Dixon Technologies (India) Limited (DIXON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dixon Technologies Q3 FY '20 Earnings Conference call hosted by IDFC securities. [Operator Instructions] I now hand the conference over to Ms. Bhoomika Nair from IDFC Securities. Thank you, and over to you, Ms. Nair.

Good evening, everyone. On behalf of IDFC Securities, I would like to welcome you to the Q3 FY '20 earnings call of Dixon Technologies. The management today is being represented by Mr. Atul Lall, Managing Director; and Mr. Saurabh Gupta, CFO. I'll now hand over the call to Mr. Lall for his opening remarks, post which we'll open up the floor for Q&A. Over to you, sir.

Thank you so much, Bhoomika. Good afternoon, everyone. Thanks very much for taking out time for this call. I'll first give you a snapshot of Q3 performance before we get into the question-and-answer session. We have delivered another quarter of resilient growth. Consolidated revenues for the quarter ended December 31, 2019, about INR 996 crores against INR 795 crores in the same period last year. That's a growth of 25%. Consolidated EBITDA for the quarter was INR 53.4 crores as compared to INR 39.6 crores in the same period last year. That's is a growth of 35%. The margins, they have expanded from 5% to 5.4%. This is primarily due to the operating leverage kicking in. And the teams working on value engineering and more migration on to ODM, and also the contributors are a stable currency and softness in the commodity pricing. So this margin expansion has happened across all our product categories. Consolidated PAT for the quarter ended 31st December, was INR 26.3 crores against INR 17.6 crores in the same period last year; it's a growth of 49%. A significant part of our performance is that we have generated a free cash flow of around INR 92 crores in the first 9 months of the current fiscal. This is on account of a strong profitability and a much -- a much more efficient working capital management. This has resulted in a negative debt position of INR 24 crores as on December 31 as compared to INR 97 crores as on 31st March, '19. And the interest cost, both year-on-year and quarter-on-quarter adjusted after index, has come down significantly. And this has improved our return ratios. So the ROE has expanded to 24.9% at the end of December 31. And a return on capital employed is 32.6% at the end of Q3. We continue to focus on 3 drivers: The future cash flow on expansion, working capital efficiency and disciplined investments. So I have -- in all my interaction, shared that our strategy is simple and straight to achieve a scale to generate operating leverage, migrate more and more towards ODM categories, focus on low CapEx backward integration for margin expansion and sharing with our customers, new customer acquisition and strengthening the stickiness with our existing customer to get a larger share of the pie. Across all our verticals, we have been able to do this. And this is what has helped us generating an operating leverage and the improved results. Before I go on to vertical-wise performance, I would also like to share with you that we have acquired a new customer, Reliance Jio, and we've got a large order for cable set-top boxes, dual-tuner cable set-top boxes. The delivery of these set-top boxes will start from March 2020. We are extremely excited about this customer acquisitions. We feel that there is a possibility of expanding the areas of operations into other growth categories. As a third-party vendor to Jio, we have already started supplying to them, from our Tirupati plant, the dual tuner hybrid set-top box PCBAs through a Israeli design house. So that work has already started. Our new set-top box order will be executed from our earlier mobile plant, where the capacity utilization was low. And the same set of machinery is going to be used for set-top box order [ increase ] with a very, very minimal CapEx. Now I come to the vertical-wise performance. In Consumer Electronics segment, the revenues have grown by 58% as compared to last year. It has grown from INR 288 crores to INR 454 crores. Operating profit has increased significantly by 90% year-on-year. It's INR 11.5 crores as against INR 6 crores in the same period last year. We presently have a capacity of 3.6 million. However, because of extremely good performance of our anchor customer in marketplace that is Xiaomi, and also now we have acquired new customer in Samsung. For home, we'll be manufacturing sets up to 65 inches size. And the order book looks extremely healthy, and we are expanding a capacity to 4.8 million in televisions. The -- this capacity expansion will be over by April, May 2021. We are further deepening our manufacturing facilities. So the expansion will take place not only in panel assembly lines, but also MCMs. We are doubling our capacity to PCBA from 1 million per annum to 2 million per annum. This further strengthens our numbers. This further strengthens our position on the competitive side, on the cost side and also enhances the stickiness with the customer. So today, we will be the largest capacity in India vertically integrated. We have also expanded our R&D resources, both in China and India labs. We are also in advanced stages of discussions with 4 more large MNC brands, and we expect the production for them to commence soon. In lighting segments for the quarter, we have shown a decent growth of 18% year-on-year. That's INR 277 crores in Q3 as compared to INR 234 crores in the same period late last year. Operating profit grew 26% as compared to INR 19 crores in the same period last year. The significant part of the lighting business is margin expansion, which has expanded to 8.6% in Q3. And the ODM migration, which in the last quarter was 81% and last year was 44%, has increased to 89% in the current quarter. So that's a significant change in the performance. So practically, now all the brands in lighting business are on ODM basis. And a large part of the various brands who are our customers today are sourcing from Dixon. So we are India's largest OEM in lighting vertical. We have a large capacity of 20 million bulbs, which is almost 45% of the Indian requirement. We have also developed solution for a smart LED bulb, the emergency bulbs, which are being supplied to the various large brands in the domestic market. A significant new acquisition in the lighting segment is Havells as a brand, which is an extremely prominent brand, and we start supplying emergency bulbs for them. Also in the new customer, we've added HPL. HPL, we'll be supplying to them entire range of lighting products. We have expanded our capacity, as I had shared in my last interaction with you in battens, from 250,000 to 800,000, today the order book is around 1 million per month. So we are further expanding our capacity to 1.5 million, which will happen by April this year. And now the battens are also being [mostly] supplied to almost all the customers and the major brands for buying the LED bulbs from us. In downlighters, we have expanded our capacity from 150,000 to 300,000. And whereas shortly by Q1 next fiscal, it will be expanded to 1.2 million per month. And the brands, we are I think servicing almost 20% of the Indian brands, the same brands will be buying both downlighters and battens to us. We feel the kind of volumes and the product portfolio we have, we are now globally competitive. And we are within top 4, 5 companies as far as volume is concerned globally. So we have the operating leverage and the scale advantage here. So we will start exporting to one of our large multinational anchor customers. We start exporting for them to U.S. from March. So we feel that's the beginning, and we are confident that in next fiscal, we should be able to acquire a couple of new accounts, globally for exports. Home appliances segment was under pressure because of the market situation post Diwali. There is a degrowth of 26%. This specifically also happened because one of our customers had large inventory in the trade. So there is a 26% degrowth. We had the revenues of INR 92 crores in '18, '19 Q3, which has come down to INR 68 crores in Q3 '19, '20. However, despite the lower revenues, the operating profit has contracted by just 8%. The operating margin has expanded to 13.4% in washing machine segment. This is primarily because of cost controls and also stable currency and benign commodity prices. I've shared with you earlier that we are the largest in this segment in the country, which is completely on ODM basis. We have 140-odd models, and the annual capacity is going to be -- is around 1.2 million. So the new account acquisition -- new customer acquisition in the automatic -- semi-automatic washing machine segment is Voltas Beko. We have already started supplying to them in -- from the current month, and we have a decent order book. Now we find in the current quarter that the sales has normalized, and it will be back to normal. I shared with you last interaction that we are going ahead with top loading fully automatic projects where the technology partner has already been finalized. We are setting up a capacity of 600,000 in a contiguous campus in our Tirupati facility. The factory construction is about to start, and it should be operational by October next year. This is having almost 30 variants. So this is going to be most comprehensive to our portfolio of top loading fully automatic designing company in India. We've already closed an agreement with a large multinational brand. So this agreement was concluded in November, and this was a complete comprehensive stage. So this is going to be the next growth area. In Mobile segment, we did INR 139 crores or 100% as against INR 151 crores or 50% in the same period last year. The operating profit was INR 3.2 crores or 100% as against INR 4.4 crores or 50% in the same period last year. So in the existing plant, there is an under capacity utilization. So this capacity utilization -- this is primarily because of not very good performance for some of our customers in the marketplace. So this capacity is being loaded with the Jio set-top boxes. It will start from March, and we will see a significant improvement in numbers. We have started manufacturing for Samsung in -- from November. The hiring team has done a very good job that they've been able to ramp up very fast. And this month, we are utilizing almost 110% of the capacity, which is I think very, very standard [flow] for the team of Dixon. And this is going to be a good profitable business with no working capital deployment. In this plant, we have done a CapEx of INR 25 crores for Samsung feature phones, and we expect a fast payback. The next vertical is Security Surveillance Systems. There is 16% growth in our share of 15% revenue quarter-on-quarter, and as compared to last year, of course, there is significant improvement. Operating profit for this business is strong growth quarter-on-quarter with an expansion in the operating margin from 2.4% to 4.4%, that is from INR 1.06 crores to INR 1.3 crores. We, here have a capacity of 600,000 -- month of cameras and 100,000 of DVRs. The next segment, I would discuss is the Reverse Logistics. In this segment, there has been a significant turnaround of the business. Revenue and operating profits have both grown quarter-on-quarter and year-on-year. Revenues quarter-on-quarter grew by 20% or INR 3.8 crores to INR 4.6 crores. Operating profit saw a very significant quarter-on-quarter growth in expansion in operating margins from INR 72 lakhs with an operating margin of 18.8% in Q2 to INR 1.59 crores in operating margin of 34.4% in Q3. In this, we have a very large, very healthy order book, both in panel repair business and also in set-up box business. This is what I wanted to share about the Q3 performance. Any questions, most welcome please.

[Operator Instructions] The first question is from the line of Vishal Biraia from Aviva Insurance.

Sir, this pertains to the Voltas Beko contract that we received. Could you elaborate a bit more as to what is the scope? How big is the contract? What is the duration? I will ask the additional questions later.

Initially, we are starting with the categories of 7.5 to 8.5 kg categories. The other smaller capacity size are being discussed. We're confident that we're going to be starting that also. So I feel that a substantial portion of Voltas Beko semi-automatic portfolio is going to be done in their own factory. Exact number is slightly difficult to pan out because the business has just started. But I'm confident that a very large portion of Voltas Beko semi-automatic business will be there.

Okay. And so when we say we are doing -- we are expanding lighting very aggressively, this would be all across the lighting spectrum as to from the lower-end products to the highest-end products? Or we are concentrating in some specific segments as only in the lighting space?

In lighting space, we already have a very large capacity. LED bulb is a segment. So Dixon primarily is in indoor lighting segment. And our main product portfolio is LED bulbs, where we have more than 2,000 SKUs. And we are into battens and tube lights, and we're into downlighters, and we're into drivers. As far as LED bulbs is concerned, we already have a capacity, a large capacity. A minor additional capacity may be required depending upon the order book. The focus in LED bulb segment is going to be to include in the product portfolio, the smart solution, the emergency bulb solution. And on the industrial engineering side, more focus is going to be on automation to reduce labor intensity in business. And then we are making an attempt, and we're confident about it, of developing the product portfolio, the supply chain, the skill set for the global market. As I have shared with you that one of our large anchor customers has already placed an order for us, and our first shipment of international markets are going to start from March. In batten, we've seen that we still have a large scope, where at present, we're at almost 1 million. And the market is around 6 million to 7 million. Just like we have almost 35% to 40% market in LED bulb, and the brands and the customer is the same, we feel strongly that we should be able to raise our market share to almost a similar level. The capacity, which has been expanded to 800,000, In Phase 1, it will be expanded to 1.5 million which will happen by April, and then to 2 million. The next product line that we are into is downlighter, where we were a relatively smaller player. We were doing only for 1 large customer. So that is around -- that was around 100,000 to 150,000 per month. The market, again, for downlighter, we see is around 5 million a month. There, again, we are expanding our capacity in Phase 1, and developing a very large product portfolio and taking up -- trying to take up the capacity and also the business to almost 1 million a month. So these 3 are the focus areas. Drivers is a prescriptive business, customer design. And that's the way we're going to continue.

So just the one last thing is, how do you -- what kind of revenue growth do you see for the coming year and the year after as to what -- how should we look at it?

So you're talking about whole of Dixon or you're talking about lighting?

Lighting.

We feel that we should continue to grow that around 20%, 25%. That's we are strongly -- we are confident about.

Okay. And what is the CapEx guidance overall for Dixon as a whole for the coming year for FY '20-FY '21?

If you see the CapEx for the last fiscal within the first 9 months, we had been around INR 60 crores. In the current quarter, we have a plan of another INR 10 crores to INR 12 crores. And we feel that in the next fiscal also, it will be somewhere between INR 65 crores to INR 70 crores.

So our CapEx plans are getting finalized, but broadly, it will be in a similar range.

The next question is from the line of Nirav Vasa from Anand Rathi.

Sir, I have -- my first question pertains to any kind of interruption are we seeing in our supply chain because of the coronavirus because I believe a lot of OEMs have their supply chain, which is installed in China? And because of all this ongoing chaos, are we seeing any kind of impact of that?

We see -- we were prepared ourselves for the Chinese New Year. It started for various companies between the 16th and 18th of January. And China was supposed to open by 2nd, 3rd of Feb. So our China-dependent supply chain we're taking care up to March. And the first such feedback our business team is having is that instead of opening on 3rd, China would be opening on 9th or 10th. That's what the intimation is. So we feel that up to March, we are fine. That's what our sense of thing is. But we're closely watching the situation and see how it pans out for the first quarter next fiscal. We're still waiting and watching. If the factories reopen, there might be an implication of airfreighting cost of certain critical components, which is having a higher lead time. That is what I'm able -- I'm in a position to share as of now. So we feel that the current quarter is almost fine. Next quarter, we'll have to wait and watch.

Get your point, sir. My second question will be pertaining to volumes. Would it be possible for you to share volumes for this quarter across each category?

You're talking about Q4?

Yes.

Q3 or Q4?

3Q.

3?

Third quarter.

Third quarter.

So in the consumer electronic business, the LED volumes was around 4.5 lakhs. Washing machine, it was somewhere around 1.4 lakhs. And security systems, both CCTV and DVR put together was around 11.6 lakhs. And we sold almost 4.6 crore bulbs -- LED bulbs. And of course, we had other SKUs like battens and downlighters.

The next question is from the line of Renu Baid from IIFL.

Congratulations for the strong performance. My first question would be to understand a bit more as in lighting we have seen margins actually improving and sustaining at now 8% plus levels. So as we are further looking to increase the ODM portfolio, what is the broad outlook for next year and should we expect these 8%, 8.5% kind of margins to be sustainable? Or you think there could be bit of hiccups when you look for expansion in new category as in new segments being added here?

Renu, I feel that we should be able to sustain this kind of a margin. They can be 20, 30 bps up and down depending upon the commodity pricing. I think the ramp up for battens is already kind of maturing, therein, already the order book is around 1 billion a month. The value engineering that had to be done, we've already passed through that. And downlighters in any case is relatively a higher margin for us. The margin pressures on downlighters are slightly lower as compared to bulbs in the similar range.

Correct. In the fully automatic, you did mention about your plans, manufacturing has started, et cetera. So what is the kind of exact CapEx which you have lined for fully automatic? And how should one look in terms of the initial capacity ramp-up? Because I think this is stated by October next year. So even if we have 1/4 of an impact coming through, what kind of investments are looking in this vertical, both in terms of molds as well as physical infrastructure?

This will be somewhere between INR 50 crores to INR 55 crores. As far as the CapEx is concerned, a part of it will happen in the current quarter, and the balance is going to happen in the next fiscal.

Okay. And one small question to Saurabh. If you can just elaborate a bit more on the interest expense side. I understand there is some portion of it coming in from the lease expenses, which are there. And the fact that now we've been able to reduce the total debt on books, how should we read in terms of sustainability of this kind of deleveraging that we had seen in the last quarter?

I think so, Renu, this should continue. We have been able to generate a free cash flow of INR 92-odd-crores And I think so we are looking at -- at least INR 30 crore, INR 35 crore kind of a free cash flow in quarter 4 as well. So I don't see the debt levels going up. The interest level should keep coming down. This quarter also, it has significantly come down. So if you remove the NDS adjustment, year-on-year, it has come down by almost 4%. So there is a degrowth of 4%. So quarter-on-quarter, it has come down. And we see that the debt levels have been -- we see that as on 31st March, that there should not be any debt. And the interest levels in Q4 should be even lower. And we will fund most part of our growth going forward now. So our balance sheet has moved stronger and more healthy. And it is -- so most part of our CapEx going forward will be funded completely from internal accruals. It would not require any funding for the project.

Right. So if I get right, we are targeting the books to be debt-free by the end of the year. Is it like net debt-free or absolutely debt free?

On a net-debt basis, I think --

They only have cash [indiscernible]

On a net-debt basis, it will be on similar levels as what you see right now.

Okay. Sure. And what is the current borrowing cost that we are having? And if you can help me just break up the interest expense in terms of what is actual interest outflow? And what are the other charges as well as the NDS related expenses?

Yes. So NDS related expenses in this quarter is almost INR 1.8 crores, Renu. So if you just adjust that number or the reported number of INR 8-odd crores, the number comes around INR 6.2 crores as against INR 6.5 crores same period last year. So it is lower by 4%. And so this all -- INR 6.2 crores is all your interest on the working capital facilities that we have. Bank charges are clubbed under as a part of operating expenses. So this is only the interest component that is there.

Okay. Perfect. And overall, just 2 more incremental points: a, as in we have mentioned that some of the inventory buildup, which we have seen across some of the OEMs in the washing machine side and the seasonal correction in the television, which has happened during third quarter, we now see overall business momentum and volumes getting back to normalized level from the fourth quarter. So is that in line with what we have been seeing? And second would be Samsung. It started with us in the semiautomatic space. They have extended relationship on the mobile phone side and now in the television side as well. So should we presume that there would be opportunities coming in from Samsung in terms of the other business segments as well? And one could see a portfolio expansion also happening on those lines because of the deeper relationship that you've built up with them?

Considering the first question, Renu, we are seeing normalizing of business in the current quarter for semiautomatic. And on an overall yearly basis, I feel, in spite of the slow third quarter, we have almost 17%, 18% growth on an overall yearly basis. So the fourth quarter number look -- order book looks healthy, very healthy. And the next quarter, quarter 1 also, the next year outlook is pretty good. We have brought in another new 10-kg solution, specifically for Samsung, for which the production is going to start by May, June. We feel that we are going to have a healthy growth in our Dehradun plant itself in the semi-automatic numbers next fiscal also, that particularly new customer regularization and Voltas and Haier coming back to us. Now as far as Samsung relationship is concerned, I think it's been extremely positive for us because we started Samsung relationship only in 2017-18, when we started the semiautomatic. And then semiautomatic volumes grow. And on the basis of the performance, they gave us an opportunity in the mobile phone business, which is a turning point for us. And then we have been given the TV business. So one, I feel that across all the verticals, the share of our pie of Samsung business will increase. New opportunities, we keep talking to them. They're extremely positive towards us. At present, I'm not in a position to comment, but there are definitely opportunities.

The next question is from the line of Tejas Sheth from Nippon India.

On the Reliance Jio opportunity side, I think, total, they have some 1 million households on FTTH. So is there any thoughts they have told you on what could be the opportunity for assembling the set-top box?

See, the first order book is for 0.5 million set-top boxes. This is primarily the cable set-top boxes, the dual tuner set-up boxes, which are going to be deployed in the network of Den and Hathway where the household population is much, much larger.

Okay. Okay. And will be sole supplier for...

Other solution that we're giving to them, that's a hybrid box, that is basically is fiber one. It is being been done from Tirupati plant. So when you're referring to 1 million population there, that's our [average]

Yes. That is the fiber one.

That's right.

And you'll be the sole supplier to them?

No, no, no, it's not like that. So we have tie-up with certain design houses who are finalizing the solutions with Jio. And we are the manufacturer. It's a prescriptive manufacturing. We've been asked in the design house for Jio. That's the status of this business. And the commercial production for hybrid box, set-top box, PCB has already started. For the dual-tuner cable box, the production will be starting by March.

Okay. On the lighting export opportunity side, you said that the deliveries will start by March. If you can highlight the -- how big this opportunity can be from this single customer right now? And obviously, you look -- you are looking at signing more customers. So just from the single customer, is the opportunity very big? And secondly, with this, what is going on in China, would the vendor look at Dixon in much more serious way, considering that they would again may rethink on having a high dependence on China sourcing?

So this is in line with the strategy of large global brands of having China plus one. So for this customer, we had already been exporting large numbers of analog solutions till 2 years back, and lighting. So we start digital, the LED bulb export. I feel it is going to take time for things to stabilize for us also to streamline the supply chain. So I feel this business is going to take some time to build up. I think in the next fiscal -- it's difficult to give a number. But I definitely feel that from the next to next fiscal, that is '21, '22, the main growth is going to be coming from the global markets for us. This is a stepping stone, Tejas. I'm sorry, I'm not in a position to literally give you the numbers.

Okay. No problem. And how advanced are the talks with other customers in exports in lighting?

So we had factory rounds. We had audits. So we feel that it should happen by second half of this fiscal.

The next question is from the line of Aditya Bhartia from Investec.

So we have seen a fairly sharp reduction in capital employed in the consumer electronics business. So just want to understand what has contributed to the same and whether it is sustainable?

So I think it's the operational efficiency which has been bought in primarily on account of the largest customer. So operating cycle, when we started, and I also shared when they were concerned on the enhanced intensity of working capital in the Xiaomi business. So we have been able to bring down the operating cycle, which at one point of time was at 108 days to 82 days, 83 days, 84 days for every order. That has led to a significant reduction in the working capital intensity. And second, on our ODM part, which is a smaller part but has more working capital, and the team has been able to manage current assets much better. So we are confident, in fact, it’s going to be better, you'll see.

Given the, Aditya, the Samsung LED TV business, which will start from February, there will be a negative working capital in that. So that should also help us generating more working capital out of this TV business.

So my observation and what I shared with you just now that it should be even better, it's basically on -- based on the operating cycle of Samsung.

Sure, sir. But sir, the reduction that we have seen is actually quite significant. We are speaking about hardly any working capital now being deployed in the business, while it used to be fairly capital consuming. Even -- I mean, on a quarter-on-quarter basis, wherein things had started normalizing, we have seen a very sharp reduction from almost INR 110 crores to INR 40 crores. So is it only on account of reduction from 108 days to 83 days?

Yes, yes. The...

Mainly it's on account of that only, Aditya, and Xiaomi contributes a significant portion of our revenues in TV business. When we started the business, our working capital went haywire. And if you remember, last Q4 of last financial year when we just started the business and business was ramping up with Xiaomi, we ended up deploying money into working capital, which I had mentioned that we will bring it down. So I think so we have gradually brought it down significantly quarter-on-quarter. And there is a huge focus internally on working capital intensity on the ODM business as well, which is even 8% to 10% of my revenues. So there was a deliberate -- a lot of work has gone into bringing this working capital down. And this will -- you will not see this working capital intensity going up. Maybe another INR 10 crores to INR 12 crores of CapEx that we would be doing for the Samsung LED TV thing. That would be the incremental capital employed that we would be doing. But apart from that, working capital intensity would be on similar lines.

Sure. And at terms -- in relation to GST payments that we used to do and then later recoup from Samsung, all of that remains the same -- from Xiaomi, sorry? All of that remains the same?

That would remain the same. But at overall level, when I say working capital, so we get payment, we get -- they come through the line first before we make the creditor's payment. So that is really the gap between the debtor's realization and the creditor's payment has significantly -- has increased significantly. And that's the reason that it's kind of reflecting in negative working capital.

Also, Aditya, in Xiaomi's case, when we initially started, the creditor terms were slightly tougher. And we have been able to get them extended now. So that has further improved.

Perfect. Perfect. And you shared some of the large contracts that you've won of late. Obviously, there's Samsung LED TV business, there's Havells lighting, Jio's cable set-top box business, and Voltas Beko washing machines. You kind of shared some insights about how these businesses are likely to scale up. If you could give us some more sense, especially about the Samsung LED TV business, what kind of volumes we are likely to be doing? And whether you expect these volumes to further scale up from FY '22 onwards? And similarly for Havells lighting, what's the real scope of this business, how large that could be?

So Samsung's this year number can be around 0.5 million to 600,000 sets. And let's see how it stands out in the next fiscal. The visibility that has been given to us is this. When we look at the Voltas Beko, we feel that we're going to be having a large share of the semi-automatic business because they have finalized with us the complete product portfolio. It is slightly difficult at this stage to share the exact number. Havells is an entry point. We have been working on this account for a long time. And I think it's an entry point. It's a small business of -- which is a niche business in smart emergency lighting. So that's where we are.

Understood. And Jio cables, set-top box business, sir, how large could that be in revenue terms? And whether it's more like a onetime business? Or you expect that to be a recurring business?

It's going to be a recurring business. And the first order is to the tune of around INR 50 crores.

Understood. And on the lighting side, sir, while the export opportunity and our expansion into battens and downlighters is -- these are fairly attractive opportunities. But the base business that we are having today that of manufacturing bulbs. How is the outlook over there? And do you see that business as now maturing and, therefore, growth over there tapering off quite sharply?

I feel that the growth is going to be in double-digit in LED bulbs in the -- in the forthcoming fiscal. It's not going to be high 25%, 30%. The significant revenue growth we are planning is through battens and...

Downlighters.

Downlighters. And LED bulbs, as I have said, we're trying to become global to get the revenue growth. But what you're saying is right. The LED bulb growth as such is going to be benign.

The next question is from the line of Naval Seth from Emkay Global.

Two questions on washing machine business. So if you can shed some light on further scope of business from incremental customer in semi-automatic, and do you see that happening? Or it is more so which will be coming from the existing customers only?

So we are continuously working on new customer acquisitions, but most of the major brands who are into the outsourcing mode are already with us. So the outlook that we have is that I think this fiscal, we should do around 830,000, 840,000, which is a growth of around 14%, 15%. And next year, we should be somewhere around 1 million to 1.1 million. That's the kind of outlook we are getting. Our new acquisitions are already happening. So we have recently finalized with Reliance again for the new brands that they've acquired in Kelvinator and Disney. So we will start supplying to Reliance for these brands, Kelvinator and other brands from February onwards. Similarly, we are starting again, supplying to Flipkart private labels. We've also acquired Croma. So we'll start supplying to them. But they're relatively smaller volumes.

Okay. And sir, on fully automatic in last earnings call, you had stated 70% of capacity has been already booked for. Now as the quarter has passed by, so have you seen that moving towards 80%, 90% getting booked? And if yes, are we now contemplating to put our capacity more than 0.6 million? Any thoughts there?

So in Phase 1, the capacity being built is of 0.6 million only. And as I shared with my -- in my initial opening remarks, and that a substantial part of our capacity, almost 60% to 70% of our capacity has already been closed with a large multinational brand. And we are in dialogue with the other global brands and also domestic brands. And we are very confident that after the ramp-up phase is over, which takes a quarter or two, complete capacity for this plant would be full. Once we start sensing that the order book and the execution is streamlined, the expansion, there is enough band available to us in that particular camp.

And question to Saurabh on margins. Although this quarter, commodity prices were quite favorable, as that stabilizes, what should be the margin's run rate going forward in home appliances? Should it be 10% or because of the cost optimization, what you had. I mean, Mr. Lall shared in his opening remarks. So can it go beyond that on a sustainable basis?

Yes. So there are 2, 3 things positive, I think so. One is the favorable commodity prices. Commodity prices have been quite stable. Currency has been quite stable. So that has also helped. And of course, we are -- we are also doing a lot of value engineering on our buildup material. So some work has already been done and some work will be done over the next 6, 7 months. So that should have a positive impact on margins. So if the currency and commodity remains the same, I think so these margins should be sustainable for at least quarter 4. And then -- so it really is a function of how the commodity prices and currency moves because it's a 100% ODM business. And there is a lag in passing on this currency and commodity prices to our customers. But having said that, even next year, if we are looking at 1 to 1.1 million kind of a quantity, I think so even more operating leverage benefits should also kick in. So I think so on a sustainable basis, we are confident that at least 11.5% to 12% margin should be sustainable. And then it will really depend on how the commodity prices play out, and other things which I mentioned play out.

[Operator Instructions] The next question is from the line of Dipan Mehta from Elixir Equities Private Limited.

Congratulations on good set of numbers. Just wanted an explanation again for why our home appliances and mobile phone, there was a decline year-on-year for the quarter in revenue?

So in washing machine, post Diwali, there is always a slowdown on the demand side. In the last particular quarter, one of our large anchor customers had a lot of inventory with the trade. The lifting was impacted significantly. Now as I shared with you, it has normalized, and we are back to the old pace. That was the reason. In the --

In Q2, the inventory was higher, that's got to normalized in Q3 now? Is that...

No. In Q3, the inventory was -- the Q3 opening inventory of this particular brand in the trade was very high. So they were able to liquidate it by December end. Now procurement has started back on the normal pace. That was what the situation was. In the case of mobile, in our earlier plant, our 2 main customers were not performing well in the marketplace, which has impacted us. The new plant of Samsung, which has been set up at an extremely -- in the shortest possible time, was operational only in November. So that has impacted the numbers of mobile. The new mobile plant in the current month is running at almost 110% capacity. And you'll see the numbers recouping significantly in the current quarter. In the old mobile plant, the capacity utilization continues to be under pressure. But with the set-top boxes of Reliance Jio getting loaded there, the capacity utilization will almost be 80%, 90% from March onwards. So that's what the status is.

One last quick question, sir. You said -- you referred to exports from lighting product division. So that is more of an event of 2021. But do you think it will make a material difference, like 15%, 20% plus of the total revenues or we should factor in the lower?

I think in 2021, we should factor in a lower number. But I think it will be a significant number as a percentage from the next to next fiscal, that's '21, '22. So that's a -- this is a building block for '21, '22.

The next question is from the line of Udit Birpalia from Kotak Mahindra.

My question is around the revenues on a standalone level. So basically, I wanted to know that on a Q-o-Q basis, we have seen a sharp jump of about 30% -- a sharp fall of about 30% from INR 1,164 crores in the September quarter to about INR 808 crores in December quarter. And if we drill down into the product segment, there we see that this is largely contributed by the Home Appliances segment, and the fall is largely dominated by the Home Appliance segment and consumer segment. And part of the explanation you've already given in the last question. But adding to that, if we go by the same logic that December quarter has been generally been a weaker quarter, last year, if we compare the same situation, it was not prevalent. So what were the factors which led to this decline this time around?

See, last year if you see, Diwali was later and in our certain categories like consumer electronics and appliances, festival sales is a very significant sale. And any quarter post Diwali, post festive season, there's a dip. As far as I recall, there was a gap of almost 15, 16 days, in the Diwali range, which has made an impact.

All right. So sir, going forward, what are the plans for the consumer segment because that has seen a sharp dip of about 40-percent-odd. Do we have any significant new customers that we are looking forward to target?

So we haven't exchanged this [indiscernible]. If you see our overall numbers in the last fiscal, that '18, '19, we closed at 1.1 million televisions. And in the current fiscal, we are confident of closing somewhere between 2.2 to 2.3 million. And when I'm talking about the capacity expansion, that is primarily because of a very healthy order book in the LED television segment. We have already shared that we have a large relationship. We are the anchor partner for Xiaomi. And a new customer, which is a very major and the largest TV brand in India. We started manufacturing from them from 5th of February. And we are in discussions with 2 more multinational brands, global brands for starting their production. And we feel that should start sometime in end of Q1 next fiscal. So to be honest, as far as the consumer electronics goes, the order book is very, very good.

You'll see some of those numbers coming back in Q4.

Okay. Q4, we'll see a reversal?

Correct.

The next question is from the line of Sandeep Jain from Birla Sun Life Insurance. The current participant has placed this call on hold. We'll move to the next question. The next question is from the line of Uttham Kumar from Spark Capital Advisors.

Sir, just a small clarification in terms of the sales volumes, which you had said earlier. I think I missed out on the mobile phones number. Could You just share again, sir?

Mobiles, the volumes were almost 10 lakh phones that we sold this quarter, a split between both smartphones and feature phones. And..

10.4, am I right, sir?

10.6 lakhs.

10.6. as against 10.4 in the previous year, right?

As against 9 lakhs. In terms of quantity, we have grown, but the contribution of smartphones has significantly come down because 2 of our customers, Gionee and Panasonic, they are not doing that well in the marketplace. And contribution of feature phones has gone up, which gives us lower realization as compared to smartphones.

That next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, I just was a little bit confused on the capacity that you mentioned in the light side. So I'll just -- if you correct me if I'm wrong, you mentioned 1.5 million bulbs per month, downlighters is 1.2 million.

The capacity for LED bulls at present is somewhere around 16 million to 17 million a month, that's 200 million a year.

Okay. Downlighters is?

Downlighter capacity presently is around 200,000 per month, which will be expanded to 1 million.

200,000 will be expanded to 1 million.

Batten capacity has already been expanded to 1 million. And by April, it should be expanded to 1.5 million. And then subsequently, it should be expanded at 2 million a month.

So what is it right now?

At presently, it's 1 million battens.

1 million. So the capacity is also 1 million and we have a order book of 1 million.

Yes. So 1 million is current capacity, which will be taken to 2 million?

2 million over the next 5, 6 months, yes.

3 million.

2 million. 2 million.

Sorry?

Yes, 2 million.

2 million. And what is the utilization? Or what is the battens' volume that we would do in FY '20?

Batten volume in the current quarter, we already had a run rate of 1 million a month.

Okay. It's already at 1 million a month.

In the current quarter.

Okay. Secondly, in the 17 million bulbs per month, now what would be our market share in volume?

In the Indian market, it's around 35 to 40 million a month.

Okay. So we're at about -- it would be around 40%. Okay. And in downlighter, what would be our market share?

Downlighters, we had small. I think the market is around 500 a month. We're at present only 150 to 250. We want to take up to 20% of Indian market. The capacity is being ramped up to 1 million a month.

Okay. So which means that a bigger opportunity for us is in battens and downlighter in which battens already in the quarter, we have started clocking 1 million a month?

That's right. So next year, our growth mainly will come from both battens and downlighters. Then whatever exports we are able to crack.

In home appliances, the growth is largely coming from the new client, which is Samsung -- no, sorry, Kelvinator and Disney?

So those volumes will be lower. The bigger volumes would come from Voltas, which we have recently started production.

And also for Samsung, sorry.

Yes.

Samsung, we are launching a new model in 10GB category. It will be launched sometime in May. So that will give us the additional volumes.

And did we mention in TV, we will go from 1.1 million to 2 million in a year's time? That's what the volume number was shared for?

In the last year, we closed at 1.1 million. This year, we'll close somewhere around 2.2 million. And we are now expanding the capacity to 4.8 million because of the strong order book that we have for Samsung, for our anchor customer, Xiaomi, and other potential customers that we are looking at. And so next year, there should be even a 35%, 40% growth on these numbers.

So 2.2 million in FY '20 and a 35% growth over that?

Yes. I think it is that, yes.

The next question is from the line of [ Sachin Pal ] from MC Research.

Congrats on a good set of numbers. My question basically relates to a couple items. So with what regard to is happening in China. So in terms of our raw material, how much sourcing that we do for -- of the components that we do from China and -- so that's what I wanted to understand.

So it differs from category to category. In lighting, almost 45% to 50% of [ raw ] material is imported from China. In washing machine also around 40%, 45%. In the case of mobile, because our main customer is Samsung today, so I don't see much impact there. Televisions, yes, almost 80% is from China. So there's a huge dependence on China.

The next question is from the line of Rishab Bothra from Sharekhan.

Congratulations on good set of numbers.

Thank you.

Just wanted to understand, during the quarter, has any of our clients, withheld the order uplifting? Is that [indiscernible]

In the current quarter?

Yes. Q3.

In Q3, as I shared with you, we had pressures in the washing machine segment.

Yes. I mean, despite those pressures in washing machine, which had inventory, and mobile phone segment where 2 customers who are not doing well. Other customers, did they had any postponement of testing?

No. I didn't see.

Okay. And in regards to this China virus issue, I think you mentioned, you have a lot of dependence of our raw material from China. You mentioned Q4, we will not be seeing any impact. But next quarter, we might see. So how are we going to mitigate that risk?

So the answer to that is that first we have to wait and watch. And second, there might be some essential air freights. So let's see how it ramps up. It's slightly difficult to make a comment on that. [indiscernible] transit time at 20 days.

Transit time of 20 days. But since plants are shut down as of now, so even if they open up the requirement, our requirement will not be fulfilled for next quarter, might be?

See, at present, what we're saying is, they were supposed to open after Chinese New Year on 3rd and 4th. Now they're saying that has been delayed by a week. And if it is delayed by a week, I feel the situation will come under control. But if it's delayed indefinitely, one has to see how it pans out. Yes, then we have an issue.

Right. And if you could throw some light on our reverse logistics business, it has been still in that -- after seeing a down trend for last 3, 4 quarters, I mean, in FY '19, '20 has been an up move quarter-on-quarter. And margin profile have also improved. So how are we placed in this segment?

You see, in this particular vertical, there are 2 main product lines: one is UV panel repair, and the second is the set-top boxes. Since we have a large account acquisition of Xiaomi in this business, the numbers have been ramped up. This business is primarily for the strategic reasons of enhancing the stickiness with the customer. And now on the numbers front, one, because the scaling up has happened, the margin expansion has happened, it has become significantly profitable. And because the capital deployment in [indiscernible] ranges INR 7 crores to INR 8 crores, the return ratios are very high. And I feel, as per the present order book and the visibility that we have, this is going to be sustainable. In fact, even going better.

And lastly, sir, budget expectation. How do we see this budget panning out? Any stocks or incentives for outsourcing industry.

I feel the government is committed for the -- for promoting the electronics manufacturing retail. Our chairman has been one of the policy influencers because of his representation and chairing the various industry [situations] in our own industry. So we feel that it is going to be a favorable budget for promoting electronics manufacturing in India, either to do the arbitrage or certain other financial incentives for enhancing the manufacturing. So I feel that overall, it's going to be a positive budget when we focus on electronic manufacturing [ at the end of the year ]

The next question is from the line of Jayakanth Kasthuri from Way2Wealth Securities.

I have just one question. Sir, I missed out on -- you said the current order book for reverse logistics -- that number, if you could let me know?

We have a very -- very strong order book in our panel division and also TV repair division. So I feel that we should have a run rate of INR 70 lakhs to INR 80 lakhs of EBITDA every month in this particular business.

It's a very good business as far as margins are concerned because the total -- total capital required in this business is not more than INR 8 crores. And it is a very high-margin business. So the business has completely turned around. We have a very strong order book from -- on both LED TV panel repair business and set-top box business.

Ladies and gentlemen, that was the last question. I now hand the conference over to Ms. Bhoomika Nair for closing comments.

I would just like to thank everybody for being on the call, and particularly the management for giving us an opportunity to host the call. Thank you very much, sir.

Thank you so much, everyone. Thank you, Bhoomika.

Thank you. Thank you, everybody. Thank you. Thank you, Bhoomika.

Thank you.

Thank you. On behalf of IDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.