Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dixon Technologies (India) Ltd (BOM:540699, Financial) reported a 101% year-on-year growth in consolidated revenues for Q1 FY '25, reaching INR6,588 crores.
- Consolidated EBITDA grew by 90% year-on-year to INR256 crores, and consolidated PAT increased by 109% to INR140 crores.
- The company's ROCE and ROE expanded to 38.4% and 27%, respectively, with a gross debt-to-EBITDA ratio of 0.1% and a cash conversion cycle of negative seven days.
- The Mobile and EMS division saw a significant revenue growth of 189% year-on-year, with an operating profit margin of 3.3%.
- Dixon Technologies (India) Ltd (BOM:540699) continues to invest in capacities and diversify into new product categories, including interactive flat panel displays and digital signages, to support long-term growth.
Negative Points
- The Consumer Electronics segment experienced a decline in TV revenues by 18-19% year-on-year, attributed to a slow market and reduced volumes.
- The Home Appliances segment, despite an 18% revenue growth, saw a slight margin compression due to increased freight costs and competitive pressures.
- The Lighting segment continues to face pricing pressures and weak consumer demand, although there are efforts to expand the product basket and improve cost optimization.
- The company is facing delays in the rollout of IT products, with the mass production of Lenovo notebooks now expected to commence in Q3 of this fiscal year.
- There is uncertainty regarding the future of the Mobile phone PLI scheme, which is set to end in two years, and the potential introduction of a new incentive scheme for domestic manufacturing of components.
Q & A Highlights
Q: On the EMS side, is the Chennai plant related to IT hardware?
A: Yes, the Chennai plant is related to IT hardware. We expect it to be operational by Q4 of the current fiscal or Q1 of the next fiscal. The addressable market for IT products is almost $10 billion, and we aspire to achieve around INR47,000 to INR48,000 crores of revenue in six years.
Q: Is there any PLI incentive booked in the mobile segment this quarter?
A: Yes, we booked almost INR40 crores as PLI incentive for the mobile business segment this quarter. Last year, the number was smaller, around INR4 crores to INR5 crores.
Q: Why are margins flat in the Home Appliance segment despite strong top-line growth?
A: The reduction in margin is due to increased sea freight costs because of the Red Sea crisis. Passing on these costs to customers takes time. The margin compression is not significant and is part of normal business fluctuations.
Q: What is the impact of the reduced basic custom duty on mobile phones?
A: The impact is minimal as the import of mobile phones in India is very low. The government aims to rationalize custom duty structures. The local manufacturing ecosystem remains strong due to significant arbitrage and PLI benefits.
Q: What are the plans for backward integration in display modules?
A: We aim to start production by the end of this fiscal or Q1 of the next fiscal with an initial capacity of 2 million units per month. This project is expected to be margin accretive from the second year onwards.
Q: What is the current status of mobile phone exports?
A: Currently, mobile phone exports are largely for Motorola, with 25% to 30% of production for global markets. We are exploring export opportunities for other brands but it's premature to share tangible numbers.
Q: What is the outlook for the Consumer Electronics segment, specifically TVs and refrigerators?
A: The TV market has been slow with a 17% decline in volume. However, the order book for the upcoming months looks strong. The refrigerator business is in the ramp-up phase, and we expect operating margins to be around 8% to 9%.
Q: How do you see the mobile phone PLI scheme evolving post-2026?
A: We expect the government to continue supporting mobile manufacturing, likely focusing on value addition and component manufacturing. This aligns with our strategy to deepen involvement in the component ecosystem.
Q: What are the growth opportunities in the mobile segment?
A: We aim to reach 45 million to 50 million units in the next couple of years. Growth will also come from breakthroughs in global markets and participation in the component ecosystem.
Q: What are the plans for IT products and industrial EMS?
A: We are in advanced stages of discussions with partners for automotive electronics and semiconductor equipment. We expect to start production for Lenovo notebooks by Q3 of this fiscal and have acquired two new customers for notebooks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
