Dixon Technologies (India) (NSE:DIXON) Q2 2027 Earnings Call

0:00 Good day, and welcome to the Dixon Technologies Q two FY twenty seven earnings conference call hosted by Dan Capital Advisors. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this call is being recorded. I now hand the conference over to mister from Dan Capital Advisors. Thank you, and over to you. Thank you. Good evening, everyone, and welcome to Dixon's q two FY twenty seven earnings call. Today, we have with us the management being represented by mister Atul Lal, Vice Chairman and Managing Director and mister Saurab Gupta, Director and Group CFO.

0:48 At this point, I will hand over the floor to Atul, sir, for his opening remarks, Post which, we will open up the floor for q and a. Thank you, and over to you, sir. Thanks, Tanja. Thank you so much. Good evening, everyone. This is Atul Lal, and joining me today is our Director and Group CFO, Saurab Gupta. Good evening, everybody. I would like to warmly welcome all our stakeholders to discuss our q two performance for financial year 2627. Key highlights for the quarter are as below. Revenues for the quarter ended 09/30/2026, was INR 21,806 crores. EBITDA, excluding fair value gain on the stake held by Dixon and Limited for the quarter was INR $60.09 crores.

1:38 PAT after minority interest and excluding fair value gain on the stake held by Dixon and Arthel Protect Limited for the quarter was INR $2.93 crores. Margins during the quarter were impacted on expiration of mobile P and I one scheme, along with elevated global memory prices due to rapid expansion of AI infrastructure. The pass through of higher input cost through corresponding increasing in selling prices resulted in a lower reported margin percentage, particularly in mobile and IT hardware business, despite the recovery of increased cost through pricing adjustments. Our mobile business has remained resilient, sustaining volumes at broadly stable year on year levels despite the challenging operating environment.

2:28 Exports volumes for our anchor customer is expected to ramp up meaningfully from Q4 with further growth anticipated along with exports of feature phone and smartphones, exports of Tanshan Group's brand from the next fiscal. Profitability in washing machine and refrigerator was temporarily affected by fluctuations in polymer prices, rising freight costs and transit time, unfavorable foreign exchange movement and higher cost of other key inputs. These pressures are expected to ease as cost pass through initiatives gain traction and operational efficiencies progressively strengthened. During the quarter, we also undertook calibrated pricing actions in response to the sharp rise in our input cost. However, with the continued increase in prices, there is always a lag in passing of the same.

3:19 Near term external headwinds do not alter our medium to long term growth story, and we continue to see strong opportunities for increasing localization and deepening of manufacturing new customer additions and India's growing position in the global electronics manufacturing ecosystem. Our strategic foray into display modules, camera modules, mechanicals and other critical components represent a significant step in Dixon's evolution from a scale electronics manufacturing services player to more deeply integrated electronics manufacturing ecosystem. By building capabilities across critical components, we aim to enhance domestic value addition, sustain the supply chain resilience, improve cost competitiveness and deepen customer engagement and progressively unlock opportunities for margin expansion, thereby strengthening Dixon's comparative mode of sustainable growth.

4:14 Beyond our established business and component integration initiatives, we are actively evaluating opportunities to build a high end specialized EMS business with focus on higher margin, low volume product categories with the strong economics and superior margins. One of the strategic areas which is being actively pursued is manufacturing of silicon photonics optical transceivers and advanced packaging capabilities to capture rapidly growing AI infrastructure, hyperscale data centers, telecom centers and high speeding computing technologies that can transmit increasingly large volumes of data with greater bandwidth. As India with this advanced technology manufacturing ecosystem, Dixon aims to be among the first of the Indian companies to establish capabilities in these segments through strategic acquisitions or partnerships.

5:09 The initiative would accelerate moving of the technology value chain, expand our presence in high manufacturing and position us to capture emerging opportunities in next generation electronics, and this is also aligned with the government policy framework of ISM2. Now I'll share with you the business performance and insights in each of the segments, mobile and other EMS businesses. Revenue for the quarter was 20,093 crores with an operating profit of $50.09 crores. Our mobile manufacturing business continues to be a key pillar of Dixon's growth strategy, and we remain focused on scaling volumes, strengthening operational efficiencies and deepening our relationship with leading global and Indian customers.

5:55 Despite the challenging industry environment with India's smartphone market declining by 26% year on year in Q2 FY 'twenty six, 'twenty seven. According to industry reports, Dixon has demonstrated resilience by sustaining its smartphone manufacturing volume at broadly stable year on year levels. This reflects the strength of our customer relationships, execution capabilities enabling to navigate a volatile demand environment. Exports are poised to become an important incremental growth driver for our mobile business. Export volume for our anchor customer expected to ramp up meaningfully from Q4 with further growth anticipated along with exports of feature phones and smartphone for Tranchion Group brands from the next fiscal.

6:44 Together, these opportunities will drive significant incremental volumes for the next fiscal, improving capacity utilization, operating leverage and a strength in Dixon's growth trajectory. MPMS, that is mobile phone manufacturing scheme of the Government of India, presents a significant opportunity for Dixon to accelerate growth by scaling volumes and actively engaging with existing Indian brands to build long term manufacturing partnerships to drive incremental volumes, strengthen market position and capture a large share of India's mobile manufacturing opportunities. Consolidation of Vivo operation is expected to commence from Q4 with significant volumes anticipated for the next financial year. Construction of a 1,000,000 square feet facility in Noida with higher capacities has almost been completed, and we expect the operations to commence from Q3 of this fiscal.

7:39 Long term JV is expected to commence operations in Q3 of the current financial year. We are also exploring opportunities to expand the partnership beyond mobile phones and to adjacent product categories, creating a venue for business diversification and incremental growth. QTEK, our 51% subsidiary and an ECMS beneficiary, operates the largest camera manufacturing plant in India. We have already expanded our capacities from $80,000,000 to $120,000,000 annually along with deepened manufacturing, which is a margin accretive and will further expand its capacity to 180,000,000 to 190,000,000 units annually by next fiscal. The first phase covering automotive and auto book displays is expected to commence trials in Q3, followed by mobile display trials in Q4 with mass production targeted to begin from the next fiscal year.

8:31 Telecom and networking products, revenues from for the quarter was $18.37 crores. This segment has been scaled meaningfully supported by expanded customer relationships, healthy order book, increasing localization and sustained investments in telecom infrastructure. While our established portfolio of customer premises equipment, including fixed wireless access devices, broadband equipment and other networking products continues to provide a strong foundation, where we're strategically expanding into more complex technology intensive product categories, production of complex microwave backhaul radios for large global brand and scaled up successfully, and we also expect to explore the same during the current fiscal. Additionally, we'll be adding complex optical platforms and industrial radio products to our portfolio starting next fiscal years.

9:23 We're pursuing a large opportunity to expand our services to an anchor customer and to serve global markets from our facilities in India with products such as optical network terminals, that's ONTs, and optical line terminals, that's ONTs, and actively working on IP acquisition for IPTV set top boxes, in line with our efforts to increase value addition and deepen our role in serving end customers. We are in advanced discussion with Tier one network equipment OEMs to manufacture aggregation routers for India. These are critical four gs to five gs networks connecting cell sites and mobile towers to the core network. Successful execution will not only add high value telecom products to our portfolio, but also create a pathway to serve global markets.

10:09 Our joint venture with Chemtech, Adaiwani's ODM, will manufacture optical transceivers as a small form factor pluggable SFPs and bidirectional optical sub assembly, there's BOSA, with our approved electronics component manufacturing scheme application. This JV position us to capture a share of the growing demand in telecom and data center segments and is expected to commence operations in Q4 of this fiscal. Our anchor role in upcoming telecom manufacturing zone at Gwalia will position us at the center of an end to end design manufacturing component ecosystem, capitalizing on significant CapEx and OpEx incentives to deliver scalable and globally cost competitive manufacturing. IT hardware product, revenues for the quarter was INR 2,160 crores.

11:01 Dixon's IT hardware vertical is witnessing a very significant growth, driven by increasing volumes, deepening customer engagement, leading to a strong order pipeline with further expanding the product portfolio into high end gaming laptops for a global brand. Beyond laptops in all in one in our Chennai facility, we have installed capacities for desktops with production starting in Q3 of this fiscal year. We have received a large order of tablets from one of our existing customers under the UP government scheme in an order facility. Our new manufacturing facility adjacent to our current facility in Chennai for our 6zero forty joint venture within Ventec Corporation from Devon, which is one of the world's top five PC OEMs is expected to start a trial in Q3 of the current fiscal.

11:53 The order book in this category from our all our customers looks very healthy. And as a result, we are now transitioning from hybrid category with INR $2.50 crores of CapEx commitment to global category with INR 500 crores CapEx requirement under ITPRI two with correspondingly increasing revenue thresholds and higher incentives payout. Our focus is now moving beyond assembly towards increasing value addition with manufacturing of facility for which the line has been set up and exploring opportunities in mechanical and power supply, which will deepen localization and lead to margin improvement. With the scale and broader product portfolio, deeper component localization and access to global technology partners, Dixon is well positioned to build IT hardware into a major growth vertical and progressively develop Intel's competitive manufacturing hub.

12:45 Home appliances. Revenue for the quarter was INR586 crores with an operating profit of INR48 crores. For semi automatic washing machine, the volume grew by 27% to INR 6.3 lakh during the quarter and by 16% year on year to INR 10.9 lakhs for the first half year ended September 2026. For AATL, that is fully automatic top loading, the volumes grew by 24% year on year to 1.3 lakh units during the quarter and 23% year on year to 2.2 lakh units for the half year ended September 26. The segment continues to deliver a very strong growth supported by capacity expansion, broader portfolio, in house molding and tooling capabilities, investments in backward integration will enhance operating leverage and drive sustained profitability.

13:35 Having established a strong foothold in semi auto washing machine and fully automatic top loading washing machines, the company is progressing towards the launch of fully automatic front loading washing machines in Q3 of the current fiscal in Dirupati. We are entering into adjacent categories such as dishwashers and microwave ovens, which will be launched in Q4 of the current fiscal, creating opportunity to address a wider consumer base. In washing machines, we have established the largest manufacturing capacity in India with an annual capacity of 3,000,000 units for semiautomatic washing machines, 600,000 units for fully automatic top loading washing machines and 300,000 units for fully automatic front loading machines. This takes us our total capacity to 3,900,000 units against an estimated annual Indian requirement of 12,000,000 units.

14:25 With capacity equivalent to approximately 32% of the total market, we are well positioned to capitalize on the growing outsourcing opportunity, onboarding new customers and scale volumes across product categories, driving improved capacity utilization and long term revenue and earning both. Lighting. The lighting industry has experienced a challenging operating environment with subdued demand and pricing pressures. Despite these headwinds, Dixon Lighting business has demonstrated resilience and continued to pursue growth opportunities through portfolio expansion and customer additions. We are strengthening our presence in the indoor lighting segment by expanding product portfolio and offering a wide range of design led solutions. We continue to premiumize our product portfolios with multiple launches in COB down later categories.

15:12 In the coming quarters, we'll also be focusing on expanding the range of outdoor lighting portfolio. We are further ramping up our SMT capacity with the new BE guidelines for self plaster lamps and increased customer requirements. We've commenced exports of strip rights to a large U. S. Retail chain and expect to secure additional orders across the broad lighting portfolio and are also in discussions with a large German retail chain. Going forward, the company will focus more on premiumization, design and higher value added lighting solutions by broadening its product offering and customer reach, which will strengthen Dixon's competitive position in the market. Consumer electronics, that is LED TVs and refrigerators, revenues for the quarter was INR $11.15 crores and an operating profit of INR 40 crores.

16:01 Our LED TV and refrigerator business are operating in a challenging environment characterized by overall softness in consumer demand and inflationary pressures across key input costs. However, we remain focused on expanding our customer base, increasing ODM participation and strengthening our product portfolio. We believe the current demand is cyclical rather than structures and demand. Dixon remains well positioned to benefit as industry volumes normalize. LED TVs, demand in value and mid range remained soft, impacted by sharp input cost inflation driven primarily by global memory supply tightness. However, demand for large screen television that is 15 inches and above and PMIC cumulate in OLED models remained relatively healthy. We have initiated local mini LED production and plan to transition fully to an ODM model by Q3 of the current fiscal based on the customer demand and market feedback. We've also integrated low cost mainboard support for lightweight operating systems, that is Folita, USB and ThunderCloud into our Q3 product portfolio.

17:02 Refrigerators, Q2 also saw an uptick in commodity prices and elevated sea freight costs, which necessitated corresponding increase in selling prices, which further weighed on consumer demand and impacted near term volume growth. Despite an industry wide decline in direct food segment, we sustained our volumes in portfolio enhancement and onboarding new brands. For a large brand now, we have started manufacturing side by side refrigerators and will start manufacturing multi door French door refrigerators from next month. To support future growth, we are expanding our select facility by almost 375,000 square feet, creating capacities for deep freezers, busy coolers and two door refrigerators. This expansion will enhance our value mix and establish a broader, more robust appliance platform over time.

17:50 Despite the near term soft softness, we remain positive on medium to long term growth prospects category supported by low household penetration, premiumization and increasing customer demand. REXON Dixon Electronics, a 4,600 ACPC based joint venture with REXON continues the strong growth trajectory characterized by robust cash flow generation and an industry leading ROCE profile. Our new facility in Chennai started commercial production on August 26 with expanded capacities to meet increased demand for our end customers. We are in active discussions to onboard a couple of large brands. Terrible and Beverages, our fifty-fifty joint venture with Imagine Marketing Board continues to deliver strong financial performance, supported by gross based revenue growth, healthy cash flow generation and lean balance sheet. Building on this momentum, the JV has also started manufacturing dash cams, smartwatches, power banks, headphones and exploring other electronic categories. This diversification will improve our capacity utilization and unlock operating leverage. With that, I'll conclude my remarks, and we are both happy to take any questions. Thank you.

18:55 Thank you very much. We will now begin the question and answer session. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take our first question from the line of Siddhartha Bera from Nomura. Please go ahead. Sir, first question is on the mobile side. So if you can share the volume for the current quarter and how to think about the outlook for the second half given the weakness in the consumer demand?

19:44 Do you would you still maintain or if you can give some color for the second half? And secondly, on the export side, I mean, you also can break it up into what is exports in quarter two and where do you see the outlook for maybe next year? Yes. So in Q2, we have done approximately 9,700,000 So total in H1, that is Q1 and Q2 combined up to September, we have done approximately $17,200,000 And with the outlook for H2, we feel they should be somewhere around $3,334,000,000. Yep. And in this, I'm not including the Vivo quantities. That's how it looks.

20:30 So our anchor customer, that is Motorola, through the MPM as a scheme, we're going to be expanding our exports of this fiscal. And as I mentioned in the opening remarks, for transition, we'll start exporting the feature phones from next fiscal. So the market has shrunk, but our volumes are going to be in the range of around $34,000,000 in the current fiscal. That's how it looks. Got it. Is that the And Yeah. Go ahead. I mean, on the Vivo side, I mean, with the plan starting now in quarter four, what do you think we should aspire for the next year? And how should the volumes ramp up there?

21:30 So the integration process is on. We target to start production from Q4 of the current fiscal. BMO has almost 20, 22% share. So their total volume is around 3,000,000. We feel that in the JV, we should be doing sorry, million dollars We feel that in the JV, we should be doing around $2,021,000,000 dollars That's what the number looks customers' addition side, do you see that this MPMS scheme now in place? Will there be more potential to add more customers in the coming years? And where do you see the total exports for us sort of trending in the next few years?

22:24 So I one can see a traction from our anchor customer. The outlook given is that we should be doing approximately 3,500,000 units per quarter. So that's almost 14,000,000. And although that almost 6,000,000,000 to 7,000,000,000 is going to be exports, if not more. We have also acquired one Indian brand as our customer, which is doing extremely well. We feel that from that customer, for that the production has already started. We feel that for that customer next year, we should be doing almost 8 to 10,000,000. So these are new customer acquisitions, which have already come on board. So there is a pressure in the market, but I think because of acquisition of our new customers and exports coming into play, and our deep stickiness with our existing customers, we wanna grow significantly.

23:23 And all the more with the integration of Vivo into the system, the numbers are gonna be very good. Great, sir. Thanks a lot. I'll come back come back in the queue. Thank you. Next question is from the line of Santosh Shishadri from Aventus Park. Please go ahead. Hi there. Good evening. Congratulations. Sorry to interrupt. Can I use your handset mode, please? Your audio is not clear. Yeah. Is it now? Go ahead, please. Yes. Good evening, and congratulations for a good set of numbers. My first question is on some of the new projects that you mentioned that you are working on.

24:12 In your opening remarks, you mentioned that there are some projects that you are looking beyond mobile phones. And also in the previous calls, you spoke about investments into precision manufacturing and entry into industrial manufacturing and server opportunities. Can you put in perspective which of these segments will see major capital allocation? And where do you see the management spending most of the bandwidth internally? And also on the revenue front, how should we think about the revenue contribution from these segments? I actually don't want a number here, but directionally, like five years down the line, do you think any of these opportunities are large enough to overshadow the mobile segment?

25:02 And yes, what are the steps that you're taking? So certain sectors, certain domains that we are pursuing very actively, the first one is the IT products category. If you see the numbers from practically miniscule numbers, in the current quarter, we have grown to almost INR 2,100 crores. We already have four out of top five global brands as our customers. We are migrating from the present hybrid category, wherein we have committed a CapEx of INR250 crores under ITPLI-two to the global category wherein we are upping our CapEx plans to 500 crores. This is because of the order book and also what we are foreseeing.

26:00 So we feel... And this year itself, we feel confident that we're going be somewhere around INR 6,000 crores in this business. We feel that in next couple of years, this is going to be almost 15 to 20,000 crores business for us. Further, as I mentioned in my opening remarks, that our joint venture with Inventek is going to get operationalized by Q3 end of Q4 of the current fiscal. And that is further going to add volumes. And we are attempting a foray both into general and AI service. So this is IT products, IT devices category. In IT devices itself, we have diversified and expanded our product portfolio.

26:47 We have got into tablets where the business is already happening. We're already doing AIOs and the line for desktops has been established and the production is going to start from Q3. Further in this, we are deepening manufacturing. So the lines for SSD has already been set up. The trials for the customers of our SSD solutions have been operationalized. Display line in our new factory is set up and the trials are going to happen by q three. And further the team is evaluating, setting up footprint for mechanical enclosures. And also we are exploring power supply. So here we are we feel that it is going to be a large growth opportunity for us.

27:38 And the second large growth opportunity that we are pursuing is one in the precision engineering side and second, in the deepened technology of optical solutions, wherein we are looking at transceivers and we're looking at other optical solutions with advanced packaging. So in transceivers, we've already got into a JV with Gemtek of Taiwan. Initially, this is going to be lower gigahertz, but finally, that's going to be for telecom network. But finally, in the JV, we're going to be upping the game for higher gigahertz for data centers. So optical transceivers, transducers is going to be another very high growth area in the company.

28:25 So the huge focus is going to be on optical side, advanced packaging side, silicon photonics side. This is a growth area we're actively pursuing. So these two are very tangible things we're looking at. The team is working. And as I had mentioned in my opening remarks, also on high margin, low volume business, but that, to be very candid, is still at an early stage, but we are pursuing that. So these are the three areas. Otherwise, there are expansion plans across all the categories. I shared about mobile. I shared about expanding capacities and expanding product portfolio in our washing machine business. I shared about expanding our capacity from 1,400,000 units to almost 3,000,000 units in refrigerators, expanding the growth portfolio from just direct pools.

29:14 We have already launched many parts. We have started manufacturing side by side. The infrastructure is getting in place for busy coolers, deep freezers and cost free. So this is all the growth part for Dixon. Please be rest assured the numbers will be good, will be very good. Thank you, sir. And just as a follow-up, what is the can you elaborate on the precision manufacturing side? What is the capability that you're trying to build here? Is it something to drive a new vertical? Or does it augment the existing capability that we have in the mobile space? So it's in two tangents. One definitely we will be pursuing the acquisition of precision engineering capability in the existing vertical, wherein I'm referring to the mechanical enclosures for laptops and possibly we are also going to be looking at the business case for the mechanical and there's a deep precision engineering for the smartphones.

30:15 Further, are looking at also some opportunities in the precision engineering base beyond the consumer space. You very much, sir. All the very best. Thank you. Thank you. Next question is from the line of Samit Sinha from Macquarie. Please go ahead. Yes. Thank you. A couple of questions from my side. So, Mr. Lal, you're talking about Motorola ramping up under the MPMS screen looking to do more exports, especially next year. Can you talk about some of your other smartphone partners? How the conversation is going with them now that this additional incentive is available?

31:00 Does the cost disability help promote the conversation of using India as an export base? And secondly, when you mentioned cost pass through, you mentioned the word initiatives along with that. So that made it a little more formal in my opinion. So is I would have assumed that cost pass throughs are part of the business and probably part of the contract that you have with customers. So can you talk about what you meant by initiatives and how should we see the progression of this pass through? Thank you. So responding to the second part of your question first, in our EMS business, when I'm talking about tiles, when I'm talking about laptops, IT products, when I'm talking about wearable wearables, when I'm talking about telecom equipment, it's an automatic pass through.

31:55 There is no time lag, nothing of that kind. It's an absolute EMS business. But when we are looking at our appliances business, when I'm looking at our refrigerator business, when we're looking at our washing machine business, there, there is some kind of a time lag. That's the nature of the contract. So I hope I'm making it clear. So I reiterate that in a complete EMS business, it's an automatic part. Whatever is the cost, whatever is the volatility in the prices, it has an automatic part. But in our ODM solutions, specifically when you are talking about lighting, refrigerators, hand washing machines and a bit of television business, in this there is some lag. And so over a period of time, it takes some time for passing through that cost increase.

32:44 That's the way it is. As far as the export volumes are concerned, the contracts with Motorola have been finalized and the ramp up has started. And the ramp up is significant. They are committed to meet the requirements. We appreciate the incremental requirement of a baseline in MPMS is INR 5,000 crores every year. Second, our business modalities and business model of starting the feature phone exports from branching group to start with will happen from next fiscal that has been finalized And later, we're going to start doing the Smartphone as well. So presently, these are the two customers for based on that and the new customer acquisition, we have acquired a large Indian brand, which is doing really well. So that's where we are.

33:39 Okay. One quick follow-up on the cost pass through. I mean, these are smaller revenue contribution businesses. Can you help can you tell us how much the margin impact was because of cost pass through not going through? So let's say in our washing machine business, which is traditionally 11% EBITDA margin, between 10.5 to 11%, the margins cap raise to eight point six eight point three. Basically, Sameer, there's a if you look at the first six months numbers, broadly 3% for washing machine business and a similar number would be also there in our lighting business as well. So that is the kind of impact because of the increase in commodity prices, especially the polymer prices in washing machine. Then also the higher freight cost and also the foreign exchange movement because it's an ODM business for us. So that is the kind of impact that we have seen.

34:30 So yes, but there are we have been passing on that increase, but of course, the cost has also been increasing. So there's always a lag in that sense. Got it. Okay. Thank you very much. Thank you. Ladies and gentlemen, kindly restrict yourself to two questions at a time. You may join back with you for follow-up questions. Next question is from the line of from Jefferies. Please go ahead. So thank you for the opportunity and congratulations on a very strong sales number. So my question is firstly on the sales number itself. As compared to the run rate of the last few quarters, there has been a significant year on year growth. Sir, could you articulate exactly from which segment, whether it's mobile, in mobile, which customer or any other segment that this growth is coming on?

35:22 So, Sonali, basically if you look at the volume growth, so year on year the volume has been slightly marginally lower. The reason the growth in mobile revenues are there or IT hardware revenues is there is basically because the selling prices have gone up. Selling prices also largely has gone up because of the component prices and especially prices. Memory prices have gone up significantly. Hence, memory, which used to be like a 12, 13% bill of material of any smartphone, is now significantly increased because the prices of memory have significantly gone up. So our our year on year increase in selling prices is almost closer to 35%, 40%. Got it. Very clear, Sarab. The second question is with respect to the balance sheet. If I look at September balance sheet numbers, the receivables and payables have surged as compared to March 26.

36:13 Any particular reason for the same? Yes. So one are so we are basically beneficiary of three we have beneficiary of two PLIs now. One is IT hardware, which has also shown good numbers in this quarter. So that number is also the PLI receivable for this particular year for the first six months and also the PLI is pending for last year. Last year, that shows that is in the receivable side for IT hardware and then also the telecom side. And then we have some bit of PLI left for the mobile side as well. So yes, there is a receivable number and there is a correspondingly payable number also. Got it. My third question is, again, is on the memory situation. Probably this is more of a strategic or a global question.

36:59 Now I understand that the key customers or the OEMs will help you source the memory chips in most of the situations. But how are you looking at the supply chain? I mean, are there any constraints in terms of procuring? Or are they able are they being able to comfortably procure the memory chips and also some other components like PCB, etcetera? So Nadi, on the supply chain side, I think we are in a good position. I'm not seeing any impact on the production as such. So cost undoubtedly has significantly increased, and we feel that they're going to be on a higher plane for time to come.

37:45 But as far as the production and supply is concerned, we are fine. Yes. So, Surari, there is absolutely no problem on the supply chain inside. We are getting the memories. There is absolutely no issue there. The question is about the pricing of the memories. And yes, if you look at the latest results of SKINX and their commentary and all, what they have mentioned with Samsung and all, they mentioned that this might continue for some more time. Understand. Very clear. And just a last question. Sonali, I request you to join back the queue, please, as we are participants waiting for the job. Thank you. Next question is from the line of Renu from IIFL. Please go ahead. Yeah. Hi. Good evening, and congratulations team for strong results. So my first question is we did highlight IT hardware as the next growth pillar after mobile and targeting nearly $1,520,000 crores of revenues in two years. So if you can help us understand this 20,000 crores target, does it include revenue contribution from the data center or conventional servers?

38:47 And what kind of investments are we targeting to do under the global category within the PLI scheme for the IT hardware production? That's the first question. So Renu, one, as mentioned in Suraj's opening remarks, so one, we are looking now, we are upping our game on IT hardware because the order book looks very good. So we are upping we are increasing the investment commitment from $2.50 crores, which was under the hybrid category to now a global category, which is now INR 500 crores. So we are significant... We are seeing significant traction from all our customers. So this INR 80,000 to INR 20,000 crores kind of a number that we feel confident about in the next couple of years would only come from the laptop and the tablet business and and then something from the desktops and other kind of thing. Whereas of now, incorporating or not including any business which can happen from the servers.

39:35 So once JV with Inventech gets operationalized by Q4, then we'll sit together on the server strategy. But, yes, as of now, this is going to be that this kind of potential can come only from our existing business of laptops and tablets. Got it. Yes. See, we feel confident that we should be touching a number of almost 1,800,000 to 2,000,000 units next year. The final plan is that we need to get a number of 4,000,000 in this category. That's... So 4,000,000 at today's run rate of 50 to 55 k per unit is almost $2,022,000 crores plus tablets, plus AIOs, plus desktops. Server is separate. Yeah. So basically, just to add, this year, we're looking at a volume of closer to INR 1,300,000, INR 1,400,000, which will translate into revenues of closer to INR 6,005 crores.

40:31 So assuming we are looking at a number of which is INR 3.5 to 4,000,000, you can just multiply and that is the kind of growth we're expecting there. Sure. Which is pretty interesting. And on second part of the portfolio is while similar the telecom export we have been have strong ambitions from Semtech. So in your view, when do we... By when should we start to commence the export part of the business under Semtech JV? And as an update, if you can share what has been after the HKC JV? Should it be commercialized by fourth quarter or there could be further delays? And any change in the numbers or growth expectations in fiscal twenty twenty eight from the mobile components JV, both Q Tech and HKC, if you can share there? Thank you.

41:22 Renu, as far as the exports is concerned, that's from our telecom venture. And to start with, already the order book is there for the microwave radios. It will be focusing on the markets of U. S. And also, as I had mentioned in my opening remarks, we are upping again on the optical network side, on the optical transducer side, a lot of work is happening there. We started the Gemtek JV, which we are trying to start the trials by Q4 of the current fiscal and commercial production next year. Initially, it's going to be focused on the mobile telecom networks.

42:09 And then we're going to be getting into the higher yield category for the data centers. But to start with, it's gonna be focused on domestic market. So that's the business. Got it. And exports will still take about a couple of years. It's some time. But on the... From the telecom venture, the exports is gonna start. As far as the HKC JV is concerned, the installation of the line for notebook and automotive is in process. And it's going to get to open November, and the trial is going to happen by December, and the commercial production to start by Q4. As far as the mobile is concerned, there was some delay, but now the equipment has been shipped out.

42:54 And we feel that the line installation will happen and initially it's going to be for twenty, twenty five minute capacity. It's going to happen by February '27. And the trials will happen by March and the commercial production should start early next year. That's the way it looks. What else was your question? On On Q Tech, we have already expanded our capacity from $80,000,000 to 120,000,000 Also, the capital investment has happened in deepening the manufacturing, which is going to be margin accretive. And now we have to ramp up the sales volume. That's the way we are. Finally, the ramp up of capacity over two years has to be taken up to 180,000,000 to 190,000,000, which is as per the original plan.

43:44 Got it. Got it. You. Next question is from the line of Vipra Srivasava from PhillipCapital. Please go ahead. Hi, sir. Good evening. So quickly, firstly, on the TUTEC side. So, you know, on the subsidiary financials, TUTEC's margin was declined by almost four fifty bps in FY twenty six compared to FY twenty five. And, secondly, if you look at h one FY twenty seven numbers for TUTEC, our revenue has been flat by a while mostly. So what would be the management conviction first that margins will revert back to 7% in FY 'twenty eight? And secondly, there will be a volume ramp up in FY '8. Yes. So basically, there are a couple of things. One, on this current year numbers, we feel that we are now in a significant expansion mode where we're expanding the capacity to 80 to from 80,000,000 to 120,000,000.

44:36 Of course, the overall smartphone market, as you know, it's it's kind of seeing a slowdown overall. So as as a result, this is a component which goes into smartphone, which also automatically gets impacted. Last year, the margins got impacted mainly because of the foreign exchange, where as part of their negotiated contracts or understandings, they didn't add a ForEx pass through, which we have now been able to get it done from the customers. So one, we see that one, the volumes will keep picking up for that. So there's a lot of volumes we feel that will keep getting better. Secondly, we are expanding we're putting up CapEx for deepening of manufacturing, which will help us capture more manufacturing process here, more deepening of manufacturing here, which will help us in margin expansion. And on account of this capacity expansion also, we start having our operating leverage.

45:25 So please be rest assured on that. It is only a temporary kind of a blip. Ultimately, this business will generate a 6%, 6.5%, 7% kind of margins. That's operating leverage happens, and we're also an ACMS p... P and I beneficiary. We feel the margins will see an update from there onwards. So, sir, I the second question from the working cap... Working capital side. So in h one, we have seen a cash from up to 80 crores. I think it's primarily because of memory, but what are the use on that? Is it because of memory? So if the cycle extends beyond CY twenty eight, will this be a trend or you expect some reversion coming this? We we expect a significant reversion. Of course, you are absolutely right. We had kept certain strategic inventories of memory. This is also peak season for us. Working capital generally peaks up during before quarter two because a lot of money gets blocked under debtors and inventory and all. So what is strategic inventory? Certainly, we had certain advances from our customers in March, which subsequently got paid. Also the PLI money, which is there for our IT hardware and the telecom business, which is there, which ultimately will come in and get realized. So we feel that out of this large part of money, which is brought as a money working capital, we feel that almost 80%, 85% of that will get released before March.

46:45 Next question is from the line of Keur Pandya from ICICI Prudential Life Insurance. Congratulations for good numbers. Sir, first question on the mobile side. So in overall scheme of things, mentioned some customers, one Indian customer, some addition from Motorola. Is there any ramp down from any customers or net net, if you look at overall numbers, what should be pencil in for FY twenty eight organically and plus VO? So that is first question. And second, with changing dynamics in the QTEK and HKC, as you highlighted just some time back, how should we think of revenue as well as profitability in first year of those two businesses?

47:36 Thank you. So as far as the volumes are concerned, as we mentioned that in this year, we should close somewhere between 33,000,000 to $34,000,000 without Vivo. We feel that although the market is going to be under pressure, but there's going to be a decent growth in these numbers itself because of acquisition of new customer that is an Indian brand and also the export ramping up for our anchor customer. So that's the way it looks. And with Vivo, I think it should be a decent number or somewhere would be total number of fifty five or sixty odd million. That's the way the numbers look.

48:25 On the display and the camera module side, sort of, can you just? As a display, as you mentioned, our automotive and IT hardware lines have already been installed. Mobile lines will be installed by Q4. So as guided earlier also, we feel that these are high double digit teen margin businesses for us, which of course we expect the same to start generating those kind of numbers in next financial year. Camera modules have already spoken on previous question. So clearly, both display and camera put together, we feel that over the period of next two years, we should be able to expand our margins by eighty eighty to 100 bps.

49:12 So that is what we are targeting for. Sir, just one follow-up. So you highlighted FY twenty eight volume organically to in 15 or... So what total volume and x view or just... If you can just clarify that. And I was just checking for QTECH and SKC revenue next year or for unit economics or ESP volume, whatever you can share. So that would be helpful. Yes. So on mobile volume, again, are three levers. One is, of course, this year volumes, you are broadly seeing 33,000,034 million dollars which we feel that the export ramp up will happen for two of our anchor customers. Of course, one anchor customer, it will start happening from Q4. But again, there will be significant upside, which will happen from next financial year. So we feel that export numbers this year, are targeting somewhere between $3,500,000 to $4,000,000 We feel there will be significant growth in those export numbers for next year. So that gets added to the $34,000,000 Second is the Indian brand that we have just got added. So that can add another 6,000,000 to $8,000,000 kind of numbers for us.

50:15 And on top of it, TiVo can add another 18,000,000 to $20,000,000 So that is the potential of the kind of organic growth that we're looking or the growth that we're looking in mobile phone business. Now as far as Q Tech is concerned, so of course, you have to make budgets for next year. But broadly, we should be in a... In kind of a number of almost somewhere between 2.5 to 3,000 odd crores. That is what we should be targeting for. And as far as display is concerned, we'll be putting up a a CapEx of almost closer to thousand odd crores. So the real potential for display business, once it's completely ramped up in next couple of years, it can generate revenues of closer to INR600000 to INR7000 crores. A large part of it, of course, will be captive. So assuming that next financial year, we'll target to get at least 25%, 30% of that 7,000 crores.

51:07 Understood, sir. Thanks a lot. Thank you. Thank you. Next question is from the line of Rahul Agarwal from Equilibria Asset. Please go ahead. Yes. Hi, good evening, Mr. Lal and Sarov. Just a lot of questions were answered. Just one question. On IT, overall, the margin profile for this year, next year, once you scale up to INR 20,000 crores, how should that pan out? And similar question on telecom, how should the EBITDA margins pan out for telecom over the next current year and next two years? If you just comment on that, please. Thank you. Rahul, the IT margins, of course, here also we have seen the increase in selling prices on account of memory and we get a per piece conversion chart.

51:53 So the margin may not reflect the right picture right now, but I'll give you the margins. The margins will be closer to 22.2%, 2.3% kind of numbers in IT hardware, which we feel that as we backwardly integrated more and more components, so as we backward integrate display, we plan to do SSDs, we plan to do mechanicals there, and at some point of time, we'll also look at power supplies. And if you look at the whole IT hardware PLA, the way it is structured is that the more you localize, the more incentive you get. So there can be a very big margin expansion game. One, of course, on account of higher volumes every year and second, on account of this backward integration. So we feel that from there, this... From here onwards, as you keep doing more backward integration and operating leverage on volumes, the margin expansion should keep happening. And on the sec... What what was your second question, Rahul? Sorry. Telecom.

52:41 Telecom also Rahul, the margins in telecom, the margins are going to be slightly higher. They're going to be in the range of around 3% to 3.2%. That's the way it looks. Just to clarify on this IT team, so two, two and a half is the current situation because of per unit margin. But if you do more backward integration, you know, like a base case, assuming these components come through, what could be your peak margin here, let's say, three year out? So here also, Rahul, the idea is to backward integrate 25, 30% of the bill of material. So yes, that can improve the margins by 200 bps a year. Thank you. We'll take our next question from the line of Nehul Panjwandi from 40¢.

53:28 Please go ahead. Hello, sir. Thank you so much for the opportunity. I'm new to this organization. So my basic question is when I look at the expenses, have shortened by 53% in this quarter. So can you please throw some light on what has led to this significant rise in the consumables customer demand? Please appreciate the revenue is about 600 to almost 47%. Right. But but, you know, if you see the q one versus q two, I would say, I mean, by the looks of it, Q two, the prices of cost of materials are shot up in a significant way compared to Q one. No. No. Both mobile and IT hardware, the selling prices because of the memory cost increase, those prices have also gone up. So both, if you look at the expenses and income levels, it is actually broadly gone in the same same way. It's a linear kind of an equation.

54:28 There's nothing untoward there. Thank you. We'll take our next question from the line of Biraj Jain from BNP Paribas. Please go ahead. Hi, sir. Thank you for the opportunity and festive greetings. Sir, just wanted to get your sense, firstly, on the NPS incentives. So so given that the eligibility criteria that eventually came in was a little bit more stricter than earlier expectation, and there is a baseline expectation of a 15% growth every year on the brand. So are we how are we looking at the margin uptake from the MPMS or what kind of incentives that we believe we can incur over the years under this? So MPMS, we feel that we are the front runner who are an eligible EMS player for becoming the beneficiary under that scheme.

55:27 Please appreciate that the MPMS is focused on the brand's performance and our anchor relationships are confirming to us of their commitment to achieve the incremental sale to become eligible. This incremental sale is going to be generated from export largely. And also, the anchor customers are committed to localize more and more on the camera, module, display and mechanical side to leverage the benefits of the MPMS scheme. So that's the way it looks. Sir, any quantifiable estimate of margin uptick we can expect from these NPMS incentives? That is slightly difficult at this stage to let's see how it pans out.

56:18 It is the start. Yes, basically the largest type of money that your operating leverage will take in account of higher volumes and also the benefit of localization, whereby if you're able to localize 25% of your components, in our case, it's camera modules and display, then, yeah, that can be offset. But, yeah, so it will lead to more incremental volumes and operating leverage for us. Sure, sir. Sir, and secondly, I just just want wanted to you to rejoin the queue, please, as we are participants waiting for their time. Thank you. Next question is from the line of Akshay Gattani from UBS. Please go ahead. Hi, sir. Congratulations on further despite the headwinds. My question is on Vivo JV. Can you help us understand the potential cross level capital investment required?

57:03 And if can also highlight the epica for smartphone and this JV on XPLA, will it be similar to this one? And will this JV also support components from DIXON's own manufactured components? So the commercials for Vivo JVR is still being finalized. But we estimated the expected CapEx is going to be somewhere around 300 to $3.50 odd crores. That's the way it looks. As far as the commercials are concerned, please wait for some time. Got it. This is helpful. And how would you expect quarter three volumes panning out while you maintain your full year guidance, quarter three, FX twenty seven volume guidance, any color on that one? So quarter three being post the value time, I think it's going to be somewhere in the range of around 7,000,000 to $7,500,000 Yes. Quarter three broadly will go back to the quarter one levels and quarter four, levels. That's how we should look at it.

58:01 So we did 70,000,000 and we are expecting broadly a similar number in next six months. So yes, INR 7,000,000, 7,500,000 in quarter three, and then it goes back to, say, 9,500,000 closer to similar volumes in what we did in quarter two. That's how we are looking at it. Got it. Thank you, sir. Thank you. We'll take our next question from Tanesha from DAM Capital. Please go ahead. Sir, thank you so much for the opportunity. And most of my questions have been answered, but I just want to sort of understand a little better on what we spoke about earlier in terms of optical transceivers, in terms of advanced packaging and silicon photonics. So, sir, are we saying we're actually gonna build the packaging piece of the optical transceiver along with the assembly of it? Or, you know, what are we thinking about in this area? And maybe if you can just, you know, spend a couple of minutes on what we're thinking about this as a segment.

58:57 So please appreciate the biggest buoyancy today globally in electronic manufacturing is on NII side, is on the data center side. And the whole technology is shifting towards the optical domain. And if you look at the performance of our various global peers, their margin profile, their growth is coming mainly from this domain. So what we're attempting to do is that bring this technology into India for servicing the global markets. So one initiative of ours is already fortified into a joint venture with Jemtek of Taiwan.

59:48 Second, more alternatively of course, we to bring it into India. So this is gonna be, of course, the optical transceivers of higher frequency. You see, 800 gigahertz, 1.6, 1.8, 2.4 to get into that category and further take it forward on to advanced packaging of AT and T. And then deeper focus because into the data center today, into the network today, the technology of silicon photonics side, that is what we are pursuing. So definitely appreciate without being sound boastful?

1:00:36 In Dixon, we have been nimble enough to identify the opportunities in which there is a deep buoyancy. There is an alignment with the policy framework, and this is an extension of the core that we are into. It's an extension of our electronics manufacturing capability, but much deeper technology. So that's what we are pursuing. Thank you. Next question is from the line of Indrajit Agarwal from CLSA. Please go ahead. Hi. Thank you for the opportunity. I have a few questions. First, what would be the ASP of the Indian brand versus our current loss, let's say 14,000, 15,000 currently?

1:01:30 Second, what kind of CapEx should we pencil in for FY 2027 and FY 2028? And thirdly, would the advanced packaging or the transfer business be a similar ROC as we have at the group level right now? So this one thing to the question on CapEx, we have incurred a CapEx of INR700 odd crores. INR700 odd crores is what we have done in first six months, and we are likely to do closer to INR500 crores. So we should close the year with crores. Of course, one has to do the numbers for next year, but broadly that should be the run rate for next year financial year as well, somewhere between INR1200 INR1300 odd crores. So responding to the first part of question on difference to ASP, the difference is between 2530%, that's the difference in the USP, right? And the third is, yes, we feel that the ROCs are going be very high in what we're talking about in advanced packaging.

1:02:26 So Indrajit, some of the advanced packaging silicon photonics side, the margins are very high. And the investments are also are in such a way that the ROCE profile will be closer to what we do currently. Next question is from the line of Vayun Bandhi from Bajaj Alternates. Hello, sir. Am I audible? Yes. Please go ahead. Yes. Thank you so much for taking my questions, and congratulations on my excellent. I think most of my questions were answered. But a quick question on the Sir, your volume is very low. Can you speak a bit louder, please? Can you repeat the question?

1:03:11 Hello? I'm audible now? Yes. Please go ahead. Yes. So one question on the component strategy and capital allocation. So you have guided significant CapEx of INR 1,000 crores and for the display segment next year and targeting a potential INR 7,000 crores revenue from that. So my question is on the working capital from the block working capital, which is expected to release in March as the PLI is clear. Will this internal cash generation be entirely sufficient to fund the display CapEx? Or do we need to take in temporary debt? And secondly, what is the exact commercialization time line for the display facility next fiscal?

1:03:58 Thank you. So we appreciate in the current fiscal, we'll be investing almost INR $3.50 crores into the display product. And it's all linked to the internal inputs. Next year is going to be in the range of another INR $3.50 crores to $4.50 Yes. Basically INR 1,000 crores what I mentioned INR 1,000 crores is total number. I didn't say last... Next year. So basically, between this year, next year, and next to next year, that is the kind of investments we're looking at for displays. And this year also, we are meeting our CapEx requirements from our internal accruals, and we feel confident that as earnings visibility improve, even next year, we should be completely meeting our CapEx requirements for internal accruals and yet generating some free cash flows. Thank you for clearing, ma'am. Thank you.

1:04:46 Thank you. We'll take our next question from the line of Santosh Shishadri from Avanaspar. Please go ahead. Hi, sir. Thanks for the opportunity again. Just want to touch base on the bond cost increases. So given that memory prices have increased, we are seeing, price pass through and it is contributing to top line growth. So maybe down the line, when there is a reversal in the memory prices, do we see any headwinds in the top line? Or does or is there any other factor that can support a higher pricing? So please appreciate. I mean, let's see how it pans out because final revenue is going to be a mix of product portfolio.

1:05:33 It's going to be what growth in volume you're getting. So that's the way... So revenue is a function of volume and revenue over pricing. So yes, if tomorrow the pricing gets corrected and becomes normalized, but your volume will continue to grow, which we have guided in our remarks sometime back. What is the kind of growth we're looking in Dubai and what is the kind of growth in IT hardware, telecom? So all of that is... So I don't think so is ever have a situation where there's a revenue de growth. Thank you. We'll take our last question from the line of Niraj Jayant from BNP Paribas. Please go ahead. Hi, sir. Thanks for the follow-up. Sir, just wanted a clarification on the GameTech JV as in, what kind of CapEx and revenue we are looking at at this? And also, is this will this be largely the business will be eligible for the ISM 2.0 that's also briefly mentioned in which we are looking for advanced packaging for the silicon photonics. So just want some clarification on what kind of revenue and CapEx targets we are looking under this JV?

1:06:37 So this is not a very CapEx intensive business. Initial investment is going to be somewhere between INR50 crores to INR60 crores. That's the first level of investment. And this is not a part of ISM. This is a part of ECMS in which we are already in a beneficiary. Our application has been approved. Yeah. As far as advanced packaging is concerned, it's eligible for ISM too. So, sir, this will be largely done under Gamtech or will it be a separate partnership? No. This is gonna be separate. Separate. Separate. So Gamtech is separate, and this will be what we had just mentioned will be separate. Okay, perfect. Thank you so much, All the best. Thank you. Ladies and gentlemen, I now hand the call over to management for closing comments.

1:07:24 Over to you. So thank you so much for being with us and for this interface, and thanks always for all your suggestions. Thank you so much. Thank you so much, and happy Diwali to all of you your family as well. Thank you, members of the management. On behalf of Dan Capital Advisors, that concludes this conference. Thank you all for joining us today. You may now disconnect your lines.