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

Ladies and gentlemen, good day, and welcome to the Dixon Technologies (India) Limited Q1 FY '22 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Naval Seth of Emkay Global. Thank you, and over to you, sir.

Thank you. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. From the management, 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 Mr. Lall for his opening remarks. Over to you, sir.

Thank you, Naval. Thanks very much. Good evening, ladies and gentlemen. This is Atul Lall, and we also have on the call today our CFO, Saurabh Gupta.

Good afternoon, everyone.

Thanks very much for joining this earnings call for the quarter ended June 2021. While headline numbers during Q1 indicate the effect of second wave of COVID-19 pandemic, we believe that the business has demonstrated resilience in facing these extremely challenging times and is reflective of its layering strength and sound strategy. Our factories were operational in the quarter after ensuring that all safety measures and guidelines were adhered to. Health and safety of our employees continues to be of utmost importance to the company. We successfully conducted vaccination drive in our office and factories for our employees. We have also selectively [ interested ] the infected members with COVID-19-related emergencies. The demand of LED TV was resilient. The peak season for the washing machine segment is expected to be good as the monsoon kicks in. Lighting being a low-value product, and we expect the utilization to go back to almost 85% to 90% levels by August. Across all the verticals, we have an extremely healthy order book for the Q2 [indiscernible] season. Now coming to the financial and operational performance in the quarter. This needs to be contextualized around the second wave of pandemic, which was undoubtedly horrific and the growth slowed down from second week of April with further deceleration in May. And then the recovery has started from June. And in July, we are almost back to normal. These numbers are reflective of a very low base last fiscal. The consolidated revenues for the quarter ended June 30, 2021, was INR 1,868 crores against INR 517 crores in the same period last year, which is growth of 261%. Consolidated EBITDA for the quarter was INR 48.3 crores against INR 17.1 crores in the same period last year, which was a growth of 182%. Consolidated PAT for the quarter was INR 18.2 crores against INR 1.6 crores in the same period last year, which is almost 1,000% growth. Gross margins and EBITDA margin contraction year-on-year was primarily driven by substantial change in the segment mix with higher increase in the share of business during the quarter for LED TV, which is prescriptive with the lower margin. And also because of the lower turnover, there was an unfavorable operating leverage across the businesses and higher commodity prices impacting our routine business. A rapid and large increase in commodity cost, which has been escalating sharply since last year November and continued the trend in Q1 FY '21 impacted the operating margin of the ODM business. However, we have been able to, a large extent, address the margin pressure, partly through a combination of calibrated pricing actions, inventory planning and value enduring. Margins will start normalizing in Q2 with the scale of business returning to normal. Our frugal cost structures and a large scale also gives us a competitive edge in this challenging situation. We strongly believe that we have a platform to sustain strong revenue growth, moving forward with strengthening in the overall demand environment. The company has always maintained a conservative financial appetite for an optimum capital structure and investment-grade credit rating. We are well positioned with a robust balance sheet with a cash balance of INR 174 crores and net debt of INR 54 crores as of 30 June 21. Our balance sheet strength and enough credit line from banks enabled us to weather any future uncertainty and invest in the long-term development of our business. It has enabled us to continue to invest in our organization and in people through the entire challenging period of COVID. The inventory levels have increased due to weak demand and advances paid for securing components and raw materials due to supply chain challenges across various businesses. However, this remains the key focus area of the company, and it is expected to normalize in the coming quarters with the scale of business returning to normal levels and a good order book. Capital allocation in our case will always be prudent and through which with a huge focus on cash reserving cycle and working asset management. [indiscernible] in the June quarter also. Our basic approach to capital allocation policy emphasizes on return on invested capital and financial stability and have successfully delivered a strong ROC and ROE of 31.5% and 27.1%, respectively, at the end of Q1. We feel confident the same will be sustained in the coming quarters and years. Now I'll share with you the performance and the strategy Dixon is using going forward. First, consumer electronics. From this quarter onwards, Consumer Electronics segment will also comprise of the revenue generated from reverse logistic in addition to our AC and PCB businesses. This vertical and its momentum and advance to resilient with revenues for the quarter under review, growing more than 3.6x to INR 1,262 crores against INR 347 crores in the same period last year, led by both volume and pricing growth. In the current quarter, the revenue of AC and PCB from reserve business was INR 39 crores and INR 1.7 crores, respectively, out of about INR [ 62 ] crores. Operating profit, so extremely good growth of 243%, that is INR 30 crores against INR 8.7 crores in the same period last year. have a capacity of [ 4.4 ] million including backward integration in LCM and SMT lines, which is the largest capacity in We have started production of large screen sizes like 70, 75 and 85 inches in the current quarter for customers. Our expansion plan of the capacity to 5.5 million will be executed by next month, adding new automated 65 inches integrated line LCM and FA. And one more high speed SMT line to meet customer demands. The increased capacity of 5.5 million will take care of 35% of Indian requirement. Further capacity of our SMT line has been increased to 2.7 million per annum from 1.8 million earlier. Our total area of more than 400,000 square feet in our integrated at Tirupati, which is completely integrated, with deep manufacturing infrastructure. We are also investing in mold in campus soon to be completely self-sufficient in this aspect also. So we are more vertically integrated, and we have the largest capacity in as compared to any of our peers in this particular vertical in our country. Monitors, they've got orders, as I had shared with you last time, some largest global brands for manufacturing of LED monitors, and the production is likely to commence from Q3 of this fiscal. The lines are under installation, and this will be completed by August end. This will create a capacity of 1 million LED monitors, and the production will be commencing by Q3. The expected volume in between the range of 0.5 million. We expect the order book will be significantly from year 2 onwards up to almost 1 million a year. The revenues and profitability numbers are being run down, but we expect the margins to be in a similar range as LED TV. [indiscernible] corporate business growth of 98% on a low base. So the revenues were INR 153 crores in Q1 against INR 78 crores last year. And now we are back to strong growth trajectory which came in demonstrating. We are having a very strong order book in this quarter in Q2. Operating profit witnessed a growth of 19% and INR 6.9 crores against INR 5.8 crores in the same period last year. The margin in the lighting business has contracted below a reverse operating leverage because of reduced volumes and the impact of input costs as there is always a lag in passing on the price increase. And some of that have been passed in Q1. The margins will start operating and normalizing from the current quarter with the scheme of business returning to normal levels. Almost 80 brands in the lighting business is with us on an ODM business. And also a large percentage of the sales is being sourced from Dixon today. We are India's largest ODM manufacturer in and have the largest capacity in In LED bulb, we have a capacity of 300 million, which is almost 50% of Indian requirement. We have also developed solution for a Smart LED bulb patents, downlighters and outdoor lighting for various customers. We have expanded our capacity in Batten refinement against a total Indian requirement of 9 million per month. In downlighters, we have expanded our capacity from 600,000 per month to 1.5 million per month. The total Indian requirement is around 3 million. We are in the process of developing outdoor lining [indiscernible] for September '21, which also includes Street lights. We have studied the P&L lighting components and a narrow down on mechanicals, investors and LMS specialize management systems. The numbers on CapEx and profitability have been rolled out, and we'll be filing our applications for the headline of 15 September '21.

Excuse me, this is the operator. Sir, I'm sorry to interrupt. The audio is going low from your line.

Coming to home appliances. Revenues for the quarter saw a growth of 193% year-on-year on a low base, that is it increased INR 271 crores from INR 24 crores last year. Operating profit increased to INR 4.4 crores from INR 0.4 crores last year. The operating margins are lower at 6.3% with unfavorable operating leverage. Although we're really confident the margins will normalize in Q2 since the order book is very, very healthy from the current quarter. And they've also been able to pass on the increased commodity prices to our principle customers. We currently have 160 old models across in new automatic category, which is the largest portfolio, right, from 6 Kgs to 14 Kgs. And we are further expanding our capacity in semiautomatic from 1.2 million to 1.5 million, distinctly executed in the month of August this year. We have acquired a new property is joining our current infrastructure setup, which will help us in meeting the increased demand from our customers. The facility for top-loading for the automatic washing machine is now ready with the machine installed, the trials are completed. Samples have been shared and the mass production will start on September '21. We have approximately 96 variants across 6 to 10 Kg category, which is the largest -- available with any brand or manufacturer in the country with an annual capacity of INR 6 lakhs. We have already closed the agreement with a large MNC, so that there are some new contracts are also Mobile phone, the names division. The revenues for this division for the quarter and reviewed was INR [ 306 ] crores against INR 53 crores of mobile revenues in the same period last year. In the current quarter, the revenue of set-top box revenues and medical equipment business was INR [ 5 ] crores and INR 3.5 crores out of Operating profit was INR 4.2 crores in Q1 FY '22 against INR 2 crores in the same period last year. The margins have contracted in this business on account of adverse operating leverage and initial ramp-up cost in our new factory from where we are executing Motorola and Nokia. The order book, again, looks very healthy, primarily focused on exports. The margins will normalize from Q2 onwards. Production commenced for our anchor customer, Motorola, in mid-March '21 in the new factory, and export to Southeast Asia and North America has already started. Production for Nokia commenced in February '21, and we're in the process of adding a new line as our volume will increase from Q3 onwards. The tie-up with Motorola to manufacture a smartphone is for both global and domestic market. And almost 65% to 70% of our -- revenues in the PLI will come from this customer with a large portion coming from the export markets. We have a strong order book from Motorola from Q2 onwards. We'll be the first Indian mobile manufacturing company to manufacture and export 5G mobilephone after U.S. We have started investing to increase the capacity to 15 million phones annually in the next couple of years for meeting good thresholds as against 3 million as of today. And we are confident of crossing the revenues in current fiscal from the We are also in discussions with another customer in North America to manufacturing smartphone for their suppliers to the various carriers. Production started for Samsung 4G phones, and now we have a very strong order book of almost 1 million 4G phones per month in Q2. We have already taken a land bank for 5 acres in Noida and plan to make a big integrated mobile factory in these facilities. Set-top boxes, we have manufactured almost 6 lakhs set-top boxes for Jio, Dish TV and others in Q1. We reported revenues of INR 55 crores against 2.9% operating margin. The order book in this vertical, again, looks very healthy, with 0.5 million set-top boxes per month. But however, in this business, also, there are supply chain challenges due to the availability of semiconductors. Our latest customer acquisition in this vertical is Sun TV, and we start manufacturing set-top boxes for them from September onwards. Medical electronics, we have sold 145 units of the RT-PCR machines to The revenues in this vertical was around INR 3.5 crores with an operating margin of 28% and a strong ROCE. Security severance systems for this investments, a very strong growth of 462%. That is INR 75 crores against INR 13 crores in the same period last year. The operating profit also increased from INR 2 lakhs to INR 2.6 crores in this quarter. The vertical has come back with a normalized utilization level. The order book in this vertical looks strong, and we'll be further expanding our capacity in this vertical. Apart from this, I would like to update about the opportunities with the company's subsidy. The refrigerators, as we have been guiding, the company has picked the refrigerator product. The global market study done, finalized a technology partner, product design is under progress, and we have started building the team in both the rate and R&D head -- project and R&D head. We'll be initially creating a capacity of 0.6 million DC category, which will be further ramped up to 1 million against a total requirement in India of 10 million under various product categories derived from 170 meters to 220 meters. We're in the process of acquiring 10 acres of land in Greater Noida for the manufacturing facility, and we are confident of receiving the regulator tools for the same shortly. We have started engaging with various potential customers, and the mass production is most likely to commence from Q3 next fiscal year. Laptops and IT hardware, we are now selected beneficiary under the IT hardware PLI. Our factories have been approved and fortified by one of the largest brands to manufacture laptops and tablets. Over the next few weeks, we will work out the revenue potential cost structures to arrive at the operating profitability for this particular vertical. We are also in [indiscernible] global brands. Telecom and networking products, Dixon has entered into MoU with Enterprises through former joint venture through wholly-owned substrate inlet appliances private limited. The JV company has filed application with the Ministry of Communications to avail benefits under telecom and networking products, PLI, a scheme for IoT devices, modems, routers, set-top boxes, et cetera, for telecom industry. And here we did anchor We keenly look forward if we are going to be beneficiary under this scheme. Post execution of mutually acceptable agreements by the parties in the next 1 month, the JV company will be 74% owned by Dixon and 26% owned by Bharti Enterprises. And the operations will be managed by Dixon. We have finalized an agreement -- modems and router, and would start supplying by Q3 of this fiscal. PLI scheme for AC components, we see the assembly for controllers. We are working with a recent partner, existing partners with one of the main suppliers to baking to form a JV to jointly apply under the PLI to manufacture -- controllers before the deadline of 15th September '21. Presently, our business with the existing partners is around INR 125 crores to INR 130 crores annually, and it can become a business opportunity for us if our existing partner can shift its supply chain to India, most of the global markets. Wearables and hearables. On the wearables, the Indian market is the third-largest market globally and one of the fastest-growing market. We have started manufacturing TWS for Boat, and we're in the process of further deepening our relationship with Boat for different strategic levels. This is an opportunity for us to back an emerging brand of India for global markets. India awaiting a PLI also for this category to both domestic manufacturing, and it is a high-growth category, and we'll definitely pursue the same aggressively. So that is what I wanted to share. And now -- me and Saurabh are there to respond to your questions, please. Thank you.

[Operator Instructions] We have the first question from the line of Ravi Swaminathan from Spark Capital.

My first question is with respect to the new segments that we are planning to get into laptops, telecom and IT components, wearables, et cetera. What kind of revenue we can expect over 2 to 3 years period, even a broad sense, it will be great. What kind of -- and if possible, the profitability of these segments also. If you can dwell upon this a bit more, it will be great.

So Ravi, the numbers are being worked out. However, I'll share with you the broad numbers. The telecom venture, we expect to reach a revenue of almost INR 2,000 crores in a couple of ways. In the PLI for AC TCD, we aspire to reach around INR 400 crores to INR 450 crores in a couple of years. In the case of PLI for IT products, the revenue is going to be around INR 800 crores to INR 1,000 crores. And refrigerator, once the production is stabilized and we reach a level of 0.5 million to 0.6 million, it's going to be around INR 500 crores to INR 600 crores. Now in the prescriptive business, along with some PLI benefit, the operating margins are going to be in the range of 2.8% to 3.5%. In the ODM business, we feel like refrigerators, there's going to be somewhere 8% to 10% growth.

And the val PLI numbers?

You definitely know fairly well.

Got it, sir. And the variable business, how much revenue over a 2-year period?

business, already, the revenues of both are in the range of around INR 1,500 crores to INR 2,000 crores, and they're growing very, very fast. So the manufacturing supply revenues are -- almost 60% of that. So we feel that in the year 1 itself, the partnership is going to be formalized. It'll will be somewhere in the range of around INR 700 crores to INR 800 crores.

Got it, sir. And what kind of capital investment, CapEx allowed and we will be required to do for these -- all these products and new products?

So the number -- that number crunching is happening because we are still waiting the PLI approval when the agreement should be formalized. It will be slightly premature to share the CapEx numbers there on what to stay.

That will be a better position to share the numbers on CapEx in the next couple of months, maybe a next earnings call because a lot of things are getting finalized on the approval that we have received and approvals that we will receive in the next couple of months.

Got it. Got it. And with respect to the existing segments, especially the margins in lighting and home appliance category. Yes, that's kind of taken during the first quarter. But assuming the parking on of prices for end customers, plus the mix improving. So what kind of EBITDA margins we can expect in this segment? Can they go back to the margins that we had seen, say, last year or the year before last year, like 10%, 9% and 10% range?

So we are fairly confident that in the coming quarters, partially recovery would take place in Q2 itself. you see on where the margins in lighting would be somewhere between 8% to 9%. And in the case of washing machines, this is going to be between 9% to 11%.

Got it. And --

Mr. Swaminathan, this is the operator. I'm am sorry, but we have participants in queue. Can you come back with your questions, please? We have the next question from the line of Bharat Shah from ASK Investment Managers.

Atul, these are early days for PLI. But I just wanted to get your overall opinion because we have a ringside view of how these schemes are being formulated. So I wanted to understand how do you see these schemes in terms of approach, practicality, speed, efficiency and any other observations on any of these aspects to get an idea whether this is their plans are faltering the manufacturing footprint or not?

Mr. Shah, undoubtedly, we see a very significant level of conviction and commitment from the government side in establishing the footprint in these PLI sectors. So I think -- let's look at what's happening on the mobile side. Initially, there were challenges. However, those challenges are more external than internal. But the government has been flexible, and they shifted the base here. They have extended by 1 year. And large global brands have already started sourcing from within India. In Dixon's case itself, since we got approval sometime only in Q3 of last year, we have been able to set up our factory within a very short time of 4 to 5 months and the production has been ramping up. And Motorola is going to shift almost 8% to 10% with the global requirement in this factory. So that is first major achievement for the industry for Dixon as well. My sense is there would be some execution challenges, but the government is committed to make it a success. Now the same rollout has happened for IT products, although there, the campus is much smaller. And thereby sense is it's only going to be focused more on the domestic market to start with at least domestic And that's where we're going to be participating. Also, what is seeing is that one, the large manufacturing of the final product takes place, the deepening of manufacturing through more value addition creation and also creation of component ecosystem even works. Well, one has to keep fingers crossed that things go as per plan. But I'm positive about it. So same is the case with the telecom PLI. And same is the case with the AC and LED lighting PLI. So definitely, one is convinced now that the real foods being sold in India will be manufactured in India. The manufacturing debt will expand. And also in some of the categories, India will become a base for exports, which will be a typical China -- mission. That's what my sense is. However, next 2 years are going to be extremely important, both for the beneficiary of the scheme and also the government -- what we are committing one stakeholder that has not delivered upon. So that's the situation.

And in terms of our speed, flexibility, responsiveness, whether the schemes are formulated in a practical way, keeping in mind, industry vertical dynamics? Any comments there?

So I think that is a very transformational kind of a change with the present differentiation that there is lot of interfacing happening between the industry and the government. They are looking at the industry's viewpoint, they're flexible. They genuinely want to create this footprint in India. There will always be some gaps, but there is a very significant positivity around this, at least in the electronics sector.

[Operator Instructions] We have the next question from the line of Aditya Bhartia from Investec.

Sir, my first question is -- My first question is on the consumer electronics business, wherein capital employed appears to have turned negative this quarter. So just want to understand what are the changes that we've made, and is this something which is sustainable?

It's basically the management of current affairs. So it's a significant improvement in the operating cycle, which has led to this kind of an operational metric. And we feel it's sustainable.

Because if I remember, sir, earlier, there used to be this issue of us paying customs duty or some GST related charges and recouping that from our anchor customer with a bit of a lag. So have there been any major changes that you have made in those contract terms? Or is it something else?

So basically, I say it's because of our operational efficiency in managing that, that we have been able to turn this around. So in a prescriptive business, otherwise, that created days are always higher than the database. And through our internal efficiencies, the point that you have raised, we are all -- that has been addressed. In fact, we embedded those things in our people.

Perfect. Perfect. And for the mobile phone business, you mentioned that we should be surpassing the ceiling limit for FY '22. Just want to clarify, are we looking at the original limit of INR 4,000 crores or the revised limit after the base year being moved forward by you?

So as per the extended norms and the policy guidelines, the ceiling is INR 2,000 crores for the current fiscal. But we'll be aiming to be close to the last -- the original ceiling of INR 4,000 crores. That's what we are aspiring for. Some very close to that.

Perfect. Perfect. That's great, sir. And lastly, are you facing any significant component shortages? Because I do understand that you have increased your inventory levels to tackle that. But do you expect any significant shortages still impacting any of the segments?

So Aditya, there are significant supply chain challenges in every vertical. So let's say, lighting vertical, there is a huge shortage of the die variety, but we have been able to accumulate adequate inventory for that. And I think we have -- we are ahead of industry The case of televisions, again, it is a shortage, but that's because we are situated in the large provinces, we're able to cover it up. However, lately, there are challenges because of the typhoon in China, right? And also the component suppliers from Vietnam because the factories are shut there because -- due to COVID. In mobile, again, there are challenges in display and semiconductor. But the kind of order book that we have and what I'm seeing that our people have been able to cover, we are in a good position. There are challenges, but I think we've been able to cover it to a very large extent.

Aditya, just to add to it. So what we have done, we've also estimated inventory to take advantage of the increased order book. So as the business is now returning back to normal, and if you see that inventory levels have gone up. So that is on account of certain advanced sailings that we have made to inventories. It's more strategic in and that will put us on a very advantage of solution. So gradually, you will see that inventory levels also coming down as the when they get converted to [indiscernible] So clearly, we have taken a strategic call to build under some of the components on semiconductor here.

We have the next question from the line of Renu Baid from IIFL.

I had 3 to 4 questions. So my first question is, when you look at the broad portfolio, on the license side, where are we today in terms of the approval for exports for which you're working? And how do you see the rising exports portfolio ramping up? We're expecting growth coming in from 2Q onwards, so where are we in that?

So Renu, there are certain safety approvals from the countries that we are targeting. And safety and reliability approvals, I'm expecting that we'll receive them somewhere around mid of August or end of August. And again, that business can take up because the business is undoubtedly a little healthy to LED lighting export front.

And in terms of customers, would it be starting with largely the U.S. market? Or is it far more broad-based in terms of the end reasons that we are looking at?

So it's going to be a mix of U.S. and Western Europe.

Sure. Sir, secondly, when we look at the OEM portfolio this quarter, both lighting as well as washers almost half on a sequential basis. So the inventory build up, which Saurabh also mentioned, was largely on account of both these business segments? Or there is also some share of inventory stocking by customers in the EMS business? And should we expect the volume in these business is what the order portfolio reverting back to normalcy into Q2 with strong order backlog?

So Renu, in our EMS business, the inventory buildup does not have an impact on the balance sheet. It's almost operating cycle neutral, except for certain inventory buildup in Motorola and some working capital intensity increasing in Motorola because of the initial ramp-up phase. And the main inventory increase has been on the raw material side in both lighting and washing machine, primarily because of order book dwindling from 15th of April, and May was even worse. We have used some data points. On an average, we do approximately 2 crore bulbs a month. And in this quarter, the volume has fallen to 54 lakhs a month. In the case of washing machines, we are doing almost 90k to 1 lakh washing machines a month. And in this quarter, it decreased to 54k per month. So that is what has happened to demand after the lockdowns. Now the order book is extremely healthy. In lighting itself in July and from August onwards, we are back to almost 85% and 90% of our capacity utilization. In the case of washing machines, it's much head. Normally, we do around 100k, 110k. In the month of July, we should close around [ 135k. ] In the month of August and September, the order book is almost 150k. So the order book is very healthy. And I think in this quarter itself, the situation will come back to normal.

Got it. That's really encouraging. And lastly, when we look at the LED TV portfolio, while the EMS business has been doing fairly strongly. We were also working on a smart TV portfolio on the ODM side. So where are we in terms of the design approvals and getting the customers on board? And how do we expect the audience portfolio within the television segment

So Renu, on the TV ODM side, our solutions are ready in based solutions. However, this and the customer acceptability is there, at least from the Tier 2 side. However, we are having an issue with Google on the IP side. We have still not been able to get their go head on the Tada license. We are pursuing with them, but that is still not materialized. So I cannot give you any visibility there. On the analog side, the demand has dwindled. So it's mainly smart, and that's on the -- that's also on the Android platform. The solutions are ready. The solutions are acceptable. We're still waiting for the Tada license on Google. That's what the status is.

We have the next question from the line of Sonali Salgaonkar from Jefferies.

Sir, my first question is regarding the IT hardware PLI. So we understand these are initial days for you as well. But if you could share the broader counters of the PLI and the sort of ceiling revenues per year as well, that would be quite helpful. And also, ancillary question to this to another participant's question. You mentioned some revenue from the upcoming opportunities across each of the segments. So just to clarify, this is the per annum revenue we are targeting over the next couple of years, right?

That's right.

That's it. So Sonali, on IT hardware, the basic counters are that we need to make an investment under the PLI for INR 20-odd crores over a period of 4 years. And the incentive outflow over a period of 4 years is INR 110 crores for domestic companies. So here also, they created a separate track for domestic companies, like similar to the way it was done for mobiles, the government wants to get domestic champions So this is the numbers that I mentioned to you as the domestic companies. And they clearly bisected and said that any laptop costing less than INR 30,000 at a factory level. It is a factory level prices and a -- and a tablet cost of more than INR 15,000. So that will be separate, there will a separate track for company. That's where Dixon comes in. So we are, of course, we just recently bought the approval. As Mr. Lal mentioned in his opening remarks, that we have signed an MOU and our practice has already been audited and qualified with one of the largest brands. I'll be not in a position to take the name because till the time the agreements are closed. But we are here working with that partner customer to finalize the numbers on revenues, cost structures and the profitability, and we are also in discussions with other brands as well. If you look at the ceiling revenues that have been defined under the PLI, so basically, the ceiling revenues over the next 4 years is around INR 4,900 odd crores. And the way it happens today, year wise, it is INR 300 crores, INR 600 crores, INR 1,600 crores and INR 2,000-odd crores. So broadly, what -- the first a numbers is INR 300 crores. Yes, so we would definitely make an attempt to achieve the ceiling revenues in each of the years. But as the things -- one of these things will be materialized over the next few months. So we will have a better visibility once we finalize the numbers with the brands that we're talking to. Also -- here also, if you look at -- the government's objective is to create a component ecosystem. So there's a laydown guidance for that.

Participants, kindly stay connected while we check the line. This is the operator. We now have the line for the management reconnected. Please proceed, sir.

Extremely sorry, I got disconnected. Sorry. So I don't know where we -- last -- so one a nice thing we disconnected. But -- yes, so any way was saying that there are separate track the domestic companies. We need to do a committed CapEx of INR 20 crores. The incentive outlay for a domestic company is INR 110-odd crores. And there are also certain lay-down guidelines for value addition, which is linked to getting that incentive. And we will definitely make an effort to achieve the ceiling revenues, which is basically INR 4,900 crores over a period of 4 years and starting with INR 300 crores in the first year.

Got it, Saurabh. My second question is what kind of normalized margin should we look on a consolidated level from the coming quarters now that business -- once the business assumes scale? So are we expecting 3.5% to 4%?

Yes. So Sonali, it will be in the similar range. So 3.5% to 3.75% is what I think is in the margin because our growth going forward will be happening more in the prescriptive business. So a significant portion of the revenues will be coming from mobile, then actually the laptops, wearables, telecom. So these are all a prescriptive business, so the margins are generally in the range of 2.5 to 3-odd percent.

Got it. Sir, and my last question is how is the demand scenario looking at right now? You did mention that in July, we were back to normal. But how are we expecting it to pan out, especially also in the context of the festive season? That's it from my side.

Sonali, in the current quarter, the order book and the forecast looks extremely healthy. As I shared with you in the Lighting segment, we are back to almost 85%. The LED bulbs is back to 160 lakhs, 170 lakhs. In the case of Batten this month, we're going to do a highest ever of almost 25 lakh. Downlighters, it will be 5 lakhs. Same is the case in washing machine. This month, we're going to close at 125k, the order book is 140, 150k, which is going to be the highest ever for us. In television, again, in this month, we'll be at 200k, the next month is going to be around [ 375 ]. In September, we feel we're going to be somewhere close to around 400k. So the demand looks very good. Even in mobile, not for domestic, but also for exports, they're going to be significantly ramp -- I think almost 400k, INR 300 crores of revenue for Motorola for exports to U.S. So it looks good. However, one has to -- as far as the domestic market is concerned, one has to keep the fingers crossed because we are still not out of the COVID impact. And whether third wave is going to be there or not there, what impact is going to be there. One has to wait and watch. So I'm slightly about it. I'm cautious about it. But as of now, the forecast looks very healthy.

We have the next question from the line of Bhoomika from DAM Capital.

Sir, most of the questions have been answer. Just one or 2 things. In terms of TV, we have seen a very sharp ramp-up in volumes and revenues continue to remain quite strong. Given that you're meeting a lot of the customer requirements and India's requirement [indiscernible] higher screen TVs, how is the world? How can we see growth going forward over the medium to -- 2- to 3-year perspective?

I'm sorry to interrupt, but we've lost the line for the management. Bhoomika, kindly hold on. Participants, please stay connected while we reconnect the management. We now have the line for the management reconnected. Bhoomika, please, could you repeat your question?

Yes, sir. Sir, I was just asking on TV, more from a medium-term perspective, 2 to 3 years where we've actually already grown quite aggressively and added a lot of customers. While we understand there will be some value growth on higher screens. But in terms of volumes, if you can give some outlook on how quickly or how the growth could look like?

So Bhoomika, customer acquisition is a norm and also getting a larger share of customer wallet is a continuous effort. So we feel that this capacity that we are creating of 5 million -- 5.5 million. In next 2 years, we'll be somewhere near to 4 million, 4.5 million. That's what our internal estimation says. And further in the same infrastructure, the LED monitor line has been -- so that will be on a very minimal CapEx that further enhances the operating leverage. And then the next step is the deepening of the manufacturing. So the SMB and the PCB capacity has been increased by almost 3x in the last 2 years. Then the next step is to deepen the manufacturing of the plastics and mechanicals and then metals. So we're very confident that for some of our anchor customers, the unit cover, the back cover and the front bezel is going to happen in Dixon's factory. So that's the strategy: scale and deepening of manufacturing. And if at all, we are getting the Google license then migrating to ODI.

Okay. Sir, in terms of the fully automatic washing machine, we are having anchor cut. But if you could just comment on why additional customers' engagement? And how quickly do we see this capacity being ramped up or volumes being ramped up to the capacity of 0.6 million?

So our supplies to the anchor customer is going to start from October, November. And to the other customers, we're going to start from September before the testing period, that's what we are targeting. Now what we're starting is with the platform one, that is from 6 kgs to 7.5 kgs. And the toolings for the platform, too, that is from 8 kgs 10 kgs would be arriving by December or January. So I expect that the capacity utilization up to 85%, 90% of the installed capacity of $0.6 million. What happens? And on the marketing run rate basis, the second half of next fiscal.

We have the next question from the line of Bharat Shah from ASK Investment Managers.

Atul, the second phase, obviously, has come as a bit of a rude interruption to our plants. But it originally, we were considering that -- when do you think we attaching that [ 5D 8 ] crore turnover And hopefully a double outtake thereafter. What particular state do we think now we are hitting that?

So Mr. Shah, the final goal and the journey is the same, which we have been sharing with our partners, with our stakeholders. So we are confident that in this fiscal, we said, the revenue growth would be significant. We should be somewhere around INR 11,500 crores to INR 12,000 crores in this fiscal itself in spite of the first quarter getting impacted. And we see that as compared to the original number of last fiscal of INR 6,400 crores, we should be 3x of that in 2 years' time.

2 years after the current year?

That's right.

So by fiscal '24 is what you are seeing?

Yes, '23, '24.

So this is a where we should be hitting closer to $3 billion turnover. And hopefully, given the kind of a change in the product mix, our profitability as well as capital efficiency both should improve day after day.

That's what we are aspiring of, Mr. Shah. So the trajectory and the strategy, there's absolutely no change. It's -- this quarter was uplift because of the pandemic.

Sure. And capital efficiency also, which has always been a hallmark of Dixon, superior capital efficiency, lower more working capital and very sugal manufacturing strong -- cost containment. So all that has resulted into recelerate performance on capital efficiency. Are we saying that we in growth and significant scaling? The return on capital employed per se should hit fresh benchmarks? Or it will be in a similar range to already

So my sense is that it should further improve. It should further improve because at present, we are going through a phase, wherein we are ramping up various verticals and any ramp-up has initial challenges. Finally, when we stabilize, I feel the return ratio would improve.

So when we are touching, say, about INR 20,000 crore turnover by '23, '24. Will it be fair to say our return on capital import should be crossing 50%?

It's difficult to putting a number to that. But from a level of 30%, it is significantly improve because to define the trajectory and output to pay out and put it in number terms is slightly difficult at this stage. But the path in and there will be improvement in the return ratios.

We have the next question from the line of [ Anirudh Joshi ] from ICIC Securities.

Sir, I just missed the number regarding the EBITDA margin that you indicated in the new products as well as at the consolidated level. So roughly, where do you see the EBITDA margin number?

So the prescriptive business, which is basically telecom, laptops, wearables and all, the EBITDA margins should be in the nature of 2.5% to 3.5-odd percent. And depending on how much deepening the manufacturing we keep doing, the margin should improve from there. Overall company level, I think since our growth on the prescriptive business will be more, then as a percentage of overall revenues, the prescriptive business will contribute more in the future years. So my sense, the margins in a good year can be 3.75% to 4%. In an year, which has got impacted, like the way this year, I think it should be in the range of 3.5% to 3.75%.

We have the next question from the line of Omkar from Sri Consultancy.

Sir, my question was regarding operating leverage -- negative operating leverage kicking in. I mean, you had the advantage of -- that's why you have significant revenue upside this year. What would have been the case if this was not there? I mean, significantly, the revenue would have gone down. And again, effectively, the profit would have been much, much lower than this. So what comment you have to offer on that?

No. If you look at the quarter 1 numbers are significant revenues are coming from LED TV business, where there is no PLI. So almost 68% of the revenues are coming from LED consumer electronics business, so which is -- there is no PLI. So I actually don't get your question properly.

Your operating -- negative operating leverage taking in, it's almost -- the pact is at 1% margin. So --

Yes, because -- ultimately a function of your fixed cost, the demand got impacted and it impacted our lighting and washing machine business, which is basically sold off-line, but the basically sold in the markets, and the markets were, of course, lockdown because of the second wave. And there's always fixed costs that you have created in the business. So that's why the margins are kind of -- have come down. But yes, with the order book now coming back to normal in July, and we have a strong order book overall in Q2, and will keep getting better. So the margins will come back. Yes, we should go back toward normal margins that we have guided of 3.5% to 3.7%.

So see what Saurabh is sharing, this is irrespective of PLI. Lighting, television, washing machine, set-top boxes, medical electronics, security surveillance systems and to PLI. And they're also on a significant growth part, except for the blip of the last quarter.

So the guidance that you shared for the next 2, 3 years, say, '23, '24, what kind of EBITDA or PAT margin would you expect?

So we see that on a blended basis, it should be somewhere in the range of 3.75% to 4%, 4.5%. That's what we -- because on the ODM side, we're going to have lighting, we're going to have washing machines, we are going to have refrigerator. And we are also going to have, hopefully, a small portion of LED television coming also, right? And then we are also going to be investing in the backward integration piece, particularly in PLI LED lightning. So I think that on a blended basis, it should be around 4%, 4.5%.

Okay. So 4.5% of EBITDA margin you are expecting?

That's right.

Okay. The last question is on equity that you had guided for or taken an approval. What's the status on that? And are you comfortable with the -- your net debt levels?

Yes. If you look at the net debt level, we're just talking about INR 54 crores in a INR 1,000 crore balance sheet. So we're absolutely comfortable. There's enough cushion on the balance sheet. The balance sheet is strong, and we can easily fund our growth going forward from controlled debt and from our internal accruals. And we've also -- we expect certain money to also come in from the stock options that we have issued to our employees. So through a combination of all these 3, I think we should be able to fund our growth. But yes, there are more opportunities that are coming, so that's why -- because it's more of enabling provision that we have taken from the Board, and we will, of course, get it approved by the shareholders in our upcoming AGM. But we are still confident that it can be funded from our internal accruals and some form of control debt because the debt-to-equity ratios are still very low.

Ladies and gentlemen, due to time constraints, that was the last question. We will now close the question queue. I would like to hand the conference back to the management for closing comments. Please go ahead, sir.

So thank you so much for being with us. And all you guys, please be safe. And special thanks to Naval for conducting this conference. Thanks very much, again.

Yes. Thank you very much. Thank you, Naval. Thank you.

Thank you, gentlemen. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.