Dixon Technologies India Ltd (NSE: DIXON) Q2 2025 Earnings Call dated Oct. 24, 2024
Corporate Participants:
Atul B Lall — Managing Director and Vice Chairman
Saurabh Gupta — Chief Financial Officer
Analysts:
Bhoomika Nair — Analyst
Sanidhya — Analyst
Natasha Jain — Analyst
Deepak Krishnan — Analyst
Siddhartha Bera — Analyst
Aditya Bhartia — Analyst
Keyur Pandya — Analyst
Mayur Patel — Analyst
Pranay Roop Chatterjee — Analyst
Shrinidhi Karlekar — Analyst
Onkar Gugardhare — Analyst
Achal Lohade — Analyst
Saumil Mehta — Analyst
Madhav Marda — Analyst
Karan Sanwal — Analyst
Nirransh Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Dixon Technologies Q2 FY ’25 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions]
I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors Limited. Thank you, and over to you, ma’am.
Bhoomika Nair — Analyst
Yes, thank you. Good evening, everyone, and a warm welcome to the Q2 FY ’25 Earnings call of Dixon Technologies. We have the management today, being represented by Mr. Atul Lall, Managing Director and Vice Chairman; and Mr. Saurabh Gupta, Chief Financial Officer.
I’ll now 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.
Atul B Lall — Managing Director and Vice Chairman
Thank you so much, Bhoomika. Good evening, ladies and gentlemen. This is Atul Lall, and we have on the call today our CFO, Saurabh Gupta.
Saurabh Gupta — Chief Financial Officer
Good evening, everybody.
Atul B Lall — Managing Director and Vice Chairman
Thank you very much for joining this earnings call for the quarter ended September 2024. First, coming to our overall performance for the second quarter. Consolidated revenues for the quarter ended September 30, 2024, was INR11,528 crores as against INR4,944 crores in the same period last year, growth of 133%. Consolidated EBITDA for the quarter was INR420 crores against INR200 crores in the same period last year, growth of 110%. Consolidated PAT for the quarter is INR412 crores against INR113 crores in the same period last year, which is a growth of 265%.
This includes fair value gain of INR210 crores in the value of Dixon stake of 6.5% in Aditya Infotech Limited. Excluding this gain, the adjusted PAT for the quarter was INR236 crores, which is a growth of 109% year-on-year. With the strong capital allocation discipline and effective working capital management, we were able to expand our ROCE and adjusted ROE to 38.9% and 31%, respectively, as on 30th September ’24. We feel confident that same would keep improving in the upcoming quarters and years on account of improved earnings, working capital efficiency, higher asset turns in mobile and IT hardware business.
Gross debt-to-equity ratio stood at 0.162 and cash conversion cycle of negative three days. We believe strongly that we have a platform to sustain a strong revenue growth moving forward through the strengthening in the overall demand environment and addition of new customers across all businesses. Our foremost objective continues to be part of India’s long-term growth story and to ride the country’s robust consumption narrative and Make in India initiative to achieve industry-leading growth. Now I’ll share with you the performance in the strategy in each of the segments going forward. Mobile phones and EMS divisions.
Revenue for the quarter were INR9,444 crores, which is a growth of 235% year-on-year. Operating profit was INR308 crores, a growth of 231% year-on-year. In addition to the four operational facilities and one facility with one million square feet under construction, we have taken additional 1.5 square feet facility in Noida on lease to cater to the increased demand of our principal customer, which is expected to start in the current quarter with a monthly capacity of another 400,000 smartphones per month.
We have successfully consummated the acquisition of Ismartu on 13th August ’24, and we have a healthy order book for Transsion Group of brands that’s TECNO, Infinix and iTel and another brand, Nothing. For Motorola, we’ve been consistently clocking a volume of one million per month and order book looks healthy in coming months, including some decent export orders for North America market. The volumes for Xiaomi and Oppo in Q2 witnessed significant growth quarter-on-quarter. Production for a large global brand through Compal is expected to commence by end of November ’24.
We are also in active discussions with another large global brand. We have finalized location for manufacturing of displays in partnership with HKC. We expect to start manufacturing by Q1 end or Q2 beginning of next financial year. We are also looking to further deepen the level of manufacturing and looking to get into precision components, mechanicals and camera modules and the same is under deep study, and we are working on the possible partnerships. Consumer electronics, with LED TVs and refrigerators.
Revenues for the quarter were INR1,413 crores with an operating profit and margin of INR52 crores and margin of 3.7%. Out of this, the revenues for refrigerator business were INR188 crores. LED TVs, we’ve onboarded a few multinational brands or our TV ODM solution like Hisense and [indecipherable] for Google TV and Linux platform. We are working closely with Amazon Fire TV solutions in LG for web OS, which is expected to be rolled out in Q4 FY ’25. In addition to interactive flat plan and display, we have now started manufacturing digital signages solution from 65 inches to 100 inches with decent order book.
A state-of-the art R&D center for display devices have been set up in Noida for superior product development in TVs, IFPDs and signages. In order to deepen our component base in TV, we’re exploring a tie-up with global player for open cell bonding facility. We’re into actively exploring for partnerships for manufacturing for industrial, institutional and automotive displays. Refrigerators against a capacity of 1.2 million direct cool refrigerators across 190 to 235 liters. We are now achieving 90% capacity utilization.
We expect the similar run rate in the coming months. In fact, now we are looking to expand our capacity to almost 1.6 million. We have healthy order book with more cool Indian brands. We have started mass production for Voltas, Kelvinator, Acer, Lloyd and BPL. We have backwardly integrated many production processes and further exploring investment in deep freezers, visi coolers, wine chillers, etc, along with 2-door frost-free and side-by-side refrigerators. Home Appliances revenue for the quarter were INR444 crores, that’s a growth of 22% year-on-year.
Operating profit was INR49 crores, a growth of 17% year-on-year. In Q2, we clocked a monthly run rate of 30,000 units of fully automatic category, which is 50% growth year-on-year. In line with the backward integration strategy, we have added multiple molds in injection molding machines to reduce our dependency on imports. Further, we have started extending molding support to our business segments and have done mold for lighting and telecom business.
Our footprints in throughput and Tirupati and Dehradun are now BIS and NABL certified, which strengthened their competence and reliability for deepening relationship with customers. We have a healthy order book, and we are targeting double-digit growth in this business in this fiscal. Lighting. Revenue for the quarter was INR233 crores with an operating profit of INR17 crores. Both revenues and operating profit have grown quarter-on-quarter. We are continuously introducing new product range in the category of downlighters and outdoor professional lighting. We have boarded marquee global customer, IKEA for domestic market.
Telecom and networking products. Revenues in this segment for the quarter were INR660 crores. We’re looking for more than three times growth in revenues in this fiscal year against last financial year. We have added one more facility in Noida to meet the increasing requirements for our anchor customers. We’ve also ramped up a production for 5G fixed wireless access outdoor and indoor units for domestic market and planning to double the capacity with the same to meet the customer requirement along [indecipherable] Access Point, GPON, ONTs and Internet set-top boxes.
We are in the process of introducing IPTV boxes for domestic market and production to commence in this fiscal. Laptops, tablets, that is the IT hardware products, we’ve finalized business with HP and Asus and the definitive agreements are in the final discussion. And now along with Asus and Lenovo, we have four global brands on board out of the top five brands in India. Manufacturing of Acer has already started and production for Lenovo is expected to start in this quarter from our Noida facility.
Our 300,000 square feet Chennai facility will be ready by end of December 24, and production for HP and Asus is targeted to commence by Q4, ’25. Wearables and hearables. Revenues for this segment at INR263 crores for this quarter with healthy operating margin and superior ROCE. We have a decent order book in this business. Rexxam Dixon electronics, the JV with Rexxam achieved revenues of INR90 crores in this quarter, despite Q2 being a lean season for this business, and we have also now started supplying to the Sri City plant of Daikin, which is our principal customer.
I would like to stop here and me and Saurabh are there to address your questions. Thank you.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Sanidhya [Phonetic] from Unicorn Assets. Please go-ahead.
Sanidhya
Hi. First, a very happy festive season to everyone at Dixon. Congratulations on a good set of numbers. My first question would be related to the IT hardware. PLI scheme. So last con call, management indicated that we are going at INR150 crores capex for 1.5 million units. And we are slowly eventually heading to 3.5 million units. So is there any additional capex that would be required for the ramp-up? And in terms of total PLI for the IT hardware was near about INR17,000 crores, if I’m not wrong. And out of this, how much did Dixon committed or got like from — in terms of total percentage, if you can share or absolute number, that would be great. That’s the first.
Atul B Lall
So in Phase 1, the committed capex is around INR150 crores in our Chennai plant, which is going to be creating a capacity for around 1.2 million units. Let’s see how the business pans out. And then we are committed to putting more capex to expand the capacity to almost three million to 3.5 million. And our business plan submitted to the government, we have committed to the government a revenue of INR48,000 crores over the period — over the tenure of PLI. That’s — yes, so I think when this business ramps up in the initial phase — in the first phase is going to stabilize at around INR4,500 crores to INR5,000 crores by year annually, yes.
Sanidhya
Sure, sir. So you’re saying INR4,500 crores could be revenue from 1.5 million, 1.2 million units that you are committed, right?
Atul B Lall
That’s right.
Sanidhya
Okay. And secondly, on the total addressable market. So if I see for FY ’23, they have a total 11 million units that were imported for the notebooks or laptop side for the top five players. Out of which, we have bagged for four players, one is missing, I think Dell is missing from our portfolio right now. So any comments on Dell? And any comments on till when are we planning to reach like 50% as we say, that we want to reach 50% of the total market share. So out of 11 million, how much like 5, 5.5, by when are we planning to reach?
Atul B Lall
So please appreciate, as we shared in our opening remarks, that out of five top brands in India, we have now onboarded four brands. And initially, what we are targeting is — see, this $11 billion of imports that you are talking about is the sale value. The production value is almost 55% to 60% of that.
Sanidhya
Sir, 11 million units, I was referring to.
Atul B Lall
What we feel is that initially — I mean, finally, when we reach around one million, 1.2 million, we are going to generate a revenue of around INR4,500 crores. But subsequently, it’s going to be a significant gain, because that’s the kind of forecast that we are getting from customers. But I think we’ll have to move into steps. There have to be building blocks. We have to generate adequate confidence on our capability to deliver. This is an entirely new product line, which requires an additional technical bandwidth. And then it will happen.
I’m confident that what the team has been able to deliver, let’s say, in mobile phone as a category, we will be a very, very large player, possibly the largest in the sector as far as contract manufacturing is concerned. What that number is going to be, it’s slightly premature to give that idea. But what I’m sharing with the stakeholders is that we are going to be at around INR4,500 crores, INR5,000 crores level in the next two to three years.
Sanidhya
And just if you can share the breakup for the INR1,100 crores revenue for Ismartu with number of units?
Atul B Lall
So this has come on board from 13th of August, that’s when it was consummated to 30th of September. And in this, the volume is going to be approximately around 800,000 of the smartphones.
Saurabh Gupta
Yes, 800,000 of smartphones, probably.
Sanidhya
Okay. Sir, at what proportion this would be right to estimate, like 10% to 15% of overall yearly revenues?
Atul B Lall
So we feel that Ismartu revenue should be in the range of around INR7,000 crores to INR7,500 crores.
Sanidhya
For the next year, right?
Saurabh Gupta
For this year.
Atul B Lall
For current year.
Sanidhya
For this year. And INR9,000 to INR10,000 crores for next year?
Atul B Lall
So next year, hopefully, we’re going to reach that particular number. What we are referring to is the current year.
Sanidhya
Thank you. Thank you so much. All the best.
Atul B Lall
Thank you.
Saurabh Gupta
Thank you.
Operator
Thank you so much. The next question is from the line of Natasha Jain from Nirmal Bang. Please go-ahead.
Natasha Jain
Thank you for the opportunity and Congratulations, sir, on a good set of numbers. Sir, my first question is on mobiles. Can you please call out the brand name of the mobile along with the production that we’re doing monthly for them? And where can we scale that in future?
Saurabh Gupta
So Natasha, we don’t want to share any customer-wise numbers with the market or with you. So we have — I can give you an overall number, how many smartphones we have sold in this quarter. But customer-wise, we don’t feel comfortable sharing it.
Natasha Jain
Sure. So, if you can even give the overall number?
Saurabh Gupta
So smartphones, we did almost INR81 lakhs or 8.1 million in this quarter, and another 13-odd lakhs of Samsung smartphone.
Atul B Lall
So there is a significant growth. If you see smartphone last year, Q2 ’23, 24 was 1.43 million, which has gone up to 8.13 million, which is a growth of 468%.
Saurabh Gupta
And in the first six months, we have already done a smartphone number of almost 12.2 million, excluding Samsung.
Natasha Jain
Understood, sir. And also, in terms of gross margin, can you call out why we’ve seen a decline of 200 basis points?
Saurabh Gupta
See, gross margins and EBITDA margins, again, it’s a function of the mix. So a large part of the revenue contribution is coming from mobiles, which is relatively a lower gross margin and lower EBITDA margin business. And also the selling prices of some of the phones for the brands have also gone up because of migration from 4G to 5G. So the gross margin is basically a function — majorly on account of the change in sales mix.
Natasha Jain
Understood. And sir, lastly, where are we in terms of the export customer for lighting?
Atul B Lall
So lighting, the export orders from Germany have already matured. They are in the execution stage with one large customer in U.S., we are almost at the final stage.
Natasha Jain
Thank you, sir. I have more questions. I’ll get back-in the queue.
Atul B Lall
Sure. Thanks, Natasha.
Operator
Thank you so much. The next question is from the line of Deepak Krishnan from Kotak Institutional Equities. Please go-ahead.
Deepak Krishnan
Hi, Sir, am I audible?
Atul B Lall
Yes, yes. Yes, you’re audible.
Deepak Krishnan
Yes. Saurabh and Atul sir, just a couple of questions. Maybe just wanted to cross check how much of the feature phone number this quarter? Are we sort of looking at going higher than the guidance of 25 million to 30 million smartphones for the year? And maybe then I’ll follow up with a couple of questions after that.
Atul B Lall
Specifically you’re talking about feature phones or smartphones feature phones?
Deepak Krishnan
I remember last quarter, you had given a number of — so you’ve already given the smartphone number. Feature phone was, I think, 6.6 million last quarter. So I just wanted to check the corresponding number for this particular quarter as well.
Saurabh Gupta
We did around 9.1 million feature phones as compared to 8.3 million last year same period. And overall, in six months, yes, we have done a number of almost 15.7 million feature phones.
Deepak Krishnan
Sure. And any sort of PLI incentive booked this particular quarter? And any reason why the other income is sort of negative?
Saurabh Gupta
So we have booked a PLI income of almost INR70-odd crores in the first six months — sorry, in quarter 2. And the other income is negative maybe on account of the FX loss, majorly on account of our capex machinery payments. which was majorly in the Japanese yen. And Japanese yen, as you know, in this quarter, is really appreciated. But as again now the Indian rupee has appreciated lately in the month of October. So it’s a kind of a notional kind of a loss that we have had, mainly on account of the ForEx loss.
Deepak Krishnan
I ensure. Because given the strong start of 12.2 million smartphones in 1H, are you still guiding to 25 million to 30 million? Or do we think that we can even cross the upper end of the guidance?
Atul B Lall
So we have not given any guidance. And order book please be rest assured is extremely strong.
Saurabh Gupta
Yes, order book looks strong and…
Atul B Lall
And particularly now with the acquisition of Ismartu materializing, the order book looks extremely healthy, yes.
Deepak Krishnan
Yes. Maybe just one final question. Just wanted to understand TV even if we — so the consumer electronics, even if we include refrigerators, there’s a Y-o-Y decline. The TV volumes were relatively weaker? Or is it a function of pricing that has caused decline in the stand-alone TV business?
Saurabh Gupta
No. So the main reason for a lower revenue number in that category is mainly because of the dip in volumes year-on-year in TV. So we did almost 9.7 million LED TVs in quarter two as compared to 10.8 million. So there is a degrowth of almost 10%, which is reflected in the lower revenue number as well.
Deepak Krishnan
Yeah. Sure. Sure, sir. Those are my questions and best of luck.
Operator
Thank you so much. The next question is from the line of Siddhartha Bera from Nomura. Please go-ahead.
Siddhartha Bera
Yeah. Hi, sir. Thanks for the opportunity and Congrats on a good set of numbers. Sir, first question on again mobile side. Possible to highlight some insights into the pricing for generally the customers like Xiaomi and Oppo because I think on the pricing side, we have continued to see some price. So if you can just highlight some trends across the customers.
Saurabh Gupta
Yes. So basically, the broad pricing for Xiaomi, of course, it keeps changing model on model. But yes, the broad average pricing would be somewhere in the range of INR6,000-odd, our pricing. And Oppo would be somewhere around INR8,500 to INR9,000. And more…
Atul B Lall
But the other large customers because it’s migrated to 5G, the price points are significantly higher. So for us, it’s not — we’ll not be able to share the customer-wise pricing, okay?
Siddhartha Bera
Got it, sir. And in terms of the ramp-up, I mean, how do you look at in terms of customers, where do you see the biggest potential and given your understanding and discussions, where do you see — which customer has the biggest potential from where we are currently?
Atul B Lall
So please appreciate that in the smartphones, we are the largest manufacturer today. And practically, all the brands in Android ecosystem are our customers. A brand like Motorola is doing exceedingly well. And even the other brands who are our partners, I see a lot of buoyancy and a lot of positivity in their order book. So the business and the order book looks good. I feel that Q4 particularly is going to be very good.
Siddhartha Bera
Got it, sir. Sir, last question is, can when talked about Ismartu of INR7,500 crores. So this is for the period of this year starting 13th August or there is sort of indicated for the full year.
Atul B Lall
This is on annualized.
Saurabh Gupta
This is on an annualized basis, yes.
Siddhartha Bera
Annualized basis. Okay. Got it, sir. Thanks a lot. I’ll come back.
Operator
Thank you. Our next question is from the line of Ms. Bhoomika Nair from DAM Capital. Please go-ahead.
Bhoomika Nair
Yeah, Congratulations, sir. Sir, you mentioned that our smartphone volumes has been about 8.13%. Now this is including Ismartu or this is excluding Ismartu, sir?
Atul B Lall
This is including Ismartu from 13th of August, 45 days — 45, 47 days.
Bhoomika Nair
Okay. Sir, here, how are we seeing all our existing volume — customers of this kind of scaling up? If you can give some sense on what was the September exit monthly run rate, and we can understand then possibly how it can scale up over the next couple of months.
Atul B Lall
So Bhoomika, including Ismartu, the present run rate is around 2.7 million, 2.8 million per month. This is without Samsung volumes. Now, I feel that post Diwali, the market is slightly slow. So there’s going to be a dip in this volume. But it’s going to recover and possibly become slightly better from Q4.
Bhoomika Nair
Okay. Okay. And then by then, we’ll also have the Compal and other customers that we are looking to add on?
Atul B Lall
Compal is going to start by end November. Other customer, it’s in works.
Bhoomika Nair
Okay. Sir, the other question was in regards to our HKC JV for the backward integration. You mentioned that it will start functioning in the first or second quarter of next year. If I remember correctly, we were looking at some 25 million capacity. So how should we look at utilization in the first year of operations? And how are we looking to kind of scale that up at a subsequent level?
Atul B Lall
So Bhoomika, please see that we are already at around three million and with additional customer acquisitions and hopefully, larger share of customers’ wallet, we should be at around 3.5 million or so every month. The HKC tie-up is the — Phase one is two million units per month. That is for mobile phones. Because the approvals and technical approvals, it takes some time.
The project has to get involved with the brand owner at the POC stage for every new model development. So we’ve to achieve two million, which is going to be captive. Then immediately, we plan to double the capacity to four million. That’s the plan. And this is going to be for captive and any overflow is going to be supplied to the other factories of Android ecosystem.
And then in this plant, we are immediately going to set up line for displays on notebooks, which is going to be one million a year to start with, which is again going to be for our captive. And as the quantity keeps on increasing, this capacity would be further enhanced. Then there is a possibility of looking at automotive displays in the same unit. It is capable of doing that. And if there is a fiscal correction on the import duty structure for panels for TV, the panels for TV would also be planned there. So this is the road map.
Bhoomika Nair
Okay. And this would be over a three to four year perspective, I mean, I’m assuming that FY ’26 is the first year for HKC, year two, year three will be the scale-up for the mobiles and then subsequently for IT or to TV, etc. Or do you think it could happen sooner?
Atul B Lall
No, no. It’s going to be in phases. First is mobile and IT products then an expansion of mobile capacity and then others.
Bhoomika Nair
Okay, okay. Sir, the other thing was on the industrial PCB. Just wanted to get an update out there. Have you done any client additions? What is the scale up? When can we start seeing revenue from the segment to start tricking in? And any customers where we’re in very advanced stages?
Atul B Lall
So we are in advanced stages of discussions with a large industrial electronics PCB customer. It is almost at a final stage. It’s a complex approval system. For the business to start commercial production will take some time. But we are almost there. It’s in final stages.
Bhoomika Nair
I’ll come back-in the queue. Thank you very much.
Atul B Lall
Thank you.
Operator
Thank you so much. The next question is from the line of Aditya Bhartia from Investec. Please go-ahead.
Aditya Bhartia
Hi, good evening, sir. So on the mobile phone segment, we have seen a very, very sharp ramp up this quarter. So just wanted to understand how much seasonality is involved? Like you mentioned that post Diwali there may be a bit of a slowdown. We have hit the run rate of 2.7 million to 2.8 million phones per month. So how smooth does it typically fall to? And then how sharp is the recovery in fourth quarter?
Atul B Lall
So Aditya, I feel that in quarter 3, that is the present running quarter, this 2.8 million should be around 2.3 million, 2.4 million run rate, something like that, 2.4 million, 2.5 million. And I think by Q4, it should go again back to 2.8 million to three million.
Aditya Bhartia
Understood. Understood, sir. Sir, secondly, on the components ecosystem. Can you just give some more indications about how we are planning it, which all components can we get into, what kind of capex are we ready to put in? Can any of the components be significantly capex intensive? Or are they going to be more or less similar to the HKC kind of an arrangement that we are having?
Atul B Lall
So Aditya, what we are working upon is to capture the value addition on of the non-semiconductor side and the target is, let’s say, by — with HKC, we are able to capture almost 8% to 9% of the BOM. What we’re working upon is on camera modules, which is going to give us another 7% to 8%, and we are working on the mechanical, that is basically the enclosures, the precision components and the die cuts, which should give us another 8% to 9%.
So this is almost going to be 27% of the BOM that we are targeting to do in-house. And this is margin-accretive business. We are looking at the potential partners with some of the partners, we are in advanced stages of discussions. As far as the capex is concerned, it’s going to be almost of a similar order as HKC. In some components, slightly up, in some components, slightly lesser than what HKC project profile is.
Aditya Bhartia
Perfect. Perfect. That’s great, sir. And just one last thing. On the TV business, I want to understand that is this weakness seems broadly in the industry? Or are we seeing something happening on the competition side?
Atul B Lall
So we see that is largely an industry issue. LED television industry is not growing at all. In fact, it is declining. So there might be some competitive pressure. But I’m not seeing any of my business going elsewhere largely in the last one year. I see largely the industry quantities to be under pressure.
Aditya Bhartia
Perfect, sir. That’s very helpful. Thank you so much.
Operator
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Company Limited. Please go-ahead.
Keyur Pandya
Thank you. Congratulations team for the great result. Just one question. So on the mobile side our execution has been phenomenal and the kind of run rate that you are talking about for FY ’25 as well as ’26 probably we would be pretty large, probably 30% of the India’s volumes or even larger in terms of, say, outsourced market.
In general, how the discussion is going around, say, or volumes beyond FY ’26 or even for FY ’26, and thereafter once the PLI is over. So for that period, I mean, what has been the discussion with the client just to understand the thoughts from the client, which is being conveyed to you. And I mean, any ramp-up in components? Will there be a gap between, say, ramp up of components and, say, end of PLI? Just thoughts on revenue on mobile segment beyond FY ’26?
Atul B Lall
So let me just give you a top-down kind of a picture. You see, please appreciate the smartphone, the feature phone being sold in India would be manufactured in India. That’s a no brainer at all. Now the question is that amongst the Indian contract manufacturers or among the contract manufacturers present in India is Dixon most cost efficient and also do we have deepened strategic relationships to ensure that even beyond PLI, we continue to maintain our pole position. So we feel confident. Our Motorola relationship is extremely, extremely robust. We are the only contract manufacturer.
And also now Transsion, that is iTel, Infinix and TECNO brand, which is almost 800,000 to one million units per month is our company. So we are absolutely assured of — I mean, these are our accounts and then come to other accounts. So that’s where Dixon has to work, and we feel very confident that with the kind of the scale we have, we generate an adequate operating leverage. And this business is going to be sticky. In fact, we’re going to have a larger share of the customers’ wallet.
Now the direction that we are taking of backwardly integrating and operating in the non-semiconductor component space, that’s margin accretive. The whole idea is to bring in more efficiency in the value chain so that we are able to have this pole position even beyond PLI. That’s the whole idea. And also, we are fairly confident that in the non-semiconductor sector, government is going to roll out PLI in next three to four months, of which Dixon is going to be beneficiary. That’s the whole strategy.
Keyur Pandya
Okay, sir. Thanks a lot. Happy Diwali.
Atul B Lall
Thank you. Happy Diwali, happy Diwali.
Operator
Thank you so much. The next question is from the line of Mayur Patel from 360 ONE AMC. Please go-ahead.
Mayur Patel
Congratulations team for excellent set of results. Just Atul one question on this IT hardware journey, which is starting now, and you’re talking about scaling up to INR4,500 crores kind of annualized numbers and things like that. Shall we expect margin profile to be similar to the mobile business and the overall economics in terms of cash flows, working capital or it would be different?
Atul B Lall
No, that would be almost similar.
Mayur Patel
Okay. And there also, you will eventually try to get into more components also or it will be more assembly only?
Atul B Lall
Yes, absolutely. Because you see the display plant that we are setting up is going to be producing the displays for notebooks, for laptops. And also, we are committed to get into the mechanicals, that’s enclosures and casings and precision components and die cuts for laptops. Further, the adapters are going to be done in India. In this, also the SSDs are going to be done in India.
So it may not be absolutely in-house, but they’re going to be sourced in India because there’s IT PLI two is linked to that. So that’s the road map. So the strategy which we are pursuing very aggressively in mobiles of first creating a very large scale, have multiple customers, have operating leverage because of the scale and then backwardly integrate is the same game plan.
Mayur Patel
Sir, just one last question. So what’s beyond IT hardware? Are there any other new businesses which you are thinking to what we think is to seed as of now, anything on the drawing board?
Atul B Lall
So one large piece is going to be component because that itself is going to be consuming a lot of bandwidth. And please be rest assured, the strategy teams here keep hunting for similar kind of products. So we are working on industrial electronics and automotive electronics. It’s in the stages of infancy, but that’s what we want to pursue.
Mayur Patel
Even PCB was there, I think, in our thought process, but where are we in terms of starting anything in PCB manufacturing?
Atul B Lall
So PCB, I shared with you in response to Bhoomika’s question that we are in advanced stages of discussion with a large industrial electronics company. And we are confident that this business is going to mature on the industrial electronics PCBA front.
Mayur Patel
Sure. All the best. Thank you very much.
Atul B Lall
Thank you.
Saurabh Gupta
Thank you.
Operator
Thank you very much. The next question is from the line of Pranay Roop Chatterjee from Burman Capital. Please go-ahead.
Pranay Roop Chatterjee
Thank you. Good evening to all. Sir, am I audible?
Atul B Lall
Yes, you’re audible.
Pranay Roop Chatterjee
Great. Great. Sir, my first question is on IT hardware again, and this is more qualitative nature. Firstly, how do you see the overall environment, number one, in terms of demand growth in the IT hardware currency? And secondly, from a tendency to outsource, right? Because if I recall, when the PLI participant list came out, like those who were awarded the PLI, I think there were more than 10, 15 players, including a couple of brands, the top brands.
So — but I think Dixon has done a brilliant job in converting one of the top five and probably the only player to announce any sort of partnership and which can give meaningful numbers, right? So how is the outsourcing environment? And do you see some of the other operators becoming active? Do you see incrementally winning business being harder, easier? Just sort of your thought process there.
Atul B Lall
So we’re just beginning on the journey of IT hardware manufacturing in India. So I think it’s going to happen. It’s going to happen due to two factors. One, the capability and the competitive manufacturing cost of the Indian players, that’s what the Indian players have to acquire and prove to the brands that they can deliver on cost and quality on new product introduction. That is one.
The second is also the government policy framework. It has to keep on supporting the IT hardware manufacturing. That’s extremely important. And we can see the signs from the government that they are committed to support it. So initially, I feel that is going to be slightly slow. But once it reaches a certain level of maturity, then it’s going to be a very huge steep curve up.
And once that happens, I’m sure just like it happens in any industry, then many other players are going to come in, that’s the trajectory is going to happen. In this also because it’s linked to IT PLI two guidelines. The deepening of manufacturing is going to be much faster. That’s what I feel as compared to any other electronic products like mobile. That’s the way it’s going to be.
Pranay Roop Chatterjee
Got it, sir. Linked to this, there was — I think, more than a year back, the government had sort of to give a push out of [indecipherable] to this outsourcing, they had sort of started restriction — import restriction on laptops and then later they — after probably the industry push back, they moved to import licensing system, where practically everyone got the license. And recently, it was extended as well, right, for a few months. So do you see significant traction happening and further order wins before this import system goes away because at least my understanding is, unless there is a regulatory nudge, even the brands will not even consider outsourcing in a big way.
Atul B Lall
So you’re absolutely right, but we can see the signs from the government that there is going to be a deep nudge. That’s what we feel. It’s just a matter of some time.
Pranay Roop Chatterjee
Got it, sir. Sir, my last question is a quick one. If you could just…
Operator
Mr. Pranay, may I request you to — that you return to the question queue for follow-up questions as there are other several participants waiting for their turn.
Pranay Roop Chatterjee
Sure.
Operator
Thank you so much. The next question is from the line of Shrinidhi Karlekar from HSBC. Please go-ahead.
Shrinidhi Karlekar
Yeah, hi. Thank you for the opportunity and Congratulations on a good set of numbers. Sir, we have seen a very impressive ramp up in the telecom business. So would it be possible to share how large this business can become few years out?
Atul B Lall
So indeed, there has been a significant ramp up in this business. Last year, we did around INR700-odd crores. This year, we are targeting almost INR2,400 crores, if not more. And the order book looks extremely healthy. And the order book next year can be of almost INR6,000 crores to INR7,000 crores. That’s the way it looks.
Shrinidhi Karlekar
And sir, second is on Ismartu. So you have given a revenue contribution of about INR1,100 crores in this quarter. Would it be possible to shed some light on how the profitability in this business compared to your overall EMS business?
Atul B Lall
The profitability is going to be slightly better than our existing EMS business.
Saurabh Gupta
It’s slightly better than our existing mobile business. And also the — because it’s slightly smaller balance sheet even the ROCE profile as in comparison with our mobile ROCE is slightly better.
Shrinidhi Karlekar
And last, if I may, the INR70 crores of PLI incentive book, is it largely coming from pageant and telecom-related business? Or some of it is also coming from Ismartu consolidation?
Atul B Lall
No, Ismartu consolidation, there is no PLI we have taken as of now. But there is a contribution in PLI mainly from our other businesses. That is, of course, mobile, telecom, lighting and air conditioning components.
Saurabh Gupta
But a large part is coming from mobiles only.
Atul B Lall
But not Ismartu.
Shrinidhi Karlekar
Yes. Thank you for answering my questions and all the very best thank you sir.
Operator
Thank you so much. The next question is from the line of Onkar Gugardhare from Shree Investments. Please go-ahead.
Onkar Gugardhare
Hello, sir. Congrats on a good set of results. My question was regarding the cost of material consumed the percentage — as percentage of revenue has gone up by approximately 2%. Can you share the rationale behind that, from 90% to 92%?
Atul B Lall
Please appreciate there is a change of sales mix. And a very significant part of growth has come from mobile within the contributions are lower, that’s the reason this change has happened of reduction in the gross margins.
Onkar Gugardhare
Okay. The next thing is on the — you just mentioned a couple of minutes back that you are looking at the other high-margin business, which would be increasing your overall margin. So — I mean, currently, you are at 3.6%. By when we can see the inch-up in margin, how much time it will take for that business to start contributing meaningfully to the overall business?
Atul B Lall
See, at present, the large part of growth is coming from the EMS business. It is going to be a low-margin business. And that’s the way it’s going to be for some time because the contribution of the high-margin businesses like refrigerators or washing machines, they are great businesses, but the contribution to the revenue is relatively lower. So the margin profile is going to be similar, but margin is going improve once where completely operational in the component side. Then there is going to be a significant upside on the margin profile, which I think is going to take around 18 months. So for the component ecosystem — component thing to fructify, how much time it will take, approximately 1.5 to two years? And how much approx capex, how much you are planning to spend? So we are planning to spend almost INR375 crores in our HKC plant. And for other projects, the numbers are still to be worked out.
Saurabh Gupta
The other numbers for other backward integration are still getting evaluated. But yes, for both mobile and IT hardware display, it will be somewhere around INR370-odd crores.
Onkar Gugardhare
And what kind of asset turn you are expecting in this component business?
Atul B Lall
So asset turns would be somewhere around seven to eight.
Saurabh Gupta
Yes around eight to nine times. But the margin profile will be much better.
Onkar Gugardhare
It will be significantly higher?
Atul B Lall
Yes, yes. Significantly higher, yes.
Onkar Gugardhare
Okay. Thank you, sir.
Atul B Lall
Thanks.
Operator
Thank you very much. Our next question is from the line of Mr. Achal Lohade from Nuvama Institutional Equities. Please go-ahead.
Achal Lohade
Good evening, sir. Thank you for the opportunity. Congratulations for great earnings. Sir, two questions. First on the capex. Total capex, if you could talk — call out for FY ’25 and possibly for FY ’26, a ballpark number if you could?
Saurabh Gupta
Yes. So first six months, we have done a capex of INR360-odd crores, and we should be broadly around INR550 crores, INR580-odd crores by end of this financial year. Our numbers for next year — one has to work out — a lot of opportunities are there, so one will — we’ll be able to better give it the guidance once we are closer to next financial year — starting next financial year.
Achal Lohade
Okay. And if you could help us with the PLI income for 2Q FY ’24 like-for-like and also for 1H ’24 and ’25.
Saurabh Gupta
So both the quarters, you mean?
Achal Lohade
Yes, yes. 2Q ’24, if you could help us ’24, 2Q ’24.
Saurabh Gupta
INR70-odd crores, our share of income, 2Q ’24.
Achal Lohade
’24, sir. Last year.
Atul B Lall
We’ll get those numbers and share it with you separately.
Saurabh Gupta
But it would be a lower number of around INR14 crores, INR15-odd crores probably. But I have to double check. I don’t have the numbers right now with me.
Achal Lohade
Sure. And first half, if you could — first half FY ’25, PLI income?
Atul B Lall
Around INR50-odd crores.
Achal Lohade
INR70 crores plus INR50 crores, you mean?
Saurabh Gupta
Yes, INR70 crores plus INR50 crores, right.
Achal Lohade
Okay. Okay. Got it. Great. Thank you. Thank you. I’ll fall-back in the queue.
Saurabh Gupta
Thank you.
Operator
Thank you very much. Our next question is from the line of Saumil Mehta from Kotak Mutual Funds. Please go-ahead.
Saumil Mehta
Yeah, thanks for the opportunity. Most questions have been answered, just two quick ones. Now going forward, obviously, we’ll be getting into the businesses where the assets turns are lower, but obviously, the margins are going to be far higher. Internally, do we have a threshold in mind that we’ll be only chasing business where the ROCEs obviously will be about 25% or 30% or something internally what we are. Just a broader thought process on that.
Atul B Lall
So we — I think we’re working towards an extremely good blend of businesses. These businesses that we are getting into — they might be having slightly lower asset turn. But on a blended business basis, it’s going to generate 30%, in fact, higher ROCE on a continuous basis. And it’s going to be margin accretive. So — and it’s also going to be beyond numbers. It’s going to create a mode for us in enhancing our stickiness with the customer. So that’s the key thing.
And also, we are acting a PLI for these components to be rolled out by the government. And in our internal budgets till now, we have not taken those PLI numbers in our budgeting. So that’s going to be even further enhancing and expanding our margins. So please be rest assured that the businesses of non-semicondutor electronic components that we’re pursuing is not going to have a very significant impact on ROCE.
Saurabh Gupta
In fact, we feel that the ROCE that you have seen will be sustained and it can be better because there will always be a fine balance between the IT hardware business, which is high asset turns, and for this backward integration projects, which may have low asset turns, but then again, those will have double-digit kind of margins. So lot of — but ROCE profile would not change much at a company level.
Saumil Mehta
Sure. That’s very encouraging. And second and last question, obviously, mobile is now a dominant part of business. Incrementally, we’ll also be having the IT hardware and hopefully even the component business. But most of these businesses — now again, this might be a repetitive question indirectly, but most of this business are PLI linked. At some point in time, maybe three years out or five years out, do we believe that the businesses we get into or incrementally, we have businesses, which will be more self-sustaining despite having the PLI. Any thought process over there.
Atul B Lall
Please appreciate PLI is only an added advantage. The Indian electronics industry is going to completely service the Indian requirement of the markets. So there is no question about it. PLI is only an added lever, which was required by the industry in the stages of infancy. And is it going to have an impact on Indian electronics manufacturing once the PLI tenure is over? I don’t think so at all.
Saumil Mehta
Got it. Okay, sir. Thank you so much and all the best for some of the quarters.
Operator
Thank you so much. The next question is from the line of Madhav from Fidelity. Please go-ahead.
Madhav Marda
Hi, good evening. Thank you so much for your time. Just wanted to understand of the construct that for — I think for some of the backward integration projects, you said that ROCEs are pretty healthy even without the PLI. I’m just wondering why do you think projects need a PLI from the government at all in case we can generate pretty healthy ROCE despite the incentive. Just curious. That’s my first question.
Atul B Lall
No. So the PLI, the government — first of all, one has to wait for the guidelines. But the first cut draft that we have seen, which has been shared with it by the government is, the government’s intent is that in these particular components, India should become a part of the global value chain. So these components are required not only to service the requirement of the devices being produced in India for domestic market, but also for global market.
And when we’re looking at global markets, there is some support required from the government for some time. That’s what PLI is all about. So PLI on component is not for enhancing the competitiveness for servicing domestic market. It is for servicing the global market. And it’s across various components, non-semiconductor components. So I think it’s required because the Indian industry still needs some support in this category.
Madhav Marda
Okay. So you’re saying that the ROCE which you were mentioning is more for meeting the domestic requirement right now. For the export, it would be different.
Atul B Lall
That’s right.
Madhav Marda
Okay. Understood. And secondly, I just joined the call a little late, sorry for that. Did you give a guidance for the mobile phone volumes for FY ’25 at all?
Atul B Lall
No, we don’t give guidance.
Madhav Marda
Okay. Got it. Thank you so much.
Atul B Lall
Thank you.
Operator
Thank you so much. The next question is from the line of Karan Sanwal from Niveshaay. Please go-ahead.
Karan Sanwal
Yeah, thank you for the opportunity. I hope I’m audible.
Atul B Lall
Yes. Please go ahead.
Karan Sanwal
Yes. I have a few questions regarding our lighting business, like how — if you could explain like how is the competitive intensity? And how do we expect the industry and our lighting segment to grow in particular, if you could highlight something.
Atul B Lall
So we have grown as compared to last year and also in quarter-on-quarter. We — it’s a profitable business for us. The ROCE in this business has improved. We have acquired new customers. We have expanded the product portfolio. We have expanded our product portfolio for downlighters and ceiling lights. We have done a lot of value engineering. We have backwardly integrated. We’ve got our own toolings. We have set up our own extrusion plant.
We have diversified into the next product category of professionals, so industrial light and also the flood lights. And now the street lights have been rolled out. So that’s the way. Now as far as the industry situation is concerned, I still feel that on the consumer product side, the demand is under pressure. But as far as the pricing is concerned, lately, I’m finding that the pricing has stabilized. There was a huge pressure on pricing and price erosion was happening, which lately I have seen there is some level of stability in pricing.
Karan Sanwal
Okay. Did we experience a price decrease in this half — in the first half? Or have they been stable?
Atul B Lall
Last quarter, I have not seen a significant price erosions. They were almost stiff.
Karan Sanwal
Okay. And one last question, like if you could also highlight the hearable and wearable segment that we have like who are our major clients and the industry competitiveness in that particular segment?
Atul B Lall
Sorry, I’m not able to get your question.
Saurabh Gupta
Sorry, which segment are you talking about?
Karan Sanwal
The hearable and wearable segment that we include in our EMS strategy. Hearables and wearables.
Saurabh Gupta
Yes. So it’s only one customer, which is Imagine Marketing, which has a brand boAt, and we have a deal with them. So we only have one customer. It’s absolutely captive to them. And — yes, it’s a decent hub ROCE, a very small balance sheet. And yes, boAt as a brand is doing very well in the marketplace.
Karan Sanwal
Okay. Great. Thank you so much for answering the questions. All the very best.
Operator
Thank you so much. The next question is from the line of Nirransh Jain from BNP Paribas. Please go-ahead.
Nirransh Jain
Yeah, hi, sir. Thank you for the opportunity and Congratulations on a good set of numbers. Sir, just some bookkeeping questions. Is it possible for you to share the revenue split of IT hardware as well for 2Q as well as volumes from — for the semi-automatic and fully automatic machines?
Atul B Lall
So [indecipherable] hardware in this quarter was miniscule.
Saurabh Gupta
Very small number. So that’s why we didn’t report. It is a very single-digit kind of a number. So — and yes, so semi-automatic washing machine, we sold around 5.5 million units — 5.5 lakh units as against 5.2 lakh units in Q2 FY ’23, ’24. And fully automatic was around 0.9 lakhs in quarter 2.
Atul B Lall
So we were 50% fully automatic.
Nirransh Jain
Okay. Perfect. And sir, lastly, one question on the rising interest cost. So — just wanted to better understand what is leading to this rise in the finance cost for this quarter? I mean, it has been rising in the first quarter as well. So any thoughts on what exactly is leading to this?
Atul B Lall
Yes. One, we have funded the acquisition through — funded through combination of our internal accruals and debt. So that debt has led to higher finance cost, the Ismartu acquisition that has been done. And also the capex intensity has been high. And yes, and third is, of course, the more properties we keep taking on rental premises. So this includes also the NDS adjustment on the interest on lease obligation because the entire rent gets split between the depreciation and the interest cost. But mainly, it’s on account of the acquisition. And also, if you look at the balance sheet between March and September, the debt levels have gone up. One on account of acquisition and also on account of the increased business.
Nirransh Jain
Got it. And sir, what is the reason for the sharp jump in the tax expense as well, like related to the deferred tax that we have seen this quarter?
Saurabh Gupta
Deferred tax is basically entry which has been made on this onetime gain because the way this whole investment will be treated is that it will be restated every quarter. This AIL is an investment and our fair value gain on this. So it will be restated. The value of the gain will keep getting restated every quarter. So the auditors have kind of created a taxability on that. And yes, so at some point of time, maybe in Q4 or Q1 of next financial year, this will further get listed. So it will keep getting restated every quarter, and that’s the reason the deferred tax liability has been created.
Nirransh Jain
Sure, got it. Thank you so much, sir and all the best.
Saurabh Gupta
Thank you.
Operator
Thank you so much. The next question is from the line of Onkar Gugardhare from Shree Investments. Please go-ahead.
Onkar Gugardhare
Yes, this exceptional gain, which you have received, how you plan to utilize that? Reinvesting in the business again?
Atul B Lall
No, no. As of now it’s a notional gain only because we have taken a stake in that company, but that stake is an unlisted company right now, which they have filed the DRHP and they should get listed in the next six to eight months. And then we will take a call on our investment. We think they are growing as a company, a profitable company. They will be investing more on designing backward integration and all. So yes, to say this is a monetizable opportunity for us. So we’ll take a call as and when the opportunity comes for monetizing it. So then it will become a cash inflow for us. But as of now, it’s an accounting entry for right now.
Onkar Gugardhare
Okay. Another thing is that, I guess, for the next two years, most of the growth would be coming from mobile business and the IT hardware business, right? And after that, we can see contribution coming from the high-margin business, which you just mentioned. Is that understanding correct?
Saurabh Gupta
Absolutely. So mobile will be the largest trigger for growth. In a couple of years, IT hardware should follow mobiles. It will be the second largest. And then the focus on backward integration, which we are pursuing. More opportunities can come in. But yes, as of now, these are the strategic — yes, these are the things that is the growth drivers for us, yes. Okay.
Onkar Gugardhare
Okay. In terms of qualitative analysis, how big is the opportunity in the higher-margin business you talked about? Is this as big as IT hardware or like not that big? Or it can eventually become, that’s what I’m asking.
Atul B Lall
Please appreciate that we are talking about in-house production of around three million, 3.5 million units. And if I talk $100 phone, we are talking about doing in-house around $20 to $25. Right? So $25 into three million phones we are talking about $75 million a month. That’s the kind of opportunity we’re talking about. Finally, that’s what the canvas is. So we’re talking about almost it $800 million to $900 million opportunity in this component business. which is a very large opportunity because it’s highly margin.
Onkar Gugardhare
I mean, it’s too early to ask this question. But still, I mean, on a blended basis, how much that double-digit margin can affect the overall profitability of Dixon?
Atul B Lall
No, no. It’s too early to say.
Saurabh Gupta
It’s very difficult to say, but please be assured the margins should go up on account of operating leverage benefits, on account of backward integration. But still, please understand and appreciate that a large part of our growth will come from mobiles and IT hardware, which is relatively a lower margin business. So there will be a fine balance. But overall, yes, I think so margins should keep expanding very — by how much, it’s very difficult to quantify.
Onkar Gugardhare
Just to conclude, whatever margin expansion would be seeing that would be seen after two years. That’s what we can say or it can gradually keep on moving upwards?
Saurabh Gupta
It will start reflecting, yes, my sense is in the next 15, 18 months, it should start reflecting.
Onkar Gugardhare
Start expecting margins to move up gradually?
Saurabh Gupta
Yes, it should slightly move up in the next 15, 18 months. Once the backward integration piece is stabilized, and we have enough quantities in that, then it should start reflecting in that.
Onkar Gugardhare
So till that time, how much you are expecting? Around 3.6%, 3.8% you are expecting?
Saurabh Gupta
That should be sub 4%, 3.6%, 3.8%, 3.9%, somewhere around that range probably.
Nirransh Jain
Got it. Okay. All. Thank you.
Operator
Thank you very much. We will take that as our last question. I would now like to hand the conference over to Ms. Bhoomika Nair for closing comments.
Bhoomika Nair
Thank you so much, sir, for giving us the opportunity to host the call and answering all the queries. Thank you very much, and all the participants and wish you all the very best, sir. Thank you.
Saurabh Gupta
Thank you, Bhoomika.
Atul B Lall
Thank you everyone, really appreciate it.
Operator
[Operator Closing Remarks]