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

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 the management for the opening remarks. Over to you, Mr. Lall, for your opening remarks.

Thank you very much, Naval. Good evening, ladies and gentlemen. This is Atul Lall. And with me is our CFO, Saurabh Gupta.

Good evening, everybody.

Thank you very much for joining this earnings call for the quarter ended December 2021. If I analyze the performance of Q3, I would say that the demand was good. However, there was impact due to high inflation and Omicron scare. Overall, the company's preparedness to counter supply challenges helped in delivering overall revenue growth during the quarter. Also, we remain positive on the demand resilience for the upcoming quarters. Margins have been under pressure for the industry, and so is the case for our OEM business. This has been primarily due to the elevated commodity and freight cost, and it is taking some time to pass on this increase to our principles. Also, the lowering of margin is on account of change in sales mix, wherein the main growth has come in the prescriptive business of mobile. We're confident that we should be able to pass on the increase in cost of import to principles. And we are confident that the margin should start improving from the current quarter and should go back to the normalized level by next fiscal. Coming to our overall performance. The third quarter saw an overall resilient performance on revenue front, which was as per our targets. In fact, on a 9-month basis, it grew to INR 7,800 crores from INR 4,300 crores, which is an increase of 79%. And in the current quarter, it grew to INR 3,074 crores against INR 2,183 crores for the same period last year, which is a growth of 41%. Consolidated EBITDA for the quarter was INR 104 crores against INR 101 crores in the same period last year, a growth or 3%. Consolidated PAT for the quarter was INR 46 crores against INR 62 crores in the same period last year, a decline of 25%. Now I'll share with you the performance and the strategy in each of the verticals going forward. Revenues for the growth under review for consumer electronics were INR 1,410 crores against INR 1,364 crores in the same period last year, which is a growth of 3%. Operating corporate witnessed a degrowth of 24% year-on-year. It was INR 30 crores in Q3 financial year '22 against INR 40 crores in the same period last fiscal. We have an annual capacity of 5.5 million sets, including backward integration in LCM and SMT line, which is the largest capacity in India, catering to almost 35% of India's requirement. We have total area of almost 0.5 million square feet in our integrated campus at Tirupati, which is fully backwardly integrated. We're making investments in injection moving units in the campus, which should be operational by Q1 end of this fiscal. A very significant progress and development is that we have huge order for LED TVs under company's ODM solutions from one of the largest global brands. The project has been launched and we're targeting to start commercial production in mid of the forthcoming fiscal. As I had shared with you last time, we've also got orders for LED monitors from the largest global brand. The trials have been concluded and the commercial production is expected to start by April next fiscal. The expected volumes in year 1 is around 0.5 million and we expect the order book to significantly increase from year 2. The margins in this business are expected to be in the same range as LED TV. Coming to lighting. Revenues for the quarter witnessed a growth of 23%. That is INR 430 crores in Q3 against INR 349 crores in the same period last year, and we are almost back to the strong growth trajectory which we have been demonstrating. However, due to the commodity price pressure and the cost element in the freight side, the operating profit witnessed a degrowth of 16% year-on-year. That is INR 28 crores in Q3 versus INR 33 crores in the same period last year. The margins in lighting business have contracted again because of the commodity price increase. We have undertaken [ our ] value-add initiatives, and we feel that margin will start improving from Q4 and should go back to the normalized level within the next fiscal. The availability and the cost of ICs, along with rising freight rates, has been a challenge in this business, but our agility in vendor selection, pre-buying inventory management protected us from the shortage issue. We are India's largest ODM player in lighting and have the largest capacity in various SKUs. LED bulb, we have capacity of $300 million, which is almost 50% of the Indian requirement. We have already expanded the capacity in battens to 5 million per month. The total Indian requirement is 9 million and in downlighters to 1.5 million per month, which is almost 50% of the Indian requirement. Our R&D team is working on decorative lighting and some more cost-effective solutions for next-generation lighting products. We are almost in the final stage of approvals both technical and commercial from our global customers and the export should be starting in the forthcoming quarters. In this particular vertical, we have got approval under the PLI scheme of Government of India for manufacturing LED lighting components, to our wholly owned subsidiary, Dixon Technology Solutions Private Limited. This is in line with the backward integration strategy, and it will make us more competitive. We are committed to make an investment of INR 100 crores over a period of 5 years. This will help us in expanding our margins. Home appliances, revenues from the quarter saw a growth of 56%, that is INR 115 crores in Q3 -- from INR 115 crores in Q3 FY '21 to INR 180 crores in Q3 FY '22. Operating profit increased by 3% year-on-year from INR 11.7 crores in Q2 FY '21 to INR 12.1 crore in Q2 FY '22. The operating margins, in this case also were lower due to the impact of commodity cost which has been an on an increasing trend, resulting only in partial transition pricing to our principles. The margins in this segment would also see an expansion in Q4 and normalize the next fiscal. Presently, we have 160 odd models in semi-automatic category with largest portfolio ranging from 6 to 14 kgs. We have now the largest capacity of semi-automatic washing machine, which is almost 2.4 million annually. And we have set up an additional industrial footprint in Dehradun. This will be ready in Q1 of next fiscal, which is sufficient to meet the increased demand ahead of the festive season. We have also added some more customers in this category and order book in this vertical looks very healthy for the coming quarters. And the fully automatic category, our plant in Tirupati is now operational. The commercial production for Bosch, our anchor customer has already started and deliveries have started. We have capacity there of 0.6 million with almost 96 variants across 6 to 10 kgs. We have tied up with some other customers and commercial deliveries today would commence by next month. Mobile phones and EMS divisions, revenues for the quarter under review was INR 940 crores against INR 299 crores in the same period last year. This is a strong growth of 214%. In the current quarter, the revenues of set-top box business in medical equipment will be INR 70 crores and INR 0.5 crores, respectively. Operating profit was INR 28 crores in Q3 FY '22 against INR 14 crores in the same period last year, a growth of 102%. The Motorola mobile business has now ramped up and stabilized in monthly volume stretching at 250k. And we have a strong order book for around 1.2 million in Q4 and 1.6 million to 1.7 million starting Q1 next fiscal. Out of that, the major portion will be for global markets, particularly the U.S. We've also finalized Nokia's feature phone business and monthly volume of 0.5 million units in addition to smartphones that we are currently manufacturing and production is likely to commence from Q1 next fiscal. In addition, we have added one more customer, Itel, in feature phone category. To meet this demand from new customers order book and also the new increased requirement from Motorola we have taken a 2 lakh square feet facility in Noida. In addition to 2G phones, our order book on Samsung smartphones have also significantly increased from $1 million to almost $1.5 million a month. We are the first domestic company and the only domestic company to achieve thresholds for the venues and investments prescribed under the PLI in Q3 and the necessary claims for incentives are being shortly filed. Set-top box. In this vertical, we have manufactured 6.5 lakh set-top boxes with Jio, Dish TV, SITI Cable, Sun TV and reported revenues of INR 70 crores with 2.3% operating margin order book in this vertical is still. Security surveillance, that is Camera and DVRs, revenues for the quarter witnessed a strong growth of 103%, that is INR 113 crores in Q3 versus INR 55 crores in the same period last year. Operating profit witnessed a strong growth of 143%. It increased from INR 1.9 crores last year to INR 4.7 crores in Q3 of FY '22. This order book in this segment is very robust, and we were going in for further capacity expansion from 10 million per annum to 14 million per annum by Q1 next fiscal. For this, we are relocating our existing set-top box factory in Tirupati to Kopparthi electronic manufacturing cluster, where we have taken 2 lakh square feet constructed facility. Apart from this, I would like to update about the opportunities which we are pursuing. Refrigerators will be initially created a capacity of 0.6 million direct cool refrigerators, which will be further ramped up immediately up to 1 million. Please appreciate the Indian market for DC is approximately 10 million under various categories of 190-liter to 235 liters with multiple features and different star rating. The product designs have been made, technology partner agreements have been concluded, and we have already acquired land bank of almost 20 acres in Ecotech 8 of Greater Noida and the construction is going to be done soon. We have started engaging with various potential customers. And for Mass production, we have taken a stretch target of Q4 of the current -- of the next fiscal. Laptops, tablets and IT hardware product. We have started manufacturing laptop for Acer from December 21, and volumes are expected to increase significantly from fiscal. We are one of the beneficiaries of PLI for IT hardware products and are confident of achieving this ratio of revenues and also the CapEx in the current fiscal. Also, we are in discussions with some other leading plans and are confident that we'll be concluding some contracts. Telecom and networking products, our 51:49 JV has been formed with Beetle in this quarter. The JV companies are beneficiary in the PLI scheme for manufacturing of telecom and networking products like GPONs, ONTs, modems, routers, set-top boxes, et, cetera. Presently, this manufacturing will start in one of the existing plants in Noida of Dixon, which is expected to start the trials in the current quarter and commercial production in the next quarter. Finally, this is going to be transferred to the Ludhiana plant once that plant is upgraded. Inverter controller board for air conditioners, a 40:60 JV has been formed with Rexxam, Japan, who have already been our partners for last 5 years. We'll manufacture inverter controller boards for air conditioners, Rexxam is a design and technology partner for Daikin and bringing strength in the PCBA designing. Rexxam wants to make India as the manufacturing hub for its customers for both domestic and export market. So the global opportunity is a big play in the [Indiscernible] The JV company is a beneficiary under PLI and we'll be making a total investment of INR 51 crores, in which Dixon share is INR 20.4 crores over a period of 5 years. The many potential is quite immense to the healthy EBITDA margins and a strong regeneration in this business. Wearable and hearables. On the hearable Indian market is the third largest market globally and of the fastest-growing market. Currently, we're manufacturing TWS and neckbands for both at our Noida manufacturing facility. We have recently entered into a 50:50 JV with Imagine Marketing for the flagship brand board, which will be mainly undertaking design and manufacturing or wireless audio devices. Significant portion of BoAt's requirements of these devices will be met through the JV. It has also an immense potential to further build on capabilities and ad product categories as the partnership strengthens, we are also waiting for the PLI scheme rollout in this category. Thanks very much. I would like to stop now here and me and Saurabh are there to address any questions. Thank you so much.

[Operator Instructions] We have the first question from the line of Bharat Shah from ASK Investment Managers. Please go ahead. Mr. Bharat Shah, can you hear us? Mr. Shah, we can hear you now.

So Atulji, I just think, I hope my question is not misunderstood. But what I wanted to really check we have many products, many areas therefore, there is plenty of details in plenty of sub details to be discussed, but as a big picture level, what I want to get credited from JVs. Given the fact that size of opportunity is large, we have a good business model in local manufacturing. Government PLI scheme have been kind of a heaven send tailormade for entities like you and many, many areas are moving in the direction in which this business should be much more successful is more -- while we're seeing the top line growth, but we have seen virtually no growth in the business profit. So -- if you take the 9 months of the current year compared to 9 months of the last year, both the periods have spent some time in pandemic in some way or the other, but business is expanded by 70%, 75%. But if you look at our pretax profit, and pretax profit will be more meaningful way to look at it because there'll the cost of expansion of the turnover depreciation in case or that is part of that number. Pretax profit is virtually just crawling at a small single-digit number. So where do we see eventually because we can keep getting bigger, we can keep expanding into territories into product categories. We can keep getting larger with new customers. But whether really our profitability in the core strains in the business model? Will it reflect eventually into the numbers?

Mr. Shah, what you're saying are really appreciated. However, what I would like to share is that this year has been are very, very different. It has been very different on account of the inflationary pressures on the commodity side and on the freight side. Just to give you certain numbers, 40 meter container which used to cost $600 for some of the consignment, one has paid even $8,000. Polymers like polypropylene have shot up from INR 95 a kg to INR 137 a kg. Copper from INR 670 to INR 860. Aluminum from INR 150 to INR 250. Now with these kind of inflationary pressures and particularly when there is a COVID scare and the demand is under pressure even for the brand owners to pass on the price increase to the customer is a challenge. In our case, when that kind of pressure is there in our ODM business, to pass on that price increase to the customer to our it takes time. So let me show you that partially, it has been done in Q4 and will be reflected in the numbers. And I'm fairly confident that to a very, very large extent, it's going to be passed on almost completely in the next quarter -- in the forthcoming fiscal which is going to significantly improve the margins and profitability. The second is that we have embarked on a very high-growth journey. And new factories have been set out in 2 domains, one is, the mobile phones and the second is the fully automatic top loading. Any new setup to stabilize, it takes some time, and there is a ramp-up cost to it. So that has an impact on profitability. The third also is -- if you see the growth in revenue, it is primarily coming from prescriptive business, which is mobile and also revenue growth over a 9-month period in televisions, in which the operating margins are relatively lower, which over a period of time are going to stabilize. And in the case of television, I have already shared with the house that now we have got a large project on the ODM side with one of the largest global brands, which is going to improve the margins. So you will find that the profitability coming back, not to the same level of margins because the sales mix has changed, but there'll be significant growth.

So would it be while quarter-to-quarter shorter-term challenge, some factors here, some factors there. Those are matters of details. And in some same important details in narrow period measurement of the performance. But if we take a more longer-term point of view, ultimately, as we get bigger in this is this more specialized needed economies of scale and we are able to make those timely improvements in the profitability because of the cost containment. Plus our ability as a reliable supplier, business model, financial all of these eventually has to translate into over a meaningful period, a meaningfully superior financial performance as well. So let's say, from the current year business, whatever that will be in '21 and '22 in all probability in 3 years' time from now, let's say by fiscal '25, I would assume that the business might be to up 3x as much. Will we have profits would be at a rate higher than that or materially higher. And by profit, I don't mean operating profit only because there will still be investments. There is still will be other costs that will be incurred at a pretax level, basically, profits will be [Indiscernible] our core profit will expand at a rate higher than the top line at some stage or not?

So there would be a significant increase in the profit as far as the absolute numbers are concerned, please be rest assured. As far as the margin as a percentage of revenue is concerned because the sales mix is changing, and it is more and more tweaking towards a prescriptive business in the next 2 to 3 years, margin profile will be lower than what it used to be. We had almost touched 5%. It's going to be lower than that. But on the absolute side, there will be a significant please be rest assured on that.

No, I was not talking of margin percentage, as I say. I was saying if the business grows by x multiple where the profit will grow it x plus y or not over the 3-year journey, 4-year journey that we are talking about.

So you're basically talking about a percentage wise?

No proposing on a INR 100 turnover, we may let's say, INR 10 today, is profit before tax. It's just a number I'm saying. And in 3 to 4 years' time as the business we can instead of INR 100, INR 300, INR 350 then legitimately profit should be instead of INR 10 being INR 30, INR 35, probably should be more like INR 40, INR 45, INR 50. Is that something likely in evidence or that is not what business model will accommodate?

No, no, no. It's not going to be like that. The profitability growth will not be in the same linear way as the revenue growth. But the return ratios are going to be significantly high. When you look at the overall financial perspective, the return ratios are going to significantly increase. because the tilt in the next 3 years is going to be more and more towards the prescriptive business.

Bharatji, Saurabh this side. So the 2 things which will significantly change. And I'm sure, I don't know whether that answers your question or not, 2 things which will change for the company in the next 2, 3 years. One is the asset turn will keep increasing because more and more we go into the prescriptive business, the asset turns are higher. Second thing, which we feel confident about is the ROC profile will keep getting better.

Sorry, what will keep getting better?

ROC, return on capital employed will be getting better.

And what kind of improvement are we talking about?

Mr. Shah, sorry to interrupt you, but we would request you to come back in the queue for any follow-up questions.

This is not a follow up. The first question I'm raising with what should we do care about?

Yes, sure, Bharatji I'll tell you. So we feel confident internally that over the next 3 years, the 30% ROC that we have been delivering, I think should be somewhere in the range of 40-odd-percent, if not more.

So essentially, what we are saying is that top line may grow at the mix of the business could be [Indiscernible] where top line will grow faster. Some of those businesses remain lower margin, but our capital efficiency and other financial parameters will show greater superiority.

That's right, sir. You got it absolutely right.

We have the next question from the line of Mr. Ankur Sharma from HDFC Standard Life Insurance.

Few questions. One, on the consumer electronics/TV segment. So I believe the sales growth during the quarter is about 4% odd, which is a sharp slowdown, right, what we've seen over, say, the last 4, 5 quarters. So one, if you could help us volume versus value growth or the pricing growth, I'm sorry, in this segment? And is it that last year, we saw this third in TV sales driven by COVID, that's kind of slowed down. So is that the reason why we've seen this slowdown in turn in our sales as well.

Yes. So Ankur your point is absolutely right. We saw volume reduction in this quarter. as compared to same period last year. So just to set some volume numbers. So we -- in quarter 3 of last year, we did volumes of around 9 lakhs. And this quarter, we did volumes of around 8.3 lakhs. So there was a almost 8% kind of a drop in the volumes, which is -- but there has been a pricing growth. So overall, yes, there has been a marginal growth of 3-odd percent.

And fair to assume even the industry would have seen a similar or maybe more kind of a volume decline?

Yes. I think so even industry post the festive season, October was good for the industry. But if you look at November and December, I think it would have been -- that phenomena would stand true for the entire industry. The volumes would have been lower for all the brands as well.

Also Ankur last time if you recall, Diwali was later. The festive period got extended into Q3 more. This time Diwali was earlier. So that also has an impact. And always in the case of televisions, post Diwali, post festive period there is a decline.

Okay. And how are things kind of looking up -- so obviously, comments on TV, but what we're seeing from deals and data, what we talk to a lot of brand OEMs as well -- is that, obviously, November, December were negative volume growth, but even things haven't really picked up so much in January either. So I would love to hear, obviously, for TVs, but also other categories, washing machines, lighting -- what kind of demand are you seeing or hearing from your OEMs?

On the television side, demand, I would say, is normal. We are having a run rate in this quarter of around 2.3 lakhs a month. So it should be somewhere around 700, 750 which is normal. And in the case of other products like washing machines, the demand for us is extremely good. We are at a run rate of around 115 to 125k a month, and that's what the order book looks like. It would be a significant growth from last fiscal Q4. And even beyond that, the demand of the order book looks good. In the case of lighting, it's normal. We are somewhere around again 160k, 1.6 crores of bulb every month and almost 3.5 million of battens every month. So it's kind of normal, not heavy growth. It's kind of normal. In the case of mobiles, our anchor customer is doing exceedingly well because we are servicing not only in the domestic market but also global market, and particularly the global markets, order book is extremely, extremely good. In the case of CCTV, the order book continues to be healthy, particularly for our customer because it's dominating the market. So it's a mixed trend of that across various verticals.

Okay. Fair. And just 1 more question. If you could quantify the CapEx numbers earlier, '22, '23, '24 also which areas you're spending and the gross debt on the books? And do you see that going up significantly over the same period.

Yes. Ankur, our CapEx in the 9 months, we have done a CapEx of around INR 280-odd crores. And last quarter, we should add another INR 80 crores to INR 90 crores. So we should close this year somewhere around INR 370 crores, INR 380-odd crores of CapEx. The significant portion of CapEx has gone into mobile business, where we really expanded the capacity for our customers. Then followed by consumer electronic business, where we have again expanded the capacity to 5.5 million TVs and then some land parcels that we have bought for our expansion and diversification. Net debt number as on 31st December is somewhere around INR 100-odd crores. And I expect a similar number, INR 100 crores, INR 125 crores kind of a net debt as of 31st March as well.

The next year CapEx should be in the range of around INR 225 crores to INR 250 crores. And we're looking at '22, '23. A lot of CapEx has been front-ended for our expansion plan in the current year.

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

Sir, just on TVs, would it be fair to say that we're hitting the peaks as what we've seen in the current quarter, given that we already large player and having all the key customers with us. And within this, as the ODM customer that we've added, is it an existing customer, so would it be more of a shift from AMS to ODM, which would thereby launch, particularly may not by volume, but would actually drive margin expansion. Is that the way to look at it from a TV perspective?

Bhoomika, the ODM business is for an existing brand, but it's getting the largest share of his wallet. So it's going to increase the volumes.

What will be our wallet share with that customer today? And what can it possibly expand to?

So currently, we do for this customer around 450k to 500k. If we are able to execute the 2 products. One is on ultra-high-definition TV. And the other one is a normal lower-sized televisions, it could add almost 700k to 800k more.

Fair point, sir. Sir, the second point was in terms of mobile. Clearly, there has been a decent ramp-up in terms of the overall revenue, but if you could just talk about the volumes that we did in the current quarter from the mobile segment? And what is the expected ramp-up that you're seeing as we move ahead into the fourth quarter or in terms of 1Q '23?

Bhoomika, Saurabh this side. So smartphone volumes that we did in this quarter was around 9-odd lakhs. 2G phones volume was around 11 lakhs and then we have an anchor customer, which, of course, is not part of that full PLI scheme. So there the smartphone volume was around 23 lakhs and 2G phones volume was around 29 lakhs. And as we mentioned in the opening remarks, Bhoomika, that clearly Motorola business has now ramped up and stabilized, and we already started clocking a run rate of 2.5 lakh a month, which should further increase to INR 3 lakhs, somewhere around 3.5 lakhs in coming months. And then we have a further -- the order book should further increase by Q1 of next financial year.

We feel under the PLI scheme, we should be touching [Indiscernible] almost 7 million smartphones in the next fiscal. And as far as the feature phone is concerned, we should be somewhere around 11 million to 12 million.

Got it, sir. Sir, just one, if I may squeeze in, in terms of the fully automatic portion machine that you said has started off. If you can just give a sense of how quickly can we see the volume ramp up while we have a capacity of 0.6 million. But in terms of FY '23, given our conversation with our anchor customer, plus the new customers that we're looking at, what can be the potential volumes that we can look at in FY '22?

The current run rate, Bhoomika, is around 10k a month. I feel that in the next fiscal, we should be somewhere around 1,500k.

Sorry, sir, how much?

1,500k.

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

The first question is on the LED TV side, can you throw some inputs in terms of how have the open cell prices moved? And are there any signs of softness in the prices? And if so, what kind of complications are we expecting on the ASPs and the margin thereafter?

So Bhoomika, open cell prices. Sorry -- Renu, on the open cell prices, the prices have definitely softened. For the 32 inches, it has come down to almost $42 to $43. But at this level, it has stabilized. I am not seeing at least immediately any further softening of the price. Now in our case, it's a pass-through, so it doesn't make a difference. But the unit price has definitely come down significantly.

Right. But technically, optically, since at the conversion rate, our margins as a percentage may actually start improving as we go in the next couple of quarters with similar kind of open cell prices.

That's right. That's it.

Got it. Sir, secondly, on the mobile, coming back on the mobile PLI side, at the onset when we started the year, we were targeting something like INR 3,000 crores of total MAX revenue ceilings. But obviously, there were various electronic parts and chip shortages issues which were there. So for the current fiscal year, in 9 months, you've already done INR 1,600 crores plus of revenues in the mobile phone segment. So what are the expected numbers in terms of the PLI targets that we are expecting for this fiscal? And for next fiscal, would we be broadly on track to do INR 4,000 crores kind of incremental revenue.

So our sense Bhoomika -- Renu is that in the current quarter or finally, in this fiscal, we should be somewhere around INR 2,500 crores.

This would be incremental revenue or total revenue?

Sorry?

INR 2,500 crores will be approximately total revenues under the mobile division or under PLI.

Under PLI, I'm talking about.

Got it.

And in the next fiscal, we are very, very confident that we're going to be much, much ahead of the upward ceiling of INR 4,000 crores. That kind of order book is there.

Got it. And lastly, if you can help us understand on the FATL side or the equitable portfolio -- where are we in terms of getting a new -- is it apart from the anchor customer, are the other customers also on board or the other brands with whom we were discussing will probably take some longer in this space. And margins in FATL after the initial stabilization cost, et cetera, from next fiscal should be close to double-digit levels same as semi-automatic washer that should actually be slightly better than semi-automatic portfolio?

So Bhoomika, we have already analyzed with 3 more customer -- sorry. Renu, we have already analyzed with 3 more customers. The commercial production and delivery is going to start for a couple of them in the next month. And we are in discussion with 3 more customers. As far as the margin is concerned, one feels that it's going to be in a similar range, Renu, as went up for as of now.

[Operator Instructions] We have the next question from the line of Girish Achhipalia from Morgan Stanley.

This other expenditure that we've seen jump in. Can you explain why exactly that has happened like freight cost, which is a major expenditure which has jumped over there? Or is there something new specific?

No. So Girish, freight cost is part of our cost of material consumed only, which is reflected on the gross margins. If you look at other expenses, as a percentage of revenues, it's pretty much in control. whether you look at quarter 3 and compared to same period last year or even if you look at 9 months, it is around 3% of our operating revenues.

Okay. And the receivable days that have come down, I would imagine that you would have done some receivable factory. That's why there is a corresponding increase in interest cost substantially on a Y-o-Y basis? Is that a fair assumption?

Yes, yes. It should be -- yes, absolutely. We do some factoring of that. And also interest cost also reflect the NDS 116 adjustment as well, which is both reflected in depreciation as well as the interest cost on a leased property.

What would be the total quantum of factors that is outstanding as of the end of the quarter on receivables?

We -- so our amount of factoring was somewhere around INR 200-odd crores.

We have the next question from the line of Pulkit Patni from Goldman Sachs.

Sir, my first question is on the structure of the contracts that you have with these OEMs. Is there any sort of volume discount that you gave which is over a period of, say, 3 to 4 years. So basically, what I'm trying to understand, if you were to model your margins, would it be sort of similar margins across here, obviously, with the advantage of operating leverage wherever we can get or these margins could be sort of front loaded or back ended or something like that? So if you could just talk about anything you can talk about in terms of how the contracts are structured in terms of margins that we'll earn with these OEMs. That would be question number one.

So Pulkit, there is no such element in the contract that we are going to be giving any volume discount over a period of 3, 4 years. There's nothing of that kind. In the EMS, the conversion cost is well designed. In the ODM piece, the price negotiation is there in which there are [Indiscernible] looking at the some contractors, 3 months, some quarter 6 months on the fluctuation of currency and commodity prices. So that's the way it works. So there is no front ending or anything of that kind.

Sure, sir. That's clear. Sir, my second question is on our margins in terms of commodity prices. So while I understand an ODM business, there is a lag, which obviously should reverse as we get into the next few quarters. On the OEM side, since our brand is very sophisticated in terms of knowing how freight costs are and where commodity prices are, what is the kind of lag that should take for margins to sort of catch up. From next quarter onwards, should we assume that all the margins that we've lost should actually be recovered? Or how should it work?

So in OEM business, even in the last quarter, it's a pass-through. There is no lag in that, whether it's the freight cost or currency fluctuation impact or the commodity price increase, it's a pass-through. What can happen as a percentage is if the commodity price increase has happened. The unit price of the product goes up, but the conversion cost is not as a percentage of the unit price. It's an absolute figure. So that can get impact as a percentage. But on the absolute side, it remains the same and all the cost either increase or decrease on account of any costing element of the value chain is a pass-through.

Understood, sir. So basically, this is value of the product going up and since our conversion margins remain same. That's why these margins look a lot lower.

Just to give you some numbers also, Pulkit, basically, the way you should look at in consumer electronics. So more and more, we are moving and the industry is also -- and the market is also moving towards higher category TVs. 43 has become a new normal now. So average selling price for the portfolio was around INR 14,800 in Q3 last year, which has now increased to INR 16,200. So clearly, it's also a function of at the value, the margins optically would look lower. So in this business, one has to look at whether the growth -- absolute growth in EBITDA and the ROC profile, that's more important in this business.

No, fair point. I mean, that is the reason...

This is the operator here. would request you to come up with your follow-up question back in the queue, sir, we have other participants also in the queue. We have the next question from the line of Aditya Bhartia from Investec.

So my first question is on LED TV wherein you mentioned that your quarterly recently sized contract on the ODM side. Just want to understand how exactly the margin profile of ODM business could be in this particular segment? And also, you've been speaking about increasing backward integration in the form of injection molding. Want to understand how exactly the value addition increases and what kind of an impact it could have on margin?

So on the ODM side, there should be an impact or expansion of margin of somewhere 0.7% to 1%. On the injection molding side, the number punching still has to be done. Yes, but there will be an impact of approximately around 0.2% to 0.3% in the value additions.

Sorry. And OEM, how much have you mentioned, sir?

Around 0.7% to 1%, Aditya.

Sure. Understood. Understood. And my second question is on the mobile phone side. Wherein it appears that the ramp-up for Motorola business while it's been at a fairly brisk pace, but it has somewhat still slower than what our initial expectations were. Has there been any impact of supply side shortages or is it all about teething issues which should get normalized over the next few quarters?

So undoubtedly, the supply chain issues were there and they were the situation is getting slightly better now. So it's a combination of both the supply chain issues and also the ramp-up normalization, which, to a large extent, has been achieved on both elements. Our current run rate is around 250,000, which from this month is more 300,000. And the next quarter, that is the first Q1 of next fiscal, we start doing around 1.6 million to 1.7 million a quarter.

We have the next question from the line of Rahul Jha from Bay Capital.

I see a lot of improvement on the working capital side, especially on the debtor days. So what has really happened between the 2 quarters?

So debtor days, of course -- so when we -- as I mentioned, there is a factoring element involved in this, so which was also really reflecting in the debtor days. But broadly, if you look at the cash conversion cycle, it has been the similar range of 0 to 1 day for the last 3, 4 quarters.

Also in the new businesses, of mobile, that's Motorola, the collection days, the payment terms from the anchor customer is significantly better, which is getting reflected here.

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

My first question is regarding the white goods both in AC components and LED components, broadly, what is the kind of revenues and margins that we are expecting? And from when can they start accruing to our financials?

Thanks, Sonali. In the case of PLI, for white goods, that is the AC and roll board, the JV to Green has been formed. I think that it's going to be operational by Q2 of next fiscal. And the revenue...

Yes. So basically, Sonali, revenues initially, it will be -- so in the next couple of years, we think that JV should start generating INR 300 crores of revenues. And it's a 60:40 JV. So Rexxam has a 60% shareholding, and we have a 40% shareholding. And the margin profile should be significantly better. It should be in the range of 7% to 8% and since it will a prescriptive business, there is hardly any working capital employment, the ROC profile will also be good.

Understood. For the LED TV? Sorry, LED component. Sorry, yes.

So in LED lighting, the investment over the period of 5 years is INR 100 crores. And the revenue generation is mostly somewhere in the range of around INR 130 crores to INR 140 crores. And the PLI incentive was 6% in the first year. So the EBITDA level is going to be somewhere around 10% of that.

Got it. And my second question is regarding the margins. You mentioned that we should expect the margins to normalize in the next fiscal. What are the normalized levels that we are aiming for?

Yes. So basically, Sonali, normalized, we mean the normalized margins, which we were delivering pre-COVID level before the whole commodity prices started to escalate or elevate. So my sense is, yes, so in lighting, if we have delivered in the past around 8.5% margins. And in this quarter, we have done 6.5% margins, so ideally the normalization means going back to 8% kind of margins. Washing machine, again, we have done 6.7% margins and normalized margins would be again somewhere between 8% to 9% kind of margins. And at a group level, at a company level, what margins to margins of around 2.5% that we delivered. I think so gradually, it can move towards 4% to 4.2% kind of levels.

Got it. And lastly, what is the...

Ms. Salgaonkar, sorry to interrupt, but we would assure you and take your follow-up questions in the queue again, we would need to proceed with the next question. We have the next question from the line of Mr. Rajesh Kothari from AlfAccurate Advisors.

I have 2 questions. My first question is, is it possible for you to give the volume growth for each of the segments?

Yes, sure. So LED TV I mentioned there was an 8% degrowth from 9 lakh LED TVs this quarter was 8.3 lakhs. In LED bulb category, again, it was flat year-on-year at around 5.7 crores. Battens, downlighters, which are other indoor lighting products. So Batten was around 78 lakhs, which had a growth of almost 73% year-on-year. Downlighters was 23 lakhs, 69% growth year-on-year. And then home appliances was 3.1 lakhs, which is a 27% growth year-on-year. And on a combination of -- if I look at these smartphones, smartphones all put together, we did around 32 lakhs from 3 lakhs last year. So there is a significant growth -- and on feature phone side, there is a small degrowth, 61 lakhs we did around 39 lakhs or something. So there was a degrowth in the 2G phones. Again on CCTV and DVR, there was a good growth of almost 90-odd percent. So CCTV was around 17.5 lakhs. DVR was 3.8 lakhs and set-top box quantity was around 6.5 lakhs.

Okay. My second question is you mentioned that in many of your segments, the pricing has gone up, and therefore, optically, EBITDA margin looks down. But when you look at EBITDA, therefore, in absolute terms. But our absolute EBITDA, even if I look at second quarter, the even third quarter is down. So -- and at the same time, you mentioned that you can pass it on the entire price hike to the customer, whether it's the freight cost, whether it's the raw material cost. So there is some confusion because in opening remarks, you said that you are in the process of pass-through. And then you mentioned that you have already -- you can pass on entire freight and entire raw material and one should look at the volume rather than value. So I'm actually getting confused. So how we should look at it?

Basically, there are 2 business models. So 1 -- so that question was specifically for the consumer electronics business. consumer electronic business, mobile business, set-top box business, security service business is a prescriptive business, where there is a complete pass-through to the customers. There's no currency or commodity impact to us. When we said in our opening remarks on the margin pressure thing because of the commodity prices and also because of the logistics cost, we were clearly mentioning on our ODM business the lighting and washing machine business, where there is significant pressure and where we have not been able to pass on the entire cost increase to our principles, which we think will gradually pass on in Q4 that will be further passing on in Q4, and we expect the margins to start normalizing by next fiscal.

Okay. And if the raw material price comes down, do you think you will get them some benefit as well because this time, you probably manage your customer compared to the. I mean...

When the prices come down, commodity prices softened, yes, we will definitely get benefit like the rate has happened in the past. So generally, it evens out. over a year -- over a period of 1 year. But yes, this time, the commodity cycle has been slightly on an increasing trend. So this time, it has slightly been delayed, I would say.

And if it keeps increasing, let's assume that commodity remains tight environment, the inflation remains tight, say, for another 2, 3 quarters, then what will happen? Then do you see further pressure on margins on ODM side?

As I mentioned, in our ODM business is clearly we pass on to your customers with a lag. Now lag can be 1 month and 3 months. Now if you are in a continuous increasing scenario from here onwards also yes, then the pressure on margins would be there because the entire pass-on will not happen.

So there is a lag in passing on 3 to 6 months to pass since there is an increasing trend continuously, there will be a pressure.

I would now like to hand the conference over to the management for closing comments.

So thanks very much for being with us and exchanging thoughts. We are committed to whatever we have shared with all the stakeholders and that's our journey. Thanks very much, once again.

Thank you very much. Thank you.

On behalf of...