also, there have been no impact at all on our current assets. Our payments are coming absolutely smoothly.
Our next question is from the line of Renu Baid with IIFL.
So my first question is with respect to the incentive payout from mobile, how is the process in terms of the cash reimbursements coming in from the government. So are these largely in terms of duty payout or cash reimbursements? And by when do we actually see the payout or the incentive payout materializing for us.
Saurabh, would you like take that or I'll respond?
So Renu, as I mentioned, so we have already signed an incentive claim. We are the first company to actually achieve the revenue and CapEx thresholds -- investment thresholds. So the way it works is there's a project management agency, which is IFCA in this case, they even audit, come and see your factory, they audit those numbers, appraise the entire workings and then they present the report to Ministry of Electronics.
So in that case, as far as our case is concerned, so that part has already been done, and the report has already been submitted to Ministry of Electronics. Now the next step in this case is that there is an empowered committee which constitutes the Ministry, Executive of Ministry of Electronics, Ministry of Finance, Ministry of Commerce, and it is headed by Amitabh Kant. And then they will, of course evaluate your case and based on that they will finalize, and the cash, it will be reimbursed in the form of an RTGS kind of transfer, which will come to your account. So that's how it would typically -- these are the steps that will be followed.
So basically, the cash payout -- sorry - will come by the second half of the current fiscal for the previous year?
My sense is, as far as August to December is concerned, so that part has been already been appraised. So that should, depending on when this meeting of empowered committee happens, so that should come in the next 30 to 60 days. As far as January to March is concerned, that may take another 3 to 4 months. And then accordingly, every -- there will be a lag for every quarter or so.
Sure. The second is, if you look at the washer portfolio, can you update how has been -- now the order book and ramp up with Bosch on the fully automatic washer, and how are the margins and profitability on this portfolio stacking up?
So on the fully automatic top loading, we finalized 2 platforms of washers. The first platform is up to 8 kgs and the second platform is up to 10 kgs. What has been rolled out is, platform 1 will be called as P1. And at present, we are at a volume of around 12,000 to 15,000 . This month, we would have done around 12,000. That's the order book like. And the P2 platform, that is up to 10 kg is under reliability testing. The tooling and all are all with us, the reliability testing with Bosch is a long drawn affair. And I think it's going to roll out in the quarter of October to December.
We have also launched now another P0, which is an economy model. And that tooling, I'm expecting to arrive at 15th of June. That's not for Bosch, but that's for various other brands, which are looking for an economy solution. That's going to be easier and faster to roll out. I think it's going to be rolled out in the quarter -- in the month of July, August. So that is the plan.
The operating margins initially, because there is a ramp-up costs. But finally, it's going to be in the similar range as semiautomatic, slightly better than that.
Got it. And while you mentioned that on the ref portfolio, we will also be extending our offerings beyond the direct-cool to frost-free as well. So does that change our CapEx outlay and investment required in terms of capabilities for the products? And by when are we expecting both as production eventually and commercialization of the facility for direct-cool. And will frost-free be simultaneously or it would happen with a lag of a couple of years once DC is fully stabilized and ramps up?
So Renu, our first focus is on DC only. What we have done and what we had shared earlier with the stakeholders was that we are planning a capacity of 0.6 million.
But looking at the prospects, we have increased the capacity to 1.1 million. So that's what the project has been rolled out.
Now except for the tooling and some modifications are the lines ready for frost-free? Yes, they would be ready for frost-free. As of now, as we calibrated and defined our plan for frost-free? No.
So the first focus is going to be on launch of DC. The targeted date for trials is March 23. I think as Saurabh said, by Q1 or slightly getting into Q2, we should be rolling out this product. Frost-free -- yes, one has to wait. One has not even defined the time.
Sure. And my last question pertains to the LED bulb portfolio. While we have seen some of the leading players on the bulb side have been losing share, how should we read it? You mentioned that bulb portfolio might be flattish, but are you seeing any red flags in terms of Philips losing a bit of share on the bulb side of the business. And how is the export to the European or the U.S. market? How is that part of the portfolio scaling up?
So I don't want to give details about specific brands. But yes, one can see that there has been a flattening of demand for the last 2 quarters, as far as the LED bulb is concerned.
So when we interact and when I closely interacted with the leadership of our principles, they feel that the demand is going to come back by August or something like that. That's -- and also I'm saying lately that the inventories in trade have been corrected. So that's what -- so I feel it's going to improve from the next quarter. That's what my sense is.
As far as exports is concerned, yes, we have got the UL approval for U.S., and we have got the technical approvals for Europe. In fact, just a couple of hours back, when I was checking through my mail, we have got -- almost got a first order from the U.K. So that's it. I think it's going to take time, but we'll have those take throughs.
Our next question is from the line of Sonali Salgaonkar with Jefferies.
My first question is with so many new verticals and new customer adds ramping up, what kind of a guidance in terms of revenue and margin trajectory would you like to give at this point for the coming 1 to 2 years?
Would you like to take it or I take it, please?
Sonali, clearly as mentioned in remarks -- clearly, our high-growth vertical will be mobile this year, getting it to new -- recording the new verticals like telecom, wearables and of course, existing verticals have expansion plans as well. My sense is, clearly, we are looking at a 55% to 60% grant of the growth from the revenues that we have delivered in FY '21, '22, and this will be significantly led by our mobile business.
And on the margins?
Margins, we think that what margins we have reported in Q4, broadly it should be similar. But yes, you can expect a margin profile of somewhere between 4% to 4.25%, operating profit margins.
For F '23, right?
F '23.
Right, great. And just an extension to this question for the mobile, which is the highest growth vertical for you. What kind of growth are you looking at this year, I'm asking, especially because your volumes and the order books are ramping up.
Yes. So if you look at our mobile revenues, we have done a revenue of almost INR 3,138 crores. And if I exclude the revenues of other divisions, which are smaller set top box, IT hardware, Telecom and Medical, it assets into almost -- if I remove that INR 350 crores, INR 360 crores, so we are close at somewhere around INR 2,700 crores. So this INR 2,700 crores has the potential to go to almost INR 7,000 crores, INR 7,500 crores this year. And then the balance should come -- so that is the potential for this year.
Got it. And on the CapEx numbers, do you foresee any change in your earlier guidance?
The CapEx, we expect that the CapEx of around INR 340-odd crores is what we will do in FY '22, '23, which will be a combination of PLI-related CapEx expansion, the construction and some advances for the refrigerator project.
Got it. And my last question is regarding price hikes. You did mention in your opening remarks that as we speak, you are implementing further price hikes, especially in the ODM segment. So if we can understand from April, what is the kind of price hikes that we have taken on an average in ODM?
Sonali, mainly 2 ODM verticals. In the case of washing machines, the customers who were kind of -- it was work in progress, we've been able to get a hike of almost 1.75% to 2%.
In the lighting side, it's still in works. We have been able to get a hike of 1% to 1.5%, but we need to do more on which we are working, and we feel that in the current month and the forthcoming quarter, we should be able to do it.
Our next question is from the line of Omkar [Indiscernible] with Sri Consultancy.
My question was mainly regarding the balance sheet, if you can see there is a significant increase in the long-term borrowings. And the net debt has also increased. So what is the comfortable level for the management in terms of debt-to-equity or debt-to-EBITDA?
You're absolutely right. Our debt levels have increased because we have done a CapEx of almost INR 400 crores this year, and that has led to increase in net debt. But if -- even if you look at the balance sheet, our balance sheet still continues to be stronger, and there's enough cushion. If you look at a net debt to equity level, it's still 0.1.
So at an overall level, I think so these are good comfortable levels to be maintained. And we expect that as the profitability improves, as the cash flow improves, this debt level should see a reduction this year.
So the debt to equity would remain at the same level, you're saying? Or it would gradually increase in the coming years?
My sense is, it will not go up. It should broadly be in a similar range, plus minus something yes, but broadly it should be in the similar range.
Okay. And as far as our EBITDA margin is concerned, you said that you would be doing around 4% to 4.25%, right? For the upcoming fiscal?
Yes. That's the broad guidance, yes.
Okay. And if you look at the next, actually, say, Dixon's next 3, 4 years, if you look at it. So where would the majority of the contribution can come from? It would be -- mostly it would be from mobile phones, but apart from that, where do you see a larger opportunity in terms of revenue, and again, translating into the margin.
Yes. So it will be all across, but in terms of revenues, it will be significantly led by mobile business. And then it will be TV business. And then if you are in lighting, if you are able to get big export opportunities, then the lighting revenue should see a major growth. If you look at the washing machine portfolio this year, we have closed at INR 700 crores. Now that semiautomatic portfolio is going up increasing from 1.1 million to 1.6 million. And then we're additionally adding, doing almost 0.3 million of fully automatic.
So washing machine revenue should also increase from INR 700-odd crores to almost INR 1200 crores this year, and that should be again -- should be a decent growth portfolio -- addition growth if fixed growth happens in those categories as well.
So it will be all across, yes. But majorly it will be led by mobile, as well as TV in terms of revenue contribution.
Also, we're looking at 3 new verticals, which have just been launched. So we've already started production of TWS. TWS presently, we're only at a level of 100,000 per month. Within the next 3 months, we are targeting 1 million a month.
Within the next 5 to 6 months, we are targeting 2 million a month. Similarly, the outcome -- the outlook for ONTs and set top box from Airtel is very, very huge and that production has just started. And then the launch -- the commercial launch of the DC refrigerators that is again once you reach the peak is going to be almost INR 1,000 or INR 1,200 crores. So all these new initiatives will also be large contributors to our growth trajectory.
Okay. So given what you have said that next 3 to 5 years, can you say that the management would be thinking at least roughly around 25%, 30% kind of growth?
Yes, we are really confident about it. Yes, there can be various events globally, geopolitically, challenges, inflationary pressures, but the internal plans are directed towards that.
Okay. And you will be comfortable holding on to these margins or better the margins as the time goes?
Can you please appreciate the maximum growth is coming from the prescriptive business. And this prescriptive business, the operating margins are in the range of around 2.5% to 3%, 3.5%. So it's a low-margin business. The new vertical of refrigerators and the expanded volume of washing machine is the ODM business where the margins are going to be higher. So it's going to be a combination of both. So margins would be in this range only [Indiscernible] .
But as the operating efficiency kicks in, you won't be seeing any margin increase.
So there will be some improvement, which you would have seen in the current quarter itself in the last quarter in mobile. The margins in the mobile business have expanded because the operating leverage. You would have seen the improvement, partially because of the unit price coming down, but partially also because of the scale in operating leverage in TV.
So it will make a difference, but will it completely change the scenario and increase -- and have a quantum jump in the margin of prescriptive business [Indiscernible].
So overall, it will be in the same range, which was there in the current quarter?
4 and 4.2 something like that.
So barely it will be in the same range with an upward bias because of the factors that you have mentioned, clearly because of the operating leverage, more backward integration, own designing and so with new verticals also in terms of margin profile will be better. But again a significant portion is coming from the prescriptive business. So my sense is, yes, margin should improve.
But yes, not a significant improvement, but yes, I think there should be an improvement year-on-year.
[Operator Instructions] Our next question is from the line of Pulkit Patni with Goldman Sachs.
Just one question. Is it fair to assume, I don't know if you already spoke about it, that the various segments in PLI where you have achieved the threshold of investment, as well as the incremental sales, those PLI benefits are already included in our margins? And if yes, if you could quantify what those numbers are.
So as I mentioned, we had a beneficiary of 5 PLI, so out of which 2 PLIs we have achieved our thresholds. So one on the mobile side, we achieved a maximum revenue thresholds and the investment thresholds. On the laptop side, we achieved that -- the preceding revenues on the mobile side, as well as the investment thresholds. On the laptop side, yes, we are again achieved those investment thresholds and threshold revenues, the minimum revenue that you have to do to qualify for the incentive claims.
Now in these numbers, yes, because of this appraisal, which I mentioned, has already been done by the agency. So there is some income which has already been put and which is reflected in the margins. And that number is to the tune of almost around INR 8 crores to INR 9 crores.
INR 8 crores to INR 9 crores for the entire year?
Entire year, yes.
Our next question is from the line of Dhruv Jain with Ambit Capital.
Sir, I had 2 questions. One was on the mobile phone business, so we've seen a significant jump in the mobile phone revenue, but you also added a lot of -- you also have a lot of customers. So we understand that Motorola is the prime customer, but if you could just give a sense of how much contribution -- just a broad sense of how much contribution with Motorola been keeping in the mobile phone business.
I think, this year, as I mentioned, if you're looking at doing a revenue of almost INR 7,000 crores, INR 7,500 crores. And this is, of course, not taking into account the new customer whose audit has been done, and which can be -- which there can be an additional upside. So out of this INR 7,000 crores, INR 7,500 crores, the other customers apart from Motorola should contribute INR 1,000-odd crores and the balance portion would come from Motorola.
All right. And sir, the other question was with respect to the consumer electronics TV business. We've seen a sequential decline. So what has caused this? Is there some sort of a demand issue that we are seeing?
No. Actually, what has happened is that if you remember that in the last earnings call, you mentioned that in TV, one should also look at the average selling prices. So what happened in the last post-COVID scenario, the prices of the open cell, which is the largest component, which goes into a TV where this component prices have increased. And since it is a prescriptive business, so those increase does gets passed on because -- and as a result, the revenues look higher, and the margins optically looked lower.
So if you look at this analysis of Q4 versus Q1 -- Q4 versus Q4. So there is a drop of 20%, right? In terms of revenues. So this has been majorly led by the drop in the average selling prices across all our portfolio. The drop was as high as up to 20%, the drop is as high as 15-odd percent. So there has been a volume drop year-on-year, but very nominal. It's majorly because of the selling prices coming down.
And as a result, the margins are looking better. The operating profit margin look better.
[Operator Instructions] Our next question is from the line of Omkar [Indiscernible] with Sri Consultancy.
Yes. With the kind of debt levels we are sitting on, would you be looking to raise any equity?
No, we are not.
No, we feel confident that it can be easily done, safely done from the internal accruals of the company. So whatever CapEx plans we have, it can be done from the internal accruals. So we have no plans to raise any equity.
Okay. And as far as the AC business is concerned, can you elaborate a bit more on that? And they are not the front runners in the AC business. So are you looking to expand that business more or are you comfortable with the current level?
We have absolutely no plans to get into the AC business. So there's so much on the plate right now. The idea is to focus and consolidate our existing verticals and the new verticals.
Our next question is from the line of Naval Seth with Emkay Global Financial Services.
4.25% for '23. So as our PLI business, our prescriptive business will increase substantially in FY '23 and your commentary on ODM business margin expansion will be gradual, so how we will be able to achieve this plus 4% margin because we ended with 3.5% in '22. So any thought -- I mean, reconciliation seems a bit difficult to me. So if you can explain some of that.
3.5% is also a function of a bad Q1, which was impacted by a third wave, where we had margins equal to 2.5%. So that is also a function. But if you look at the last couple of quarters, in quarter 3, we had close to margin of 3.4%. And in which you guided that there will be more passing off those input cost increases with the principal customers.
So significant -- some portion of that has already been done, which is reflected in the margins. And we expect that those continued passing on of those input cost increases will happen. We're also working on lot of form reductions, cost optimization measures internally.
Overall, at the company level by expanding into all other verticals -- in some verticals, the operating leverage benefit has kicked in and in some verticals it will kick in over a period of time. As we get into more backward integration, as we get into more designing, ultimately, all this will lead to expansion of margins. So we are clearly guiding that what margins you're seeing on washing machine, lighting should see an improvement further in the coming quarters. So that should add to my margin profile.
And the second thing, which I mentioned that the price of open cell has come down. So as against an average selling price of INR 14,000, INR 15,000 that we saw in the entire year last year, the selling prices will now look like INR 11,000 to INR 11,500. And TV business as such, contributes, another INR 17,000 crores revenue that we are projecting for this year. TV revenues will be almost INR 5,500 crores. So almost a significant portion. And in that business, the margins grow by 30, 40 bps, like the way it has happened in this quarter, so it will also have a positive impact on the overall company margins.
So a combination of all these factors, we feel that -- and as for the new verticals that we're getting, which we have got into telecom, boAt, Rexxam JV, these are also better in terms of margin profile.
So clearly, a combination of all these factors gives us the confidence that the margin should be similar or better than what we have delivered in Q4.
Our next question is from the line of Omkar [indiscernible] with Sri Consultancy.
Yes, with 22% ROE and almost 25% ROC, what kind of scope do you see for this expansion in all those verticals?
Yes. So historically, if we look at, we have been maintaining a 30% plus kind of an ROC and 24% plus kind of ROE. We continue to -- we, of course, we will work towards it going back to those levels. Now what has happened in this -- in the year that we have just concluded, FY '21, '22, we have done a CapEx of INR 200 crores, and this current year, we are looking at a CapEx of INR 340 crores. So a lot of the CapEx has been front-ended as far as last year is concerned or this year is concerned.
So and the new verticals are, of course, the full automatic, the telecom, the boAt, they will start to deliver optimal revenues and profitability in the coming quarters. In my sense, it will take at least 3, 4 quarters to go back to those levels, maybe slightly earlier if it happens. But yes, the idea is to go back internally to similar levels as 30% ROC and 24%, 25% ROE.
sorry, I missed it, how much time it would take you said?
Anywhere between 9 to 12 months or maybe slightly higher, so 9 to 15 months.
Okay. And as far as the cash conversion cycle on the days are concerned, what would be the comfortable level? Is this the comfortable level, around 90 days?
Yes, it's a comfortable position, but continuously, there is a focus on managing the cash conversion cycle on our working capital management. So that's a continuous focus. So wherever we think the working capital intensity had gone up because of the supply chain issues. And because of this supply chain issue, we are working towards it to bring it down, and that's happening. So month-on-month those inventories will keep getting correct debt. So hopefully, we should be in a better position in 6 months down this line on this working capital cycle. So this would even getter better than zero days, but broadly this is a comfortable ratio, as far as overall company is concerned.
Can all the problems regarding shipments and chip shortage are all this behind us? What would you say on that?
So as far as we are now, there were problems in April, the shipments because of the closure of Chinese ports, the shipments got delayed and we had some impact on the production, which we are hoping that, that production will get compensated within the quarter.
My sense is absolutely, there is no issue right now. In fact, the freight rates, the logistics costs have also come down from the peak level significantly. And clearly, we are passing on more and more of the price increases to our customers.
So as of now, the situation is fine, but I'd also request Mr. Lall, if you want to add something.
As of now, the situation is in control.
Okay. And what about the chips shortage?
So we are not facing any chip issue right now. There is absolutely no issue on the chip side.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Yes. So thank you, everybody, for taking out time for the call. In case you have any follow-up questions, any queries, please feel free, and I'm happy to answer those questions. Thank you very much.
On behalf of Emkay Global Financial Services, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.