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

Thank you. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Atul Lall, Vice Chairman and Managing Director; and Mr. Saurabh Gupta, Chief Financial Officer. I shall now hand over the call to Mr. Lall for his opening remarks. Over to you, sir.

Thank you, Naval. Thank you so much. Good evening, ladies and gentlemen. This is Atul Lall, and we also have on the call today, my colleague, our CFO, Saurabh Gupta. Thank you very much for joining this meeting call for the quarter ended September 2021. The order book in this quarter was very healthy, which has led to a strong performance in an otherwise challenging environment and by a significant raw material price inflation. You see commodity costs have gone up significantly over the past few quarters at rates that industry has never seen before. However, our profitability has improved sequentially from the previous quarter on account of improved operating leverage and calibrated pricing action despite severe input cost inflation. And the team has managed the inflationary pressures of commodity cost extremely well. The commodity environment is still uncertain, and we need to keep this in mind for the upcoming quarters. However, we believe that our strategic approach and the execution of our plans to manage this better than most of our industry peers, will stand us in good stead. And we are confident the second half is going to be much better than the first half, both in terms of revenues and profitability. Coming to the financial and operational performance of the quarter. The consolidated revenues for the quarter ended September 30, 2021, INR 2,804 crores as against INR 1,639 crores in the same period last year, which is a growth of 71%. Consolidated EBITDA for the quarter was INR 111 crores as against INR 89.6 crores in the same period last year, a growth of 24%. Consolidated PAT for the quarter was INR 63 crores as against INR 52 crores in the same period last year, a growth of 20%. Gross margins and EBITDA margin contraction year-on-year was primarily driven by substantial change in the segment mix with higher increase in share of business from our ODM businesses, like LED TVs at 53% and also the higher commodity prices impacting our ODM business of washing machine and lighting. The company has always maintained a conservative financial profile with an optimal capital structure and investment-grade rating. We're well positioned with a robust balance sheet with net debt of INR 41 crores as on 30th September 2021. Our balance sheet strength had enough credit line from banks enable us to weather any future uncertainty and invest in long-term development of our business puts us in an advantageous position as compared to our industry peers. Inventory levels have increased due to advance payments of the securing components and also various supply chain challenges across businesses. However, this remains a key focus area in the company, and it is expected to normalize in the coming quarters with the scale of business now returning to normal levels. Our basic approach with the capital allocation policy emphasizes of return on invested capital and financial stability. And even in this quarter, we have successfully delivered a strong ROCE and ROE of 30% and 26.1%, respectively, at the end of Q2. And we feel confident that sales will keep improving in the coming quarters and years. Now I'll share with you the performance and the strategy in each of the verticals going forward. Consumer electronics. Revenues for the quarter under review was INR 1,487 crores against INR 961 crores in the same period last year, a growth of 55%. In the current quarter, the revenues of AC PCB and Reverse Logistics business, in this particular vertical, was INR 32 crores and INR 2.4 crores, respectively, out of INR 1,487 crores. Operating profit witnessed a growth of 34% year-on-year, that is INR 36 crores in Q2 financial year '22, against INR 27 crores in the same period last year. As informed to you earlier, now we have an installed capacity of 5.5 million sets. This is the capacity expansion we have undertaken, which has already been implemented. This includes a backward integration in LCM and SMT lines, which is the largest capacity in India and taking care of 35% of the Indian requirement. We have started production of large screen sizes, like 70 inches, 75 inches and 85 inches. Further capacity of our SMT lines has been increased to 2.7 million per annum from 1.8 million. So these expansion plans have already beginning in Q2. We have a total area of approximately 0.5 million square feet in our integrated campus at Tirupati, which is fully backwardly integrated. We are also now further investing in injection molding and plastic processing for the mechanical validity, which will start by Q4 of this fiscal. Now we are the most vertically integrated and we have the largest capacity in LED TV, and now we have our own ODM solutions ready. As informed to you earlier, in the last quarter, in monitors, we have got orders from the largest global brands and the production line for this particular SKU has already been installed. We feel that the business execution -- order execution in this particular SKU will start from Q4 of this fiscal, hopefully, impact by December of this year. Lines are already installed, the capacity is 1 million LED monitors per annum. The expected volumes in year 1 will be in the range of 0.5 million, and we expect the order book to increase significantly from year 2. The revenue and profitability numbers in this particular SKU would be almost similar to LED TVs. Turning to lighting. The revenues for the quarter witnessed a growth of 34% year-on-year. We did a top line of INR 396 crores in Q2 FY '21/'22 against INR 296 crores in the same period last year and is now back to strong growth trajectory, which we have been demonstrating. We have a very healthy order book in this vertical in Q3 also. Operating profit of the business grew 14% year-on-year, it was INR 32 crores in Q2 FY '22 against INR 28 crores in the same period last year. The margin in the lighting business has contracted due the impact of input costs as there is always a lag in passing on the price increase. And to a large extent, we have already been able to do it in Q2. We are India's largest ODM player in lighting, and we have the largest capacity in areas as we use. LED bulb, we have a capacity of 300 million, which is approximately 50% of Indian requirement. We have also developed solutions for smart LED bulbs, patterns and downlighters, emergency bulbs for various customers. And that also where expansion plan has already been executed and now we have a capacity of 5 million a month out of total Indian requirement of approximately 9 million to 10 million a month. Also in downlighters, the capacity execution has already been implemented. Now the capacity is 1.5 million a month against the total Indian requirement of 3 million per month. We are in the process of developing outdoor lighting solutions. And our product portfolio comprises of the streetlights and commercial lights. This will be launched by next year. We have got technical approval for exports of lighting products to Europe. And hopefully, now the business execution will start for Europe. For U.S. markets, the approvals are still awaited. We have filed our PLI application in September '21 under the white goods to manufacturing of LED lighting components to our own wholly-owned subsidiary in line with our backward integration strategy, which will make this more competitive. The total investment in the PLI project for lighting would be around INR 100 crores over a period of 5 years. We're expecting the approvals from the government to come within December this year. In home appliances, revenue for quarter saw a growth of 54%. It was INR 145 crores in Q2, that is in Q2 FY '21, it increased to INR 224 crores in Q2 FY '22. Operating profit increased 10% year-on-year with INR 17 crores in Q2 last year versus INR 19 crores in the current year. Operating margins were lower at 8.5% due to impact on commodity costs, which has seen an interesting trend since there is always a lag in passing on the price increase to the customers. However, most of the increase has already been passed on in the current quarter. We presently have 160-odd models across semi-automatic category. The large portfolio -- largest portfolio we're aiming from 6 kgs to 14 kgs. Recently, we have set up a new plant in Dehradun because the order book was very healthy and the focus is very healthy for the next fiscal. So the capacity in the semi-automatic category is going to be increased from present capacity of 1.5 million to 2.4 million by FY -- this will be done by April, May next year. For the facility of fully automatic top-loading, now the plant is operational, and we have got our orders from our anchor customers of 30,000 pieces. And the execution of these orders will start from 15th of November this -- in the next month. Also, we added 3 new customers in EBITDA category. We have 96 variants across 6 to 10 KB category with an annual capacity of 6 lakhs. But April next year, our combined capacity of both semi-automatic and fully automatic top-loading would be around 3 million against the Indian requirement of around 7.5 million to 7.8 million. So that's a large capacity. Turning to mobile phone and EMS division. The revenues for this division for the quarter under review was INR 599 crores against INR 197 crores of mobile revenues in the same period last year, which is a growth of 203%. In the current quarter, the revenue of the set-top boxes and medical equipment was INR 74 crores and INR 3.3 crores, respectively, out of INR 599 crores. Operating profit was INR 19.3 crores in Q2 FY '22 as against INR 16.2 crores in the same period last year. Motorola mobile business is our customer under the PLI sleeve has now ramped up and stabilized, with monthly volume starting 2,000 to 3,000 in the current quarter and our order growth for the next quarter is significantly better. We have also finalized Nokia's feature phone business in addition to smartphones that we are currently manufacturing, and the production is likely to commence by Q4 of this fiscal with quarterly volumes of around 0.5 million. In addition, we have also added another major customer, Itel, in the future phone category. We expect order book with -- we are setting up a new factory in lease in Noida with approximately 2 lakhs square feet, which will be operational by December, January this year. We have got the first 5G phone order. This is for a new customer or with this is primarily for export to operators like Verizon in the U.S. market. We're also hopeful and but confident of achieving a threshold even with targets under the PLI scheme within November this fiscal that is next month. On Samsung side, the 4G phone order was extremely good. We're already touching almost 0.8 million to 1 million every month. And now we've been asked to expand the capacity to 1.5 million, 1.6 million. We've taken 5 acres of land in Noida and to plan to make a big integrated mobile phone campus in the following year. Set-top box business. As far as set-top box business is concerned, we manufacture 7 lakh set-top boxes for Jio, DishTV, SITI Cable and others in Q2, and the total revenue was INR 74 crores with 2.1% operating margin. This business, given the pressure due to the supply chain issues and availability of the chipsets for set-top boxes, we also added new customer in [indiscernible] in this vertical. Medical electronics, we have sold 136 units of the RT-PCR device. The revenues were around INR 3.3 crores with a healthy operating margin of 28%. In security surveillance systems, we have seen a very strong growth of almost 149%. The revenue was INR 99 crores in Q2 FY '21/'22 as compared to INR 40 crores in the same period last year. Operating profit has increased from INR 1.2 crores in Q2 FY '21 to INR 4 crores in Q2 FY '22. The order book in this segment is very strong, and we have to go for capacity expansion by setting up a new plant in Q3 in Andra. Coming to new projects, refrigerator as we've been guiding, the company has kicked off the refrigerator product. We got the market study done, finalized the product design, appointed a technology partner, machine [indiscernible] started. We will be having a capacity of 0.6 million DC refrigerators, which will be ramped up to 1 million in Phase 2 in the year '23/'24. So this will give us the capacity of almost 11% to 12% for the Indian requirement. The product categories will be 170 liters to 220 liters. We have been sanctioned with 14 acres of land in Greater Noida, on which this manufacturing footprint would be setting up. We feel that by Q4 of '22/'23, we should come into production in this area. Laptops as well as IT hardware. So our factory has been approved and qualified by one of the largest global brands. And in this vertical also, we have got the PLI under the IT hardware category, and the production for this particular global brand will start from -- during this quarter in other months or so. Coming to telecom and networking products, we have entered into MOU with Bharti Enterprises Limited to form a joint venture to our wholly-owned subsidiary Dixon Electro Appliances Private Limited. The JV company will have 51% owned by Dixon and 49% by Bharti Group. And the management will be replaced. JV company has already got approval from the Ministry of Communications in October 21, under the PLI scheme of the Government of India. And we will start manufacturing GPONs, ONUs, modems and other types of set-top boxes in this particular entity. The agreement between the parties are in the planning still to the conclusion and is expected to be executed soon. PLI for AC components, we see the assembly for controllers. We've entered into MOU with Rexxam Company Limited, who are already our partner for the last 4 years, to form a JV to holding on subsidiary at Dixon Devices Private Limited. The JV company will be 40% owned by Dixon and 60% owned by Rexxam. Rexxam currently outsources Dixon's the assembly of PCB assemblies for Daikin India. And under this JV, the deeply embedded supply chain for Daikin Global from China is going to be shifted to this JV. We have applied under the PLI scheme of Government of India for AC control goods. We have committed an investment of INR 50 crores over a period of 5 years. And for this PLI also, we are expecting approvals to come within the next 30 to 45 days. Coming to next category of wearables and hearables. The Indian market is very booming in this. We've already started manufacturing TWS for boAt, which is one of the most prominent brands, not in the Indian level, but at the global level. And we're further in deepening our relationship with boAt at a strategic level, which we'd be sharing to you shortly. In this also, the Government of India is expected to roll out the PLI scheme, which will be pursuing rigorously. So I would just like to stop now, and me and Saurabh are there to answer any questions. Thank you so much.

[Operator Instructions] Our first question from Renu Baid from IIFL.

Good performance, sir. Sir, 3 questions from my side. First, you did mention in terms of a lot of initiatives in terms of new customers, new segments within the mobile phone category. But progress, can you help us update in terms of how has been the progress in terms of ramp-up? And how are we expecting next 6 months to gear up, both for the smartphones and the PLI as well as for the core except to smartphones and the feature phone in the sideline of the business? I just want to check if given the fact that Jio phones are getting launched and even expected, and we're seeing a structural trend of decline in the feature phone market. You think the Nokia and the Itel additions that you have received would be more of a 3- to 5-year opportunity until this market eventually diminishes in terms of size?

So Renu, you have put that all very aptly. One to update on our execution status and also the order book and the PLI. So the ramp-up after the initial challenges has stabilized fairly well. We are currently at a level of approximately 2,000 to 3,000. And we're fairly confident that this is going to be increasing significantly by 30%, 40% more in the forthcoming quarter. So we are going to be much above the upward feeling described under the PLI, and we are confident with what we do here. So the business looks good now. And the good and the positive aspect of this particular business is that majority of the revenues from our anchor customer are coming from global markets. Second, as always has been the strategy that we want to keep on acquiring customers. Acquisition of customers as of now has happened in the feature phone category. And both the needs that I shared with you, Nokia and Itel, are top most bran as for the feature phone is concerned. What you said is very correct and very true, and that is what happened, that feature phone is an industry, is a category which is going to be under pressure. Then once the relationship will start and we'll pursue when we are confident that they want to migrate to 4G and possibly 5G for the feature phone. And we're already doing it. For other brands, we feel confident that we should be able to get into that.

Sorry, because Itel is part of the Chinese transient group, so that can add up significant potential volumes if that come through [ CRI ] also for us.

That's right.

Sir, second question is, yes, I think a good part of the price increase is reflected in relative improvement for the washers portfolio. But given that last specifically TV and other prices have again jumped very sharply in the last 1.5 months. How should we look at the margin profile and the ability to entirely transfer the price increase in the washers? And also alongside, we will also have the scale up for Bosch. So probably, do you think that second half FY '22 could have continued headwinds for the washers margin profile because of the ramp-up cost and cost headwinds?

So again, on this, Renu, your understanding is fairly correct. The commodity super cycle continues and it's harsh. And you know that in our ODM business, there is a lag in passing on the pricing increase to the customers. And initially, there is a hesitancy that whatever may be a contract and it takes time. So finally, we are confident that it's going to be passed on. But yes, the margin profile is going to be under challenge for some time. There is still a lot of volatility in the commodity side. Although lately, I've seen in the last 2 weeks that the freight rates have come down to almost 30%. But then one has to wait and watch. And this whole margin profile has to be under lens.

Okay. And the last question is on automation and factory optimization measures. If you can help us understand what are the various initiatives across the different segments? We had planned initiatives for LED bulb. How is it ramping across other segments? And how are we working in terms of digitalizing some of the factory lines and winning in the cost savings and efficiencies?

So I think I've shared with the house last time that we have partnered with Siemens for our MEIS and for our smart industry 4.0. So Siemens is the gold standard globally for this particular industry process. This project has already been launched. To start with, this has been launched in our LED TV plant and our FATL plant, the new plant, right? This has a time line of around 8 to 12 months. But one can -- I feel we start seeing some change in the results by February, March. Once I'm convinced about it, then the relationship is going to be extended to others. At the same time, we are talking to particularly for a mobile division because we want to benchmark globally the best. We are in discussion with some global consultants for doing this benchmarking exercise for us. So that's the way we are. So we are extremely conscious of these initiatives, and we're going to be pursuing them aggressively.

Sure. Any CapEx that we have in mind for these kind of initiatives or savings anticipated thereafter?

So I'm not been able to put in a specific figure on the savings. But this Siemens partnership is going to cost us almost INR 7 crores.

The next question is from Bhoomika Nair from DAM Capital.

Congratulations for a good set of numbers. Just extending on the previous question on the mobile segment. If one, you could just kind of -- you spoke about the volume numbers in the quarter being around 250,000 and kind of scaling up. How would it kind of split up between smart and feature phones? And how much is one looking at from Nokia and Itel? And if I could also get the overall volume details for the quarter. Yes, that would be my second question.

So there are 2 revenue streams there. One is the non-PLI revenue stream and other one is the PLI revenue stream. So what I'm sharing with you, Bhoomika, is the PLI revenue stream. The current volumes of the PLI revenue stream for smartphone is around 300,000 a month -- 325,000 a month for the various customers that we have, which we feel in the next quarter is going to grow to around 415,000. Okay? And then under the PLI scheme, we are going to be launching the feature phone, which we are targeting to start from the next quarter, and this business is going to be almost 1 million a month.

Okay. Okay. Which would be from the Nokia and Itel in this segment? In ex-PLI, sir?

So that's the other business of Samsung, which is a large number. So they're in -- the 4G phone is around 1 million. And the 4G is currently around 1 million is going to move up to 1.5 million, 1.6 million.

Okay. Okay. Sir, the other question is on the light -- on the TV segment. If I look at it, we've done quite well. We've ramped up. We've added customers quite regularly and moved into the higher inch TV -- size TVs. Now how do you see growth out here over the next 2 to 3 years? Or would it be more kind of industry-driven growth?

So one is in this particular vertical, one, it will be industry-driven growth, and we're trying our best to acquire some more share of certain brands. I can't give you the granularities, but we are trying to acquire a larger share. So industry growth plus larger share plus backward integration piece plus LED monitor piece.

Okay, okay. And lastly, on lighting, you spoke about the EU approval coming through. Can you -- while obviously, the market is fairly large for us to kind of tap into, but what is the kind of volumes or kind of revenues can we scale up to in the next 2 to 3 years? And I'll come back in the queue for more questions.

It's too early to put numbers to it because it's a journey. And the first major milestone in the journey was a technical approval. So good for us, the European approval because that approval takes 5 to 6 months and comes to [indiscernible]. So we are in final stages of negotiations with some European brands and hopefully we'll have a breakthrough. In the U.S. market, the approvals are still under process. We feel it's going to take a couple of months for these approvals to come through. So for me to put a number to it is very, very difficult. Our team appreciates that the global market for a single SKU like LED bulb is around $8 billion to $9 billion. So if they're having those breakthroughs, then the opportunity is large, but it's very difficult. It's not going to be prudent of me to put a number to those things at this stage.

Next question from Mr. Ankur Sharma from HDFC Life.

Congrats on a good quarter. Firstly, if you could talk about the LED monitor business, what is the kind of volume you're looking at? I think you mentioned, you start production from Q4. So what kind of volumes do you expect going into next year? What is the average ASP? And what kind of revenues can you get from this business? And also, can you share what brands have you tied up with?

So LED monitor capacity is 1 million. We feel that in year 1, we should be able to do 0.5 million. We should be able to reach 1 million from year 2. The average -- there is going to be a 19 inches monitor to start with. And the average SKU is going to be somewhere around INR 8,000. The margin profile is going to be similar as TV. But in this, because there are certain PLI conditions with the Government of India, the backward integration piece would be deeper. And yes, so we feel that in the year 1 itself, we should be able to generate a revenue of around INR 400 crores to INR 450 crores. On the customer side, [indiscernible] showed the largest mobile brands to potentiality agreements, I'm not able to share the names as of now. We'll be making the suitable announcement shortly.

Sure. Makes sense. So second, if you could talk about the laptop PLI as well. I think there you said you're starting production from Q4. Again, what kind of volumes as revenues and margins are you looking at over the next, say, FY '23, '24?

You're referring to IT products?

Yes, the IT products.

So there are upward ceiling under the PLI scheme. And in year 2 it's INR 600 crores.

Yes. So it is basically, Ankur, it's INR 300 crores for this year. Of course, this year, we only have only 3 to 4 months of operations. The next year it's INR 600 crores, and then it is INR 1,500 crores, and the fourth period is INR 2,400 crores. So basically, we feel confident that we will broadly be able to touch that ceiling revenues. So again, as Mr. Lall mentioned, we have already tied up with one of the largest global brands. And clearly we start the production by December, January. So we feel confident that the ceiling revenues are achievable, and we will strive to obtain that.

Okay. Perfect. And just one more on the lighting side, I think you've been talking about starting exports. I think you've been exploring customers outside India as well. So where are we on that one on the lighting side?

So Ankur, as I shared, in lighting, particularly when you're exploring markets like U.S. and Europe, we need to take the approvals of each brand's products that they were buying. We have recently announced 4 weeks back with the approvals on the technical side from Europe for the European labs, and the U.S. approvals, I think are going to take a couple of months. So we are ready to launch a product in Europe now, and we are very confident that we'll have the breakthroughs in a month or so.

Okay. Fair. And just one last one on the CapEx because we are looking at a number of PLI schemes. I think you've spoken about quite a few new plants being set up. So what kind of CapEx number can you share for '22 and '23, broad numbers?

So till now we have done a CapEx of INR 165 crores. And because the opportunities in front of us are very large, and we are going to pursue all of them because there's opportunities are real good. We are planning another CapEx of almost INR 320-odd crores in the next 6 months.

Okay. And this include because of some these articles are plans for being acquired from Bharti, right, on the telecom side. So that's an order of INR 200-odd cores. So that includes I think you're in the [ 3.2 billion book in Q4 ], is that correct?

That's right.

Next question from Mr. Aditya from Investec.

So you spoke about Samsung smartphone. And if I have heard it right, we were speaking about almost 1 million units per month, which can be expanded to 1.5 million. So does that mean that this contract is going to be even larger than, let's say, what we already have from Motorola and from some of the other PLI customers?

So Aditya, you know that this is on a consignment basis. And at present, the 4G production for Samsung is the first level of manufacturing at SKU stage. So it's not exactly comparable, but the volume is very large and the operating leverage is very large. There's no working capital intensity. So the scope of business is different.

Okay. So the scope of work that we'll be doing will be very different, is it?

That's right.

Okay. And would you anticipate this relationship to be developing into something much bigger and the scope of work to be increasing from here on? If Samsung itself has a fairly large facility and that's why I'm kind of asking this question.

No, It's going to be much larger. And it's going to be much more deepened also.

Okay. Perfect. Perfect. And sir, you mentioned about reaching the ceiling limit for PLI in November itself for this year. Basis what all customers we've already added, how does it look like for the next year given that it does appear that some of your -- some of the other companies that have applied for PLI would be missing their targets? Would you anticipate a similar trend to be continuing for the next 2 years as well?

Yes, Aditya, our order book looks very healthy. And as per the revised guidelines, the PLI scheme for mobile, the upward ceiling for the year 2 because the next step becomes for year 2 is INR 4,000 crores. And we are closely monitoring what our peers are doing. And we are fairly confident that we are going to be much ahead of the ceiling.

Okay. And sir, lastly, you spoke about some new customer additions on washing machine side. Sorry, I missed those details. Was it on the semi-automatic side or top-load side?

So in semi-automatic category also, we have added new customers in Tier 2 and Tier 3 categories. So they're doing well. We were having capacity constraints. So we are not able to exclude that further. With the capacity expansion already in place, those Tier 2, Tier 3 brands are coming into our customer basket. What I specifically mentioned was that one, of course, is an anchor customer in FATL and fully automatic top loading. We've added 3 more customers in FATL.

Okay. And any sense that you can give on the likely volumes for those customers, sir?

So each customer is somewhere in the range of around 25,000 to 30,000 a year.

Next question is from Sonali Salgaonkar from Jefferies India.

Congratulations on a great set of numbers. Sir, my first question is regarding the telecom PLI. So could you share with us the broader constitutes of this with ceiling revenues? And what are your expectations of ramping up the business?

So Sonali, basically it will be a 51%, 49% JV with [ BTEL ], which is, of course, a Bharti company. And the numbers -- the initial numbers that we think and the kind of visibility that has been shown by the Bharti Group is basically we're looking at anywhere between INR 1,400 crores to INR 1,600 crores revenues next year. And overall, in the next 5 years, the JV would have a potential to generate revenues of somewhere around anywhere between INR 8,000 crore to INR 9,000 crores. So there is a broad initial number. And of course, banker customer will be waited, and of course, manufacturer of other players as well. So we are also in discussions with other players as well. And clearly, because the approval under the PLI in mid of October. So now we start up and we start manufacturing by Q4 -- somewhere in Q4. And clearly, we see that this kind of numbers which I just mentioned are definitely achievable. The ceiling number, of course, would be -- so these numbers I'm including taking into account the set-top boxes. Set-top boxes, of course, are not part of the PLI. The ceiling numbers that I've mentioned for the telecom product is around INR 6,600-odd crores. So that is -- so this INR 8,000 crores to INR 9,000 crores would be there, potential number under the PLI for the next 5 years, which will be 51%, 49% shared by Dixon and Bharti.

Got it. And my second question is regarding the chip shortages globally. Do you foresee this as a risk over the coming quarters? I mean we have done much better than overall industry peers have done. So I mean, what was our strategy? Because one of the segments have been affected by the chip shortages so far, except the set-top boxes that you talked about?

So undoubtedly, the supply chain challenges and the price increases, the volatility in the pricing continues to be there. I think because of the nimbleness of a concerned operating team, we have been able to do fine. Across the various product categories, let's say, washing machine, in this current month, we're going to do our highest ever sale, it's going to be a record sale. Same with the case in TV. Also the lighting we've been able to execute well. But the supply chain challenges continue to be there. If they're going to abate, if they're going to subside, I keep my fingers crossed. Yes, you have to be nimble to put everything under the lens and execute well. That's what we are endeavoring to do. So that's the kind of thing. Within certain things, I'm seeing that there is melting now, there is some decrease in the freight rate. So let's see how it pans out. But the current quarter looks fine and even the next quarter, we see that they're going to be fine. All of the challenges are going to be there.

Got it, sir. Sir, and lastly, just one clarification. You mentioned INR 3.2 billion of CapEx in the next 6 months? And have we already done INR 1.6 billion in H1? So the cumulative for FY '22 or should we look at it at INR 1.6 billion plus INR 3.2 billion?

It's going to be INR 1.6 billion plus INR 3.2 billion.

So I mean, that's the right understanding. So it will be around INR 4.5 billion, INR 4.8 billion.

The next question is from Ankush Agarwal from DPR.

So I wanted the sense on how are you looking to share our PLI benefit between customers. So for example, on the entire PLI scheme that you've already mentioned that in Nokia and Motorola would be taking on the most part of the ceiling. So for a new customer like Itel comes up, what is left on the table as you said?

So well, it will be very difficult for me to share with you the level of detail, how the value chain works. But depending upon the customer, depending upon the nature of the business, the PLI benefit is shared across various customers. I mean that's only statement I can share as of now, please.

Okay. So will it be a right assumption that Dixon in the end won't be having any [indiscernible] in part of the PLI benefits?

I'm not able to share you the details, please. It's unfair to us...

Lastly, now since most of the PLI business is on the subscription basis, and that is what is going to be a larger share of the business going forward. So we already thinking our margin is going to stabilize in the long run, let's say, next -- over the next 5 years or so since almost 80%, 90% of business might come from the subscription business going ahead.

So we feel, as of now, the margins are will be somewhere in the range of 4%, pushing up slightly. So they're going to be in the range of 4%, 4.5%. However, in a couple of years, we are able to execute and implement our backward integration strategy, but also, we are able to migrate more and more to ODM, then the margin profile can have some opportunities. But as of now, they're going to be reading around 4% to 4.5%.

Assuming our existing PLI businesses closer and we will remain in the subscription business?

That's right.

The next question from Mr. Akshay Kumar, he's an individual investor.

Congrats on our great set of numbers. So my first question is on the online, the guidance that you had given for this particular fiscal year, which is closer to between INR 11.5 crores to INR 12,000 crores. So this actually indicates to an extremely strong sequential growth in the next couple of quarters. Are we on track to hit that? Or would we have in a favored guidance?

Yes, yes. Akshay, so your understanding is absolutely right. We feel despite the challenges on the supply chain side, we feel confident that Q3 will be sequentially better than Q2 because the mobile business has now completion ramped up, that would generate a decent portion of our revenues in Q3, Q4 and the new verticals that we are getting into. So we feel confident that number that we have mentioned, somewhere between INR 11,500 crores to INR 12,000 crores is what we are looking at for this fiscal year.

And just a follow-up on this one is online. So you had mentioned that there was a lot of CapEx that goes into setting up the entire mobile infrastructure. And given that you've got operating leverage on your side. Can we expect expansion in margins closer to [indiscernible] this year itself? And given that you have one of a fair amount of PLI schemes and there are something more coming along, what kind of revenue growth can we expect probably for the following fiscal year -- following couple of fiscal years?

So we feel -- I mean as I shared with you that this could be somewhere between INR 12,000 crores. Next year, we feel confidence we should be somewhere between INR 16,000 crores to INR 17,000 crores.

Beyond that, Akshay, it's a very difficult for us to give any numbers because there are a lot of moving parts up there. But yes, this year, we are in upto INR 12,000 crores and for next year, INR 16,000 crores to INR 17,000 crores.

And just the other question I asked was around the operating leverage that's going to take in on the mobile business.

Yes. So operating leverage benefit will flow off across all the verticals with increasing volumes, it has already played out across the TV vertical leverage. It will continue to play out around all the verticals, including mobile. So as we increase the volumes in Q3, Q4, definitely, you'll see the margin expansion happening in mobiles, which will lead to an overall margin expansion happening at the company level. And also, we are focusing more on backward integration, which is part of our strategy and more migration to ODM. So these 3 levers, cutting leverage, ODM as well as backward integration should increase our margins. But since most of the growth happening going forward will be a prescriptive business. So the broader margins that we're looking for is around in the range of 2% to 2.5% in the short term.

So please envisage this can be across each vertical has been pickup the vertical, we have a large scale mistakes then sometimes acquire an anchor customer, keep on adding more customers, refill the manufacturing, have a deep dive into your analysis and capability on the ODM side. And if you see that you have the skill set, than we can again carry on as the simple strategy to follow. And that's what we're going to do across the new verticals also. So scale will be important to generate the operating leverage which I feel is going to impose in margin expansion.

Would be exports also be a part of the market expansion once that kicks in, the probably the lighting products and so on?

So undoubtedly, as I've shared that we have pursuing the new business. We -- the export market for LED lighting. In the case of mobile, almost 60% to 70% of our revenue have come from the global market. And in the earlier discussion also I've shared that we want to be pursuing the FATL production for global market, the production and manufactures about the starting of the week. And we already have some traction for exports from the large global brand. The global market is going to be something we don't pursue. But at present, it's at a very massive stage.

Ladies and gentlemen, that would be the last -- [Operator Instructions] The next question is from Mr. Lokesh Garg from Credit Suisse.

My question pertains to the LED TV segment. Basically, we have been doing the segment for awhile and now we are sort of increasing vertical integration in that with plastic injection molding and possibly other parts. Now is there a meaningful change in margin trajectory that we should expect, because we have been doing, let's say, within 2% to 3% brand for a long while now. With this vertical integration step, does it scale up? And does it become an example for other segments to follow them?

Yes. So for example, lighting, our application -- in consumer return is also, as you would have seen that, as I shared with you, that we have already increased our PCBA capacity to 2.7 million from 1.8 million. That's a backward integration process, which is going to expand the margin. And we're also committing CapEx for installing the injection molding capacity for these in mechanicals for TV, which is again towards -- it's an effort for expanding the margin. Yes.

Objectively we agree. But just wondered an objective guidance also in the sense that can the 3% become 6% with these 2 step in from vertical integration?

Sorry, you're not very clear and audible. Can you again repeat?

Yes, basically, what I have been asking, let's say, margins because we are at a very low level today, 3% or near below 3%. Can we get to or aim at something like 5%, or 6% with PCBA and injection modeling in our fold now?

No, I don't think so. So, please appreciate Lokesh, this is a pass-through business. This is a prescriptive business. In the last particular fiscal because of the commodity increase and display price increase, the unit value has gone up. Unit value, in our case, reduced around INR 11,000 to INR 11,500 in last quarter was somewhere around INR 17,000. And the conversion charge does not go up correspondingly. It's a different element in the value chain. So as a percentage, you'll find that there is -- that will come under pressure. If you look at the gross numbers, which is being reflected in a significant expansion in the gross -- in the profit, in the operating profit, not on the margin, but on the operating profit. That's being reflected there. Are you getting my point?

Yes, yes, I'm getting it, just that probably we were expecting a meaningful delta in percentage terms also that we are saying is not necessarily immediate. My second question sort of leads from there only. You alluded in your opening remarks that there is an ODM solution ready in TVs. Earlier, you were suggesting that there is some challenge related to Android system and all that. What is the progress? And are we making some progress in talking to customers also then in that segment, in that part?

Solution is ready, but still Google has not opened up from giving a valid licensing. So the businesses to ramp up will take some time. We're pursuing with Google, but the licenses are still not coming.

The next question from Mr. Aditya from Investec.

So just wanted to understand on the CapEx bit, given that we'll be spending another INR 320 crores in H2. If possible, if you could just give a broad breakup of what all this CapEx is entailing and with a significant proportion of refrigerator CapEx you also happened this year, sir?

Yes, it is basically broad numbers into -- we will have -- we are in the process of buying the land bank in Greater Noida. So that would be basically our 28th land bank in Greater Noida, that would entail a CapEx of INR 55 crores, INR 60 crores in that. And that will be majorly for the refrigerator project and the backward integration of lighting -- LED lighting components. So INR 60 crores is basically that. And also the refrigerator project, the total CapEx of $0.7 million will be somewhere in the range of around INR 200 crores. So part of that payment, almost 40% of that CapEx will go as payments on the advance to plant and machinery. So almost broadly -- so that makes it almost INR 110-odd crores. And there are other CapEx is, one, of course, we are in the process of finalizing our agreements and precluding our agreements with BTEL. So there is a -- we are buying in addition to a plant in Noida, where we would do our telecom and networking products but also buying the retail card. So there is an acquisition value attached to it. I will be able to disclose that once we disclose -- once we sign the agreement and disclose to the market, but that is one CapEx, which is projected in the short term. Then apart from that there is a...

Sorry -- one is we're going to be spending almost INR 40 crores in capacity expansion in washing machines in your automatic and there is no new plant as I said. And then we will also be making some small CapEx for meeting the actual requirements for our IT hardward. And then there is a regular capacity expansion and another CapEx across all the other verticals, that's like they are going to be expanding our capacity in CCTV also. So it's a mix of all these.

And also our Rexxam JV also. So they are also being applied for. And once we get the approval, then there's a CapEx, which is we have to do as part of the pursued CapEx. So all this put together, we're looking at these numbers.

Understood. And any guidance or indication that you can give for next year as well?

So those numbers are listed to be frozen. It's slightly premature. Yes.

Ladies and gentlemen, that was the last question. Now I hand over the floor to the management for closing comments.

Thanks very much, and thanks very much, Naval and Emkay and all the ladies and gentlemen who joined this call. Thanks very much for all your support at all times.

Thank you, everybody. Thank you for all your support. Thank you.

Thank you, sir. Ladies and gentlemen, with this, we conclude your conference for today. Thank you for your participation and for using Dursabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening.