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

Ladies and gentlemen, good day, and welcome to the Dixon Technologies Q1 FY '27 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tanay Shah. Thank you, and over to you, sir.

Yes. Thank you, Anushka. Good evening, everyone. Welcome to the Dixon Technologies Q1 FY '27 Earnings Call. Today, we have the management being represented by Mr. Atul Lall, Vice Chairman and Managing Director; and Mr. Saurabh Gupta, Director and Group CFO. At this point, I will hand over the floor to Mr. Lall for his initial remarks, post which we'll open up the floor for Q&A. Thank you, and over to you, sir.

Thank you, Tanay. Good evening, everyone. This is Atul Lall, and joining me today is our Director and Group CFO, Saurabh Gupta.

Good evening, everybody.

I would like to warmly welcome all our stakeholders to discuss our Q1 performance for '26-'27. Key highlights for the quarter are as below. Revenues for the quarter ended June 30, 2026, was INR 15,557 crores. EBITDA, excluding fair value gain on the stake held by Dixon Aditya Infotech Limited for the quarter was INR 472 crores. PAT after minority interest and excluding fair value gain on the stake held by Dixon in Aditya Infotech for the quarter is INR 218 crores. During the quarter 1 financial year '26-'27, the global and domestic electronics manufacturing landscape navigated a very complex macroeconomic environment, characterized by persistent inflationary pressure across commodities and supply chain. Sharp price spikes in core input components exerted temporary cost pressures across the broader hardware ecosystem. However, Dixon's agile cost-plus contract structures and pass-through mechanisms enabled us to deliver a strong revenue growth even amid temporary volume friction. Operating margin for the quarter reflected temporary compression on account of expiry of Mobile PLI 1 in March '26 and from increased selling prices driven by elevated input costs and broader supply chain inflationary factors. As increased input costs were passed through increase in selling prices, percentage margins look optically lower, mostly in mobile and IT hardware business. While the sunset of Mobile 1 incentives impacted short-term percentage profitability, Dixon's strategic pivot towards component backward integration, including display and camera modules, along with participation in mobile PLI 2 and ECMS positions the company to drive absolute profit growth and restore operating margins from the next fiscal of '27, '28. Washing machine and refrigerator business witnessed temporary margin pressures on account of volatility in polymer prices, other related input costs and adverse foreign exchange movements. These impacts are expected to normalize with cost pass-through through measures and operational efficiencies taking effect. Operationally, our execution continues to be strong with the stable manufacturing efficiencies, disciplined cost management and sustained customer demand across key businesses. We remain focused on driving absolute value creation through scale, productivity improvements and deeper backward integration. As we continue to expand our capabilities and benefit from the new growth opportunities, including strategic partnerships and increasing localization, we remain confident to deliver sustainable long-term value for all stakeholders. Our strategic focus on balance sheet optimization and capital efficiencies continue to yield strong results, driven by operational leverage, high asset turns and potential capital allocation with return on capital employed and return on equity at 34.1% and 23.4%, respectively. Enhanced working capital discipline resulted in an optimal working capital cycle of negative five days. We remain firmly committed to drive value-accretive expansion across all verticals while maintaining strict capital management discipline and preserving superior return metrics for our shareholders. The timing of the announcement of the mobile phone manufacturing scheme is well aligned with the objective of the ECMS policy. While ECMS is focused on building a robust domestic component ecosystem, the mobile phone manufacturing scheme is expected to create sustained demand for critical components by driving higher mobile production and greater value addition. We expect the contours of the scheme to be announced in a couple of weeks and remain excited about the opportunities in mobile and IT hardware business. Now I'll share with you the business performance insights in each of the segments. Mobile and other EMS business. Revenue for the quarter for mobile and other EMS business was INR 14,179 crores with operating profit of INR 373 crores. During the quarter, mobile industry experienced a structured evolution from volume-led expansion to value-driven growth. While total shipment volumes saw a modest decline amid elevated global memory and component prices, the total industry market value expanded securely into the positive territory. Mobile volume performance was aligned with temporary demand contraction seen across the broader smartphone market by 10% to 12%, while our top line witnessed a strong revenue growth due to higher input cost realization. Our market position, customer engagement and manufacturing capabilities remain intact, and we expect 20% to 25% volume growth quarter-on-quarter growth as consumer demand strengthens and we have a strong order book. We received the PN3 approval for our JV with Vivo in July '26, and we are now working towards the consummation of the transaction. We expect the JV to commence operations and start reflecting in our revenues from Q3 of the current fiscal. Construction of our 1 million square feet facility in Noida with higher capacities for our anchor customer is almost completed. We expect the operations to commence from Q3 of this fiscal. We are expanding the capacities of camera module in subsidiary Q Tech, which is an ECMS beneficiary for smartphones from 70 million annually to 180 million to 190 million annually over the next 15 to 18 months, largely catering to a captive smartphone volumes in addition to deepening the level of manufacturing. Construction of our display facility is completed and installation of machinery is going on for mobiles, IT hardware products and automotive displays. The response from various brands is very encouraging and the trial will start from the beginning of Q3 and mass production to commence from end of Q3 and beginning of Q4 this fiscal year. Telecom and networking products. This segment continues to deliver robust growth driven by strong adoption of 5G, FWA and broadband equipment. With localized subcomponents, scaled manufacturing lines and a healthy order book, the telecom vertical remains on track to serve as a growth catalyst for the current and coming fiscal years. Production of complex microwave backhaul radios for large global brand has scaled up successfully, and we expect to also commence exports of these products during the current fiscal year. Our joint venture with Taiwanese ODM, Gemtek for manufacturing of optical transceivers, a small factor-form pluggable and BOSA under our approved ECMS application will allow us to capture a share of growing demand in the telecom and data center segments. In line with our path to progress from a pure EMS provider to a solution-oriented engagements, we have commenced a joint design and manufacturing agreement with a marquee customer. IT hardware products, the segment delivered a healthy performance for the quarter under review, and we are track on track for multiple growth this year. Our IT hardware product manufacturing unit in Chennai is rapidly evolving into India's largest IT hardware manufacturing campus, where we currently manufacture notebooks, desktops and AIOs and I have healthy order book. We have onboarded a high-end gaming notebook customer. Our new manufacturing facility addition to our current facility in Chennai for a 60-40 joint venture with Inventec Corporation, one of the largest top 5 ODMs in IT space is expected to get operational from Q4 of this fiscal. We have also expanded our capacity in our Noida facility for our anchor customer, and we started manufacturing tablets in addition to laptops for our existing customer. Moving strategically beyond traditional end computing, and we are actively discussing with a joint venture partner to tap into the growth into the high-growth enterprise server and data center hardware ecosystem, which allows us to address a surge in cloud and AI infrastructure demand and will start manufacturing SSD from Q3 and also exploring other critical components such as power supplies and mechanicals, which will enhance value addition and margins. Driven by the strong structural catalysts, we possess immense confidence in the strong forward visibility in accelerating this vertical's trajectory, positioning it to become one of the most meaningful strong growth pillars of Dixon's overall portfolio over the next few years. Home appliances, the revenue for the quarter was INR 382 crores and operating profit of INR 32 crores. The segment continues to deliver robust top line growth driven directly by the strategic investments in capacity, product portfolio expansion and in-house backward integration in molding and tooling capabilities. This integrated manufacturing approach enables us to deliver structural cost efficiency to our customers while unlocking significant operational leverage as we scale production across both semi-automatic and fully automatic product line. We have started manufacturing semi-automatic washing machine in the higher capacity categories of 16 and 18 kg, which is the first across the industries. Addition of our new manufacturing facility in Tirupati will expand our capacities from 0.6 million units per annum by another 0.3 million units per annum, including fully automatic front-loading washing machine 9, which will be launched in Q3 of this fiscal. We have started production of robotic vacuum cleaners with healthy order book and are on track to start production of dishwashers and microwave ovens in Q3 of this fiscal. We remain confident that increasing premiumization and rising appliance penetration will continue to provide long-term growth opportunities in this segment. Lighting. Joint venture with Signify continues to deliver robust revenue growth, backed by strong growth in indoor lighting portfolio, led by bats and down liters. While the lighting industry remains competitive, we continue to strengthen our position by leveraging our scale, engineering and designing capabilities and capitalize Signify's leadership position and long-standing relationships with other customers across consumer and professional lighting categories. We expanded our baton production capacity to an industry-leading 5 million units per month, fully supported by backward integrated process. Pursuing an active product mix improvement strategy, we have launched 1,000-plus SKUs premiumizing the indoor lighting portfolio in the last two quarters and now we can cater to the entire portfolio of indoor lights. In the coming quarters, we are also focusing on expansion of range of outdoor lighting portfolio. We expect to start export deliveries to the largest retail chain in U.S. and Germany in Q2 and Q3 of this fiscal. Consumer electronics, LED TVs and refrigerators revenues for the quarter under review was INR 987 crores with an operating profit of INR 58 crores. LED TVs, the industry demand remained soft in value and mid-range segments impacted by sharp input cost inflation, majorly due to high memory prices on account of global supply tightness. However, demand for larger screen that is 50 and above and premium QLED/OLED televisions remained relatively healthy. We have initiated mini LED production and will transition to an OEM model by Q2 of '27, alongside launch of sound bar TV sets, expanding our play in the premium home entertainment ecosystem. IFPD and digital signage business were also impacted due to increase in the memory prices in the quarter. Refrigerators. Q1 saw a huge uptick in commodity prices prompting industry-wide older inventory liquidation and slower fresh purchase and demand was further impacted by less intense summer and unseasonal rains. Despite these headwinds, we continue to see strong traction with healthy order book in direct cool and mini bars. Our ODM-led portfolio is scaling well, enabling higher value realization and faster refresh cycles. We are also expanding our capacities for manufacturing two-door refrigerators, deep freezers, mini coolers and side-by-side refrigerators, improving our value mix and building a broader appliance platform over the period. Despite the near-term softness, we remain positive on the medium- to long-term growth prospects of the category supported by low household penetration, premiumization and increasing consumer demand. Rexxam Dixon Electronics, our 40-60 PCBA AC, PCB joint venture with Rexxam continues its strong growth trajectory, characterized excellent cash flow conversion and an industry-leading return on capital employed profile. Our new facility in Chennai will be operational starting August '26 with expanded capacity to meet the demand of our anchor customer. And we are in active discussion to onboard a couple of new customers for next year. Hearables and Wearables, a 50-50 JV with Imagine Marketing that is both continues to deliver strong financial performance, supported by broad-based revenue growth, healthy cash flow generation and a lean balance sheet. Building on this momentum, the JV is expanding into adjacent electronic categories, including dash cam, smart washes, power banks and mobile accessories. This diversification will improve capacity utilization and unlock operating leverage. With that, I'll conclude my remarks and both me and Saurabh are here to take -- are happy to take your questions. Thank you.

Thank you very much. We'll now begin the question-and-answer session. [Operator Instructions] Question from the line of Aditya Bhartia from Investec.

Sir, my first question is on the PLI 2 scheme. How do you see that scheme benefiting us both in terms of additional incentives that may be available on backward integration as well as on the export side? Is it more about boosting volumes? Or is the advantage likely to be more around margins?

So, Aditya, we feel that it's a very well-curated scheme. It's a combination of both elements that you mentioned. One is on boosting volumes, which we understand because the domestic volumes are going to be kind of under pressure. The additional volumes will nudge the brand owners to bring in exports out of India. And we at Dixon are already seeing a very significant traction from two of our anchor customers. So that is for building volumes. And in this, the PLI guidelines is still awaited, but what we understand is it's going to be varying between 2.5% to 5%. Now that higher band of 5% is a very, very large element to support the export from India. And the second is on more and more localization. The figure that we understand is 1.5%, which is basically 0.3% for each component, which is display, camera modules, battery, mechanicals and charger. And please also appreciate this 0.3% is on the export value of the set, which is very large support on the component side. So these are the two important selling features, which we feel would help the Indian manufacturing industry in mobile to get into the global markets with deepening of value addition. And third, of course, is design element. We have to wait and watch for that, which is more focused on the local Indian brands. But the first two elements of the PLI are, I think, extremely encouraging.

Understood, sir. And on the export side, is it mainly about these two anchor customers, which are existing customers? Or do you think that there could be a larger opportunity elsewhere as new customers getting added the way it kind of played out in the original PLI scheme?

So we are all waiting for the exact guidelines to be rolled out. And then we'll be having a GTM strategy for going beyond our existing customer portfolio. But as of now, our two large relationships are extremely keen for looking at India and Dixon as a manufacturing base for servicing the global market.

Sure, sir. Sir, my second question is on working capital, wherein it appears that this quarter, working capital has increased a bit from the cash flow statement, it appears that almost INR 800-odd crores may have gotten consumed in working capital. So I just want to understand what has really transpired. And at the same time, we can also see that in the mobile phone business, the capital employed has gone up. So is it on account of this working capital deployment or HKC JV? If you could just elaborate on that?

So our CapEx has been to the tune of INR 335 crores. But mainly, there has been more working capital deployed for building certain inventories, strategic inventories because there were supply chain challenges because of the memory price hike. So we had to accumulate inventory across various verticals. And also, we had some extra cash if you see lying at the end of March, which was a floating cash, which had to be paid out to the creditors. It's a combination of these three things.

Yes. So, one is, of course, the inventory, I say, the strategic inventory, which helped us because the memory prices are also continuously increasing and it's on an increasing trend. And secondly, in some of the businesses, you have to back-to-back reinvent. So we got a lot of cash in end of March, which was subsequently paid beyond March. So that is the reason. So this you will see that over a period, it will continue to get corrected from here onwards.

So, Aditya, please be rest assured it's a temporary...

Temporary phenomenon.

Temporary phenomenon is going to get corrected immediately.

We take the next question from the line of Sameet Sinha from Macquarie.

So, Mr. Lall, a couple of things. First thing I just want to clarify this 20% to 25% growth in smartphone that you're talking about quarter-over-quarter. You were just referring to this particular quarter? Or are you talking about the year?

No, no. We are talking about -- Sameet, this is Saurabh. We are talking about quarter 2. So as of now, we are giving short-term visibility. So quarter 2 against quarter 1, we are expecting a 20%, 25% kind of a growth. So that is the order visibility that we are seeing from our brands.

Okay. That's good. And can you just walk us through the seasonality of phone manufacturing? Obviously, the festive season is the time when most of these phones get bought and sold. So what should we expect beyond this 20% to 25% and for the rest of the year? And I guess the second part of my question is, is the guidance of 32 million phones still intact? And if you can walk us through kind of the drivers for that, while the rest of the world or rest of the industry is declining, you're saying flat year-over-year. So that's pretty commendable.

So here, Sameet, we are talking about the numbers without Vivo. Now our order book for Q2 to be precise, is somewhere around 9 million to 9.2 million. So, by the first half, we would be close to around 16 million, 16.5 million. Our last year numbers were around 32 million, 33 million. We feel we should be somewhere close to that number. And I think that way, the team has done a fairly good job because there is a very significant decline in the market. And we'll be -- we still feel that we'll be holding on to our numbers of last year.

Right. So my second question is, I guess, you're talking about Inventec and operational by the fourth quarter, then you also mentioned some data center server manufacturing, which should start in the third quarter. Can you give us just more details around both these two opportunities, which sounds as if they are very good and very large and be interested to know more.

So, for us, IT hardware vertical is an extremely important and high-growth opportunity. The campus in Chennai is already geared up for almost around 2 million units. The product portfolio is now laptops, AIOs and desktop. The North capacity, we have added a new product category of tablets along with laptops. The new SSD line, which is the first initiative of backward integration, has already been installed. Top 4 out of 5 customers are there with us. One new brand for gaming laptops has been added to the customer portfolio. what I was referring to in my opening remarks was that our joint venture with Inventec, which is one of the top 4 global ODMs in this space, the factory is getting ready. And this factory should become operational by end of Q3 or early Q4 of the current fiscal. In this, we're going to be doing PCBAs. And also in this, we are in discussions with our partner for starting the servers, the general servers and also the data center servers. That is the plan.

We take the next question from the line of Siddhartha Bera from Nomura.

Sir, first question is, I mean, on this PLI 2.0, any assessment now with this PLI scheme out and details to be sort of -- we also expect soon. What can be the export potential we can see from our anchor customers maybe in the next one, two years? And the current volumes, which you are talking about, say, in Q1 or Q2, what will be the export number in these, which we are already doing?

So our current quarter export number was around INR 1,100 crores. We feel that in a couple of years, that can add almost 15 million to 20 million to our numbers, additional quantity in a couple of years. So which is an addition of almost INR 18,000 crores to INR 20,000 crores of revenue. That's what we look at with our two anchor partners.

Understood. And is there any potential to sort of look at more customers with Vivo also or anybody else also to try and sort of address this? And second is on this PLI 2.0 also, we understand there will be some requirement of localization levels. So now we have already done a couple of them. And we already also had planned for enclosures and batteries. So if you can get us some sense on where are we in terms of localization as of now? And in the next couple of years with these ramping up the JVs, where do we stand?

So there are two parts of PLI One part is going to be linked to your production value, which we feel largely will come from the global markets. The second, as I had shared in my response to Aditya's question is linked to the localization in which we understand the details that is still awaited, they are mentioning five components, out of which we have a play in two, camera modules and display. The other three components, you see the scheme has just been rolled out. We have to sit together and apply our minds that what can be Dixon's play in that. Is there anything very tangible as of now from our side? No, not yet. But we'll definitely be sitting together that we can have a play in that.

Understood, sir. Sir, last question on the feature phone side. We had talked about a big order book and a strong ramp-up in volumes in the next couple of years. Can you highlight if there has been any change? And are we on track for those type of volumes in this year and next year?

So, in feature phone, we are already the largest. Almost 2/3 of the production being done in India is done with Dixon. We are with two of the largest brands in India. And what we had shared was that one of our anchor customers is shifting the export base to India. And please be rest assured that is on track. It gets further solidified with the rolling out of PLI 2.

We take the next question from the line of Achal Lohade from Nuvama Institutional Equities.

Sir, first question, if you could help us with respect to the revenue for telecom and IT hardware separately, please?

Yes. Revenue for telecom was around closer to INR 2,100-odd crores and IT hardware is somewhere around INR 1,350-odd crores.

And would it be possible to know what is the Y-o-Y or Q-o-Q growth, if you could help us with that as well, sir.

I wouldn't be having right now. But IT hardware, there is a significant growth because now the business is coming to the stabilization and ramping up has happened, the volumes are increasing with the brand. So, IT hardware, definitely, there will be a huge growth as compared to same period last year. And telecom, we are -- yes...

Telecom is almost going to be flat as compared to last quarter.

Understood. Sir, if I missed out, I don't know, in terms of volume for the current quarter, is it somewhere around 7.5 million?

Yes, that's right. We did around 7.5 million volumes for smartphone.

Got it. And of this, how much would be exports, sir?

Export, I don't have the volume number in absolute number, it is closer to INR 1,100 crores. In volume-wise, it should be almost 7.5 million, I think so 0.6 million or somewhere.

Around between 0.6 million to 0.7 million.

Got it. Sir, my next question was in terms of the disadvantage, earlier, we used to hear about the disadvantage India had versus China was somewhere around 10% to 12%. So you think where are we right now and with the PLI, would we become absolutely cost competitive? Or it's more the China Plus One, which is helping in terms of the volumes as well on the export opportunity front?

See, we feel now that the PLI being rolled out, the PLI 2 being rolled out for mobile is extremely, extremely well thought out. A lot of number crunching is done. And now I think we can stand on our own feet. So, obviously, it's going to take time, but we are seeing a very positive traction from our existing anchor customers.

Got it. Would we have the similar margin what we have for the domestic market for this export or it could be even better ex of incentive, sir?

So it's going to be similar.

So it will be almost in the similar lines.

Understood. In terms of the components, if you could call out what has been the EBITDA contribution for the first quarter? Would that be possible?

So component as of now, display has not started. Q Tech is closer to INR 500-odd crores. But I think it will take time for us to contribute meaningfully from this Q Tech component thing. So I think so we'll be able to give a better guidance in the next couple of quarters.

We take the next question from the line of Santhosh Seshadri from Avendus Spark.

I have a quick clarification on PLI 2.0. Can you help us understand when this new scheme will start contributing meaningfully to margins? And is it large enough to offset the decline from the tapering of PLI 1.0? And on the localization requirement, do you see any margin benefits on capital consumption of some of these components like camera modules and display modules on the domestic sales that you have?

So, on the first part of your question, we feel that in a couple of quarters, the export volume should start coming in, and they'll keep building up. because it requires new model allocation, capacity creation, testing the new fixtures. But we feel that in a couple of quarters, it will start acquiring a significant mass. The second is, yes, in a calibrated way, more and more localization is going to take place. And definitely, it's going to be margin accretive.

Got it, sir. And just on the revenue side, can you break down the mobile revenue growth into volumes and how much was contributed by volumes growth and average selling price? And it looks like the volumes were better than what we have guided for as of last quarter. So do you think that's a function of Dixon gaining wallet share? Or is it an overall better market performance or any of the OEMs that we work for gaining market share?

So, definitely, in Dixon, we have gained the market share because the volume degrowth is significantly higher. So we have been kind of able to maintain our share, in fact, maintain the volumes and increase the share. That's the way scenario is. And as we had mentioned, in Q2, we have a much better order book.

We take the next question from the line of Rahul Agarwal from IKIGAI Asset.

Congratulations for -- I know the profits are down Y-o-Y, but I think in a challenging quarter, you've done well. So kudos to that. Sir, just some clarification and pardon me for my ignorance. But mobile PLI 2, is it going to be only applicable for exports? Because when I read whatever is available publicly, I don't see that it is actually specifically mentioned. So whatever volumes we are doing right now, not in terms of backward integration, but the smartphone volume you're doing right now and then Vivo also gets added. Is any incentive Dixon going to earn on that?

So, Rahul, as of now, we have whatever understanding we have, of course, the exact details need to come out, which hopefully should come out in the next couple of weeks. But first of all, this scheme should be effective from 1st of April '26. FY '25, '26 will become the base year of this PLI scheme. And as per our understanding is that anything incremental that you do becomes eligible for PLI irrespective of exports.

So, Rahul, also to take further what Saurabh is sharing, here is going to be brand-wise. Here is not Dixon '25-'26. It's brand-wise sales of any brand X for which we are manufacturing. Let's say, it is at a certain base for '25, '26. If the volume -- if the value of production goes beyond that '25, '26, specifically for that brand, as per our understanding, it becomes eligible for the PLI. The practical scenario is that the growth is not there. So one feels and the industry feels that the growth is going to come from exports. That's the rationale. Are you understanding what I'm trying to say?

Yes, very clear, sir. So even I was thinking the same that fiscal '27 because the industry is going to go down domestically, the base year of '27 doesn't really make sense, right? I mean the fiscal '27 being the first year, nobody will get an incentive, right?

But again, Rahul, to your point also, the memory prices have gone up. So the selling prices have also, also gone up. So that will also potentially can help in higher revenues also.