Dixon Technologies India Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Dixon Technologies India Ltd (DIXON) Q3 FY22 Earnings Concall

Management Update:

• DIXON stated that it’s confident the margin should start improving from the current quarter and go back to the normalized level by FY23.

Q&A Highlights:

• Bharat Shah from ASK Investment asked about the profitability growth in relation to revenue growth. Atul Lall MD said that the profitability growth will not be the same linear way as revenue growth, but added that the return ratios are going to be significantly higher from an overall financial perspective. Additionally, Atul said that over the next three year, the 30% ROCE should be somewhere in the range of 40% odd.

• Ankush Sharma of HDFC asked about the consumer electronics, TV segment where the sales growth saw a sharp slowdown from last 2-3 quarters and what was the volume versus value/pricing growth. Atul Lall MD answered that there was  a volume reduction YoY of about 8%, but also there was a pricing growth. However, there has been a marginal growth of 3% odd.

• Ankush Sharma of HDFC asked what kind of demand the company is hearing from its OEMs in TVs and other categories. Atul Lall MD said that on the TV side demand is normal and the company is having a run rate in 3Q of around 2.3 lakhs a month. Therefore, it should be around 700-750K, which is normal. In case of other products like washing machine, the demand for the company is very good and is in a run rate of 150-225K a month, a significant growth from FY21. In lighting it’s normal, not heavy growth.

• Ankush Sharma of HDFC queried about the capex number for FY22-FY24, areas of spend and gross debt on the books. Atul Lall MD replied the company in the nine months was at about INR280 crores and last quarter expects to add another INR80-90 crore, closing the year at about INR370-380 crores in capex. Main areas of spend is into mobile business, followed by consumer electronics and land parcels. Net debt as on 31 Dec. is about INR100 crores and expect a similar number as on 31 March as well. For FY22-23 it is expected in the range of INR225-250 crores.

• Bhoomika Nair of DAM Capital asked that on TVs is it fair to say the company is hitting the peak as seen in the current quarter.  Atul Lall MD replied that the ODM business is for an existing client but it’s getting the largest share of wallet and it’s going to increase the volumes.

• Bhoomika Nair of DAM Capital also asked about the fully automatic washing machine and the volume ramp up in FY23.  Atul Lall MD answered that the current run rate is about 10K a month and in the next fiscal, the company should be somewhere around 300K.

• Renu Baid with IIFL queried that on the LED TV side how have the open cell prices moved and is there any sign of softness in the prices. Atul Lall MD answered that on the open cell prices the prices have softened. The company added that for 32 inches it has come down to about $42-43. At this level it is stabilized and DIXON is not seeing immediately any further softening of price. However, the unit price has come down significantly.

• Renu Baid with IIFL also enquired that on the mobile PLI side, the target was about INR3,000 crore of total max revenue ceiling for FY23 and what’s the view currently and the guidance for FY23.  Atul Lall MD said that for current quarter, it should be somewhere around INR2,500 crores under PLI. In FY23, DIXON is confident of achieving the upward ceiling of INR4,000 crores for which the company has the order book.

• Girish Achhipalia of Morgan Stanley asked about the other expenditures spiking and why it is happening. Atul Lall MD answered that freight cost is part of the company’s cost of material consumed, considering gross margin. In other expense, there is no spike and as a percentage of revenue, it’s in control and 3% of operating revenues.

• Pulkit Patni from Goldman Sachs asked about the structure of the contracts with the OEM and if any volume discount the company gives over a period of 3-4 years. Atul Lall MD said that there is no such element in the contract of any volume discounts. There is no front-ending or anything of that kind.