DIXONNSEQ2 FY2023October 20, 2022

Dixon Technologies (India) Limited

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Management on call

Pulkit Chawla

EMKAY GLOBAL FINANCIAL SERVICES

Atul Lall

VICE CHAIRMAN AND

Saurabh Gupta

CHIEF FINANCIAL OFFICER INDIA LIMITED

Key numbers — 40 extracted

Rs.3867 Crore

rmance for the second quarter, consolidated revenues for the quarter ended September 30, 2022 was Rs.3867 Crores against Rs.2804 Crores in the same period last year, a growth of 38%. Consolidated EBITDA for th

Rs.2804 Crore

uarter, consolidated revenues for the quarter ended September 30, 2022 was Rs.3867 Crores against Rs.2804 Crores in the same period last year, a growth of 38%. Consolidated EBITDA for the quarter was Rs.146 Cr

38%

mber 30, 2022 was Rs.3867 Crores against Rs.2804 Crores in the same period last year, a growth of 38%. Consolidated EBITDA for the quarter was Rs.146 Crores against Rs.111 Crores in the same period l

Rs.146 Crore

804 Crores in the same period last year, a growth of 38%. Consolidated EBITDA for the quarter was Rs.146 Crores against Rs.111 Crores in the same period last year a growth of 31%, consolidated PAT for the q

Rs.111 Crore

period last year, a growth of 38%. Consolidated EBITDA for the quarter was Rs.146 Crores against Rs.111 Crores in the same period last year a growth of 31%, consolidated PAT for the quarter was Rs.77 Crores

31%

for the quarter was Rs.146 Crores against Rs.111 Crores in the same period last year a growth of 31%, consolidated PAT for the quarter was Rs.77 Crores against Rs.63 Crores in the same period last y

Rs.77 Crore

Rs.111 Crores in the same period last year a growth of 31%, consolidated PAT for the quarter was Rs.77 Crores against Rs.63 Crores in the same period last year, a growth of 23%. Now I will share with you

Rs.63 Crore

same period last year a growth of 31%, consolidated PAT for the quarter was Rs.77 Crores against Rs.63 Crores in the same period last year, a growth of 23%. Now I will share with you the performance and t

23%

for the quarter was Rs.77 Crores against Rs.63 Crores in the same period last year, a growth of 23%. Now I will share with you the performance and the strategy in each of the businesses going for

Rs.1501 Crore

ategy in each of the businesses going forward. Consumer electronics, revenues for the quarter was Rs.1501 Crores with an EBITDA of 43 Crores and an operating margin of 2.9%, we have seen a margin expansion o

43 Crore

ng forward. Consumer electronics, revenues for the quarter was Rs.1501 Crores with an EBITDA of 43 Crores and an operating margin of 2.9%, we have seen a margin expansion of 50 bps mainly because of lar

2.9%

evenues for the quarter was Rs.1501 Crores with an EBITDA of 43 Crores and an operating margin of 2.9%, we have seen a margin expansion of 50 bps mainly because of large ODM/JDM business. In this busi

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Guidance — 20 items

Atul Lall

opening

“Now I will share with you the performance and the strategy in each of the businesses going forward.”

Atul Lall

opening

“We should be able to roll out the same by Q1 of the next fiscal.”

Atul Lall

opening

“Monitors we have got orders from Dell and the commercial production has already started we expect the volumes to be around 0.2 million in this particular category.”

Atul Lall

opening

“We already have expanded the annual capacity in battens to 50 million and further in downlighters to almost 18 million we are getting into new product categories like starting strips and rope lighting which will be launched by Q4 of the current fiscal, our first supply is again export to UAE is being executed in Q3 and we are working on some large RFQs for our anchor customer for U.S.”

Atul Lall

opening

“We are in the process of acquisition of a smart lighting company which is cutting edge Bluetooth mesh technology that is in the process of development of Wi-Fi based technology solutions for lighting products, this acquisition we will be closing in the current quarter.”

Atul Lall

opening

“New products leveraging this cutting edge technology will be launched by Q1 of next fiscal.”

Atul Lall

opening

“We have also started work on investing under the PLI scheme for LED lighting components in line with the backward integration strategy, we are confident that this capacity of LED lighting components will be set up by Q4 of the current fiscal.”

Atul Lall

opening

“We will be introducing more designs with new features in both semi automatic and fully automatic category.”

Atul Lall

opening

“We have also embarked on an ODM journey in mobiles, we have recruited a very senior resource as our R&D head for mobiles and a new team and a lab will be built in Hyderabad for that.”

Atul Lall

opening

“We have started commercial production for them for an O&D category we have also backed the large border from Airtel HD zapper set-top boxes and the mass production should start from Q2 of next fiscal.”

Risks & concerns — 7 flagged

The margins have improved year-on-year and quarter-on-quarter led by passing on the impact of commodity cost to the customers, improved operating leverage and cost optimization measures.

— Atul Lall

Sir I have two questions the first question how does the pricing works with your large OEM so because the raw material prices are volatile, so is it quarterly or annual pricing how does that vary?

— Sandip Sabharwal

Thanks for the opportunity so the question is in the last quarter our revenue guidance were at 17,000 Crores and we were pretty confident on 4% margins, are we revising our guidance down to 15,000 and even revising the margins down whereas if you have seen a decline in the commodity prices ideally it should have helped in terms of improving margins so can you just help us which are the segment would have kind of disappointed in terms of scale up?

— Gopal

— Bharat Shah

Can we say now finally in terms of the size of opportunity, the way our operating teams have been set up the benefit of PLI, the contracts that we have with the clients and despite world still remaining very difficult and volatile world that we know overall can we share this quarter is kind of a departure into the kind of Dixon that we wanted to be and the strength at which it is supposed to perform.

— Bharat Shah

New verticals undoubtedly are going to be high growth area for us because the base is small namely the hearables and variables, telecom devices and we feel that by Q3 of next financial year, we are also going to have the commercial production started for refrigerator project so it is difficult to put in number form but this is the contours of growth one foresees.

— Atul Lall

Hi Sir thanks again so if you can just give some color on this Xiaomi related issues on the FEMA side and all does it have any impact on Dixon television business and second is on the competition side, we have seen a lot of companies investing into television manufacturing in India so does that have any risk to our customers?

— Gopal

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Q&A — 11 exchanges

Sir my first question is on the lighting business wherein we have seen some challenges in the last couple of quarters just want knowing how are you seeing things over there should we be anticipating an improvement in that business what exactly have been the issues and some of the steps that we have taken to tackle that?

Atul Lall

So Aditya if you recall in our last interaction I had shared that there were certain internal challenges in execution and we have now new management team taking over businesses coming back to normal being reflected in the numbers, the margins have improved and come back to almost original level of 8% plus. Sales is improving we have added new customers, the customer product portfolio is being expanded, new resources for exports have been deployed. We have significantly improved the financials of this business as I shared with you in my opening remark that we have been able to reduce the workin

Congratulations on a great set of numbers. So my first question is regarding the guidance for revenue and margins in FY2023, now from last quarter to this quarter we have added a lot of customers a lot of initiatives including the Google TV Android so would you like to probably give us the guidance again or do we maintain that?

Atul Lall

Sonali I think just hold it for some time, to be very candid we are in the process of concluding certain large contracts and you know very well that large piece of our business is the mobile opportunity which is in the process of concluding so just wait for some time for Saurabh and me to come back onto these numbers, it is at the final stage. Sonali will have a better visibility in couple of month here so then we will be able to better guide the margins so as of now you should stick to our numbers which we had guided. Sorry Saurabh could you just for the benefit of all repeat the numbers of g

Thanks for the opportunity and congratulations on the good set of numbers. My question is on the ODM opportunity in television how can we look at the margin here so as we have 24:30 audio cut what is going to be the margin profile here?

Atul Lall

Dhruv margins in ODM/JDM business and television is going to move up in steps I feel that when we migrate in phase one, the margin expansion is going to be somewhere in the range of around 50 to 70 bps but then as I shared with you in my opening remarks that we are setting up the backward integration footprint of injection molding and possibly later the metal processing which will be operational in couple of quarters and once we are able to shift the toolings into India the margins should expand by another 50 to 70 bps so in two phases I think the margins can expand by 125 to 150 bps. Thanks a

Thank you for the opportunity and congratulations on a good set of numbers Sir when you speak about this export opportunity, first of all congratulations a lot of hard work that has opened up for us but the categories that you speak about home solutions, strip light, rope lighting ceiling lights etc. these look like smaller in terms of opportunity so just wanted to see that and check on a medium term basis how large this opportunity could be?

Atul Lall

So Sujit please appreciate that Dixon’s main focus till now has been on bulb as a category and also when we got into batons, both bulbs and batons in India are reaching some kind of flattening sales because particularly in bulbs because the governments program under ESL lot of coverage on the ground has been done and the market undoubtedly is shifting more and more towards ceiling lights that is downlighters and also there is a lot of potential on this strip light perspective so both I mean on the downlighter side, ceiling light side we are expanding our capacity to 30 million and this 30 mill

Sir I have two questions the first question how does the pricing works with your large OEM so because the raw material prices are volatile, so is it quarterly or annual pricing how does that vary?

Atul Lall

In almost 80% of the business which is the prescriptive part of the business they are the understanding is that Dixon will not take any currency or commodity risk so that is immediately passed on and we were not impacted with any kind of a commodity or the input price increases so it is only in the 20% of the business which is predominantly the lighting, washing machine business and now some portion of the TV business here the commodity or the currency risk are passed on with the lag now different understanding with different customers some customers it is one month some customers it is 3 mont

My question was regarding the recent launch of 5G so how would it exactly benefit Dixon as you would be the first one to manufacture?

Atul Lall

If you are talking about the 5G rollout? Yes? So 5G rollout there are two potential opportunities for Dixon, one of course is on the mobile devices so Dixon is one of the first few companies which has started manufacturing 5G and our infrastructure is all geared up this is both for the domestic market and export market that is one. Second on the telecom devices front we are already registered under the telecom PLI scheme for the networking products both for 4G and 5G, it is at a very basic level but we are definitely exploring the EMS opportunities and dialogue with certain potential partners

Saurabh Gupta

So Gopal we had of course we had corrected the guidance last quarter only so yes you are absolutely right we started this financial year somewhere around April and all we were at 17,000 Crores but within a couple of months we had brought it down to 15,000 Crores and clearly today also you are absolutely right that of course commodity prices have come down and that you we have seen that that is reflected in EBITDA margins for lighting and washing machine business but at the same time the currency has also depreciated Indian rupee has also depreciated which is again kind of had some kind of an i

Two questions one given the way there has been lot of moving parts and operating challenge in the environment and given the kind of business that we manage with long supply chains and differing products, multiple centers at which we need to do our manufacturing, our results earlier so far have not probably fully reflected our potential and I suppose you too would agree with that. Can we say now finally in terms of the size of opportunity, the way our operating teams have been set up the benefit of PLI, the contracts that we have with the clients and despite world still remaining very difficult

Atul Lall

So Bharat Ji undoubtedly last few quarters you very correctly stated that largely due to the external factors somewhat to the internal factors were challenging however I think internally the team has done well executing some large projects, expanding our capacities, expanding our design capabilities, rolling out new factories, becoming an ODM player in televisions getting into the verticals of telecom devices and doing it well, getting into the vertical of hearables and variables and ramping up well, new talent acquisition, migrating to JDM/ODM in the business of televisions so I think these a

Sir my question is what demand trajectory in different verticals you are expecting in next financial year and do you feel it will be hampered due to global uncertainty?

Atul Lall

So what we feel is there is definitely a positive outlook in the vertical of television because of the Google opportunity. I have already shared in response to the earlier question on home appliance that it is going to be a normal growth of around 10% to 12% and this is going to come mainly from the FATL as a category. In mobiles we are working on new customer acquisition which I have just shared that we are fairly confident of concluding soon so that will be growth, existing businesses of CCTV is again going to see normal because we are expanding our capacity there. Lighting let us just wait

Atul Lall

Xiaomi side there are large customers 95% to 98% of their requirement is done by Dixon. With the developments happening on their regulatory front undoubtedly we were also concerned. I have personally had deep dialogue with the India leadership team and also Beijing leadership team and they have repeatedly assured me that there is no impact on their India business, the budget forecasting and the business that we have done till now there has been no impact there has been no impact on their payment or lifting of stocks in fact they are revising upwards their forecast for coming quarters so that i

Thank you very much for participating in this call and wish you all a very very happy Diwali. Thanks once again.

Saurabh Gupta

Thank you very much. Happy Diwali to everyone.

Speaking time

Atul Lall

Moderator

Sujit Jain

Onkar Ghugardare

Saurabh Gupta

Gopal

Sonali Salgaokar

Aditya Bhartia

Sandip Sabharwal

Dhruv Jain

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Opening remarks

Pulkit Chawla

Thank you, Seema. Good evening everyone and welcome to the Dixon Technologies Q2 FY2023 earning call. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Atul Lall, Vice Chairman and Managing Director and Mr. Saurabh Gupta, Chief Financial Officer. Without further delay, I shall now hand over the call to the management for his opening remarks. Over to you, gentlemen!

Atul Lall

Thank you very much, Pulkit. Good evening ladies and gentlemen, this is Atul Lall and we also have on the call today our CFO, Saurabh Gupta. Thank you very much for joining this earning call for the quarter ended September 2023. Coming to our overall performance for the second quarter, consolidated revenues for the quarter ended September 30, 2022 was Rs.3867 Crores against Rs.2804 Crores in the same period last year, a growth of 38%. Consolidated EBITDA for the quarter was Rs.146 Crores against Rs.111 Crores in the same period last year a growth of 31%, consolidated PAT for the quarter was Rs.77 Crores against Rs.63 Crores in the same period last year, a growth of 23%. Now I will share with you the performance and the strategy in each of the businesses going forward. Consumer electronics, revenues for the quarter was Rs.1501 Crores with an EBITDA of 43 Crores and an operating margin of 2.9%, we have seen a margin expansion of 50 bps mainly because of large ODM/JDM business. In this bu

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