Dixon Technologies India Ltd (DIXON) Q3 FY23 Earnings Concall Transcript

Dixon Technologies India Ltd (NSE: DIXON) Q3 FY23 Earnings Concall dated Jan. 25, 2023

Corporate Participants:

Atul Lall — Vice Chairman and Managing Director

Saurabh Gupta — Chief Financial Officer

Analysts:

Aniruddha Joshi — ICICI Securities — Analyst

Bhoomika Nair — DAM Capital — Analyst

Aditya Bhartia — Investec — Analyst

Niket Shah — Motilal Oswal AMC — Analyst

Ankur Sharma — HDFC Life — Analyst

Sonali Salgaonkar — Jefferies — Analyst

Keyur — ICICI Prudential Life Insurance — Analyst

Gopal Nawandhar — SBI Life Insurance — Analyst

Girish Achhipalia — Morgan Stanley — Analyst

Amber — Nippon Mutual Funds — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q3 FY’23 Results Conference Call of Dixon Technologies hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, over to you sir.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Thanks, Ryan. On behalf of ICICI Securities, we welcome you all to Q3 FY’23 results conference call of Dixon Technologies, India. We have with us senior management represented by Mr. Atul Lall, Vice Chairman and Managing Director; and Mr. Saurabh Gupta, Chief Financial Officer.

Now I hand over the call to the management for initial comments and then we will open the floor for question-and-answer section. Thanks and over to you sir.

Atul Lall — Vice Chairman and Managing Director

Thanks very much, Anirudh. Good evening, ladies and gentleman, This is Atul Lall, and we also have on call today, our CFO, Saurabh — Saurabh Gupta.

Saurabh Gupta — Chief Financial Officer

Yeah, good evening, everyone.

Atul Lall — Vice Chairman and Managing Director

Thank you very much for joining this earnings call for the quarter ended December 2022. Coming to our overall performance for the third quarter, consolidated revenues for the quarter ended December 31, ’22 was INR2,408 crores against, INR3,074 crores in the same period last year, that’s a de-growth of 22%. Consolidated EBITDA for the quarter was INR114 crores against INR104 crores in the same period last year, a growth of 10%. Consolidated PAT for the quarter was INR52 crores against INR46 crores in the same period last year, a growth of 12%.

We are pleased to report a strong performance in the margins front in this quarter, wherein the margins have expanded by 130 bps year-on-year. This is led by a change in sales mix, operating leverage, cost optimization and efficiency measures across all businesses and continued implementation of strategic price hikes for the ODM business or Washing Machine and Lighting.

Another highlight was the strong free cash flow generation post capex of INR114 crores in first nine months of the current fiscal. We have further strengthen our balance sheet with reduction in gross sales by INR223 crores in the same period, with net debt now of this INR68 crores, with net debt to equity of INR0.06 crores as on 31 December 2022. We are targeting to reduce our debt by another INR50 crores before March 31, ’23, and save almost INR22 crores in interest cost annually.

Our balance sheet is strength and an upgrade line from banks enabled us to invest in long-term development of our business. Our basic approach always as being, the capital policy it emphasizes on return on invested capital and financial stability. We have successfully improved our ROC and ROE to 26.3% and 20.3% respectively as on 31 December ’22. And we feel confident, the same will keep improving in the current quarter and in the coming years, on account of more debt reduction, working capital efficiency and improved earnings.

In huge focus on cash convergence cycle and working capital management, working capital days stood at positive one day at the end of the December quarter. Our cost optimization initiatives and proven working capital management will help us to sustain growth, profitability and the balance sheet. We strongly believe we have a platform to sustain strong revenue growth moving forward to strengthening in the overall demand environment and addition of more customers includes — including some large accounts in mobile business.

Now, I’ll share with you the performance and the strategy in each of our businesses going forward. Consumer electronics, the revenues for the quarter were INR864 crores with operating profit of INR26 crores and 3.1% operating profit margin, which is an expansion of 90 bps year-on-year. Year-on-year revenues were low about 39% led by 17% lower volumes as Diwali was one month earlier last year and also significant correction in prices have opens in the international markets. Similarly in nine month, despite 16% growth in volumes year-on-year, revenue declined by 21%. We have the largest capacity in India with annual capacity of 6 million sets including backward integration in LCM and SMT lines and keeping to almost 35% of India’s requirement.

Our JDM business with our anchor customers has been strong and we are an active discussion with other existing customers to offer ODM and [Indecipherable]. We have closed the ODM for sub-licensing rights with Google related to Android and Google TV, which will open up a lot opportunity for us, 60% to 65% of Indian market is on this platform. We should be able to roll-out the same by Q1 of next financial year. As part of our backward integrations strategy, we’ll be starting injection molding in the segment for deepening our television manufacturing in the current quarter of this fiscal. We are also exploring newer products in this commercial displays used in public advertising and information space, an interactive board for use in educational institutions in this particular business.

In lighting, revenues for the quarter were INR253 crores with operating profit of INR24 crores, with an operating margin of 9.1%, an expansion of 90 bps again in Q2 numbers in line what we have been making. We were able to increase operating margins through combination of reduction in input prices, calibrating pricing actions, inventory planning and value engineering. Apart from sluggish demands, we use for lower revenues here in our — the reduction in commodity prices, freight rates and migration of overall global technologies from driver base to dealer base, that’s driver onboard, which are 18% to 20% lower in the earlier technology SKUs.

We are India’s largest ODM player in lighting and have largest capacity in various SKUs. In LED bulb, we have capacity of INR300 million, which is 45% with India requirement. We already have expanded the annual capacity in battens to 50 million and downlighters to 18 million. Wherein getting into new product categories like the starting with strips and rope lighting, this will be launched in March ’23. We will also be launch professional lighting products in the course of ’23, ’24. Our first supply is against exports to a new customer in UAE have been executed in Q3 and we’ve already received the repeat orders for Q4. In Q3, we completed the technology acquisition of Bluetooth Mesh Technology and work in process — progress [indecipherable] with a smart lighting from high-band eliminations, a premier smart lighting company. New products that have been acquisitions will be launched in Q1 of next year.

We have hired Kunal Chaudhary, Head of R&D from lighting solutions, he is one of the most experienced R&D emitters in lighting industry in India. We are also in the process of strengthening R&D further with the space of smart lighting and professional products. We’ve also started investing under the PLI scheme for LED lighting components, in-line with a backward integration strategy, which will make us even more competitive than the new plant — daily components in Dehradun will be again operation in March ’23. The capital employed in this business has been reduced to INR161 crores year-on-year on account of huge focus of current estimates.

Home appliances, revenues for the quarter were INR244 crores as an operating profit of INR25 crores that is 10.3% operating profit margin. The margins have improved both year-on-year and Q-on-Q, led by passing on the impact of commodity cost and exchange rate fluctuations to customers, improve operating leverage, cost optimization measure. We have 160 old models of — odd models in semiautomatic category ranging from 6 kg to 14 kg with an annual capacity of 2.4 million. We have added more customers, like, Bosch, TCL and Onida in the semiautomatic category. In fully automatic category, we have a capacity of 0.6 million from 96 variants across 6.5 kg to 11 kg, Bosch is the entire customer. In addition to Bosch, we’ve started manufacturing for Lloyd, Croma, TCL, Akai, Onida, Acer and Japanese customer Sharp. We are targeting more than 100% growth in this business in the next financial year. We will be introducing more designs with new features in both categories with semi and fully automatic and increasing the invest on making the segment more R&D driven to serve industrial latest innovative technologies. The order book in this vertical — in this business of upcoming quarters is very healthy.

Mobile phones and EMS division, revenue for the quarter was INR915 crores, with an operating profit of INR33 crores, that 3.6% operating margins. We’ve got some large orders from Nokia for feature phone. We are working on two large customer regulations in this vertical, which I shared in our last integrators. We are likely to close the first account in a week’s time and expecting the second account to conclude by end of the current quarter. Both these customers can potentially add almost INR6,000 crore and remaining annually. We have started the construction activity in our new integrated mobile facility in Noida, were in Phase one, we will be constructing almost 400,000 square feet. We have hired a very senior person as our R&D Head for Mobile phones from branded mobile company, we will build a team of engineer and a lab in Hyderabad.

Security surveillance systems, Dixon share of 50% of the revenues INR118 crores with an operating profit of INR2 crores. We are going in for further capacity expansion from 10 billion per annum to 14 billion per annum, and we are relocating our campus from Tirupathi to Ooty electronic manufacturing for cluster where we’ve taken 200,000 square feet constructed facility into operational by March ’23. Operating profit and margin in this business are now year-on-year and quarter-on-quarter mainly due to shifting expenses and implication of infrastructure.

Telecom and networking products, our separate facility in Noida, which got operation in December ’22 and we are impose to achieve thresholds of capex and minimum within the first year as for the PLI guideline. Airtel is anchor customer and there were strong market share and ONT and set-top-box. We have already supplied almost 0.6 billion ONT to Airtel, since we started manufacturing for them. We have also guide a big large order of — set-top-box from Airtel and the mass production start by Q2 of next fiscal year. Also we have won large business of Andriod set-top-boxes partnership with Global ODM. The development work has started mass production in Q2 of next fiscal. It has potential to grow even to other geographies outside India. We are also in active discussions in this business with some other large global brands for existing and new product categories. We’re also building a team — a joined R&D with our partners to support our end customers from India.

Laptops, Tablets and IP Hardware, the government is expected to come out with the revised PLI scheme to IT hardware, which is much more attractive and higher incentive outlet. We will be participating in this PLI. Inverter controller boards for air conditioners have 40-60 JV with Rexxam depend manufacture these boards of air conditioners for Dixon. A new facility under the PLI scheme has been set up. The JV company is a beneficiary under the PLI, we made a total investment of INR51 crores, when Dixon share is INR20 crores over a period of five years and we have already achieved the capex ratio and the PLI in the current financial year.

Wearables and hearables for Boat brand we did revenue of INR85 crores in Q3 and in nine months to INR230 crores for the current fiscal, presently we are manufacturing PWS and neck bands, there is more SKUs like Bluetooth speakers and smartwatches into gadgets in the new facility, which should be operational by March ’23. In line with our strategy to deepen the level of manufacturing, the SMT for PCB will also be done in-house in the next financial year. In addition, we are manufacturing DWS and smartwatches for Samsung as a dedicated plant in Q4 of the current financial year.

Refrigerator, we have started the construction on 20 acres of land in Greater Noida, where we are creating a capacity of 1.2 million DC refrigerators under various sizes of 190 liters to 235 liters. We have positive response for product global and national brands and we expect the trial production to start in Q2 of ’23-’24.

I would like to now stop here and me and Saurabh are there to respond to your question. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from the line of Bhoomika Nair from DAM Capital. Please go ahead. Bhoomika, your line is unmuted. You could proceed with your question.

Bhoomika Nair — DAM Capital — Analyst

Hello. Yes sir, can you hear me now?

Atul Lall — Vice Chairman and Managing Director

Yeah, yeah.

Bhoomika Nair — DAM Capital — Analyst

Yes, sir. So the first question is on the TV segment, while they would have been some realization decline which is led to the revenue decline, but can you give some color on what has happened in terms of volumes and how is the industry demand? And how are we seeing this segment going ahead, particularly with the Google Android license coming up, where are we seeing the customer ramp up? So that’s my first question.

Saurabh Gupta — Chief Financial Officer

So Bhoomika, let me share the volume numbers and I’ll request Mr. Lall to answer the question on the Google and Android license. See one of the reasons why there is a decline in Q3, one of course, the Diwali last year was in November first week. This year the Diwali was in October 24. So clearly, the peak sales for Diwali happened in Q2 and we had a very good Q2 as far as — TV sales was concerned both in terms of volumes, so if you look at the volume numbers in Q3 this year, we did 6.90 lakh TVs, as against 8.3 lakh TVs same period last year. But if you look at the nine months performance, there is a growth of 16%. And we have done 26.7 lakh TVs in the first nine months, which is a growth of almost 16% as against same nine months of last year.

Now the major reason, of course, one is the volume de-growth mainly because of Diwali impact. And second is, of course, another 25%, 28% kind of impact which we had seen upon the open sale prices coming down. Suggestion share some numbers on the weighted average selling price that we had in Q3 last year was somewhere around INR16,000 crores mainly because the open sale prices were higher and it’s a prescriptive business to pass on in the selling prices and now the average selling price for the complete portfolio of TV has come down to almost INR11,500. So there has been a significant pricing de-growth, which has also led to revenue de-growth overall.

Atul Lall — Vice Chairman and Managing Director

So Bhoomika, taking forward, what Saurabh has shared, as far as the demand is concerned, we are fairly confident, against the volume of 2.9 million, that we did last fiscal. We should have around 20% growth in volume terms in the current fiscal. The market itself is not going. But we’re going to have this growth, because a certain new customer acquisitions and a larger share of pie of some of our anchor customers. So we should be closing at around 3.5 million to 3.6 million. In the current fiscal, which is mean, is —

Bhoomika Nair — DAM Capital — Analyst

Which will mean a significant ramp up in the fourth quarter from the current levels of third quarter of 6.9 million?

Atul Lall — Vice Chairman and Managing Director

Yeah. So responding to your question of the business opportunity on the Google side, first, on the technical side, the product launch, we are targeting some time in Q2. The trials will take place in Q1. The licensing agreements have been closed. And the various technology partners have be aligned. In Q2 this should launch. One project has been signed with another brand. Please appreciate that, almost 60%, 65% the TV sold in India or Google and Android platform. So we feel that over a year, 1.5 year differs, the opportunity pool in front of us is possibly of additional 1 million sets. That’s what one is targeting to this route. The second, you would have seen in the financial metrics that the margin profile was significantly expanded. The main reason for it, is a step-by-step migration to owning the design. So these are two directions we’re pursuing in televisions.

Bhoomika Nair — DAM Capital — Analyst

Sure, sir. Sir, the second question is on the mobile segment. We’ve seen a decline even on a Y-o-Y basis, where we’ve been at that point in time, we were kind of still ramping up the Motorola volume. While there is some decline in terms of the industry demand, etc., but it is surprising to see such a sharp Q-o-Q kind of decline in revenues. So if you can throw some color of how has been the decline in the Motorola volumes per say in the current quarter? And number two, if there is a delay in terms of client addition that we’re likely to add into the current quarter, we were talking of earlier or revenue of about INR5,000 crores in mobile, what is the risk to that number now? And as we scale up into the next deal, what could be the risk from, if there is a delay in adding any client?

Atul Lall — Vice Chairman and Managing Director

So Motorola volumes have been under pressure in the current quarter, which is impacted our performance in mobiles business. However, in this business also, because of huge focus on generating more efficiency and cost optimization. The margins have expanded. Motorola, we are in discussions with them volumes are going to pan out. And I think the next year business plan, we are going to be concluding in a couple of weeks time that reassuring us that more exports is going to come in, but let’s sit and watch on that. On the new customer additions, one customer agreement as I shared in my opening remarks is going to close in a week’s time. We are there. It’s already mean to done. And we feel that it’s going to get fructified as far as revenue is concerned in Q2 of the next fiscal. The other business that we are talking about, to another large customer, we see there is no break some more time. We are confident that we should conclude the other large customer engagement also within the current quarter. As far as revenue is concerned, on the mobile side, what we are targeted for INR5,000 crores. I think we should end up doing around INR4,000 crores and we are between INR3,800 crores in the current fiscal. In the next, these two new customers should add for us at least INR5,000 crores in the next financial year. That’s what we are looking at.

Bhoomika Nair — DAM Capital — Analyst

Sure, sir. And just lastly, what are the Motorola volumes in the current quarter?

Atul Lall — Vice Chairman and Managing Director

In the current quarter, we are expecting the Motorola volumes to be around 800,000 to 850,000.

Bhoomika Nair — DAM Capital — Analyst

Okay, sir. I have more questions. I’ll come back in the queue. Thank you.

Operator

Thank you. Our next question comes from the line of Aditya Bhartia from Investec. Please go ahead.

Aditya Bhartia — Investec — Analyst

Hi, good evening sir. Sir, my first question is on mobile phones and lighting verticals, wherein we were anticipating an improved performance in quarter three, when we had last spoken after the Q2 numbers. So but the performance obviously has been far weaker than that. I just want to understand what really changed so dramatically. And the indications or the order book that we get from customers, is that a very, very broad indication on which customers have a lot of flexibility to be downgrading their numbers?

Atul Lall — Vice Chairman and Managing Director

Well. Lighting, Aditya, one of course, the demand has been slow. The second, the unit value has significantly reduced migration from driver based technology to BOB, wherein there is a reduction in the unit value of almost 15% to 18%. Third, there is always an internal reason. So it’s combination of three, which is led to this Q3 numbers. Although a lot of internal work was done, on value engineering, current asset management, working capital, which has led to the margin on expand — margin expansion to 9.1% and we have reached the same level, where we used to be year, 1.5 year back. Now the main thing is to grow the revenues. So in the current quarter, the revenue is already started touching more than INR100 crore in a month, if we are in the range of somewhere around INR110 crores to INR115 crores a month. So we are recovering. So I think — and I think with addition of new portfolio and some new large customers, today — there is a very large strategy, a new strategic customer for us. They are going to be on a reasonably good ballpark with decent margins in this business in the forthcoming fiscal.

Aditya Bhartia — Investec — Analyst

Sure, sir. And on the mobile phone side, is it that the slowdown was very stark and nobody saw it coming? Or is it that Motorola is changing some closing strategies?

Atul Lall — Vice Chairman and Managing Director

So in mobile space, there has been a slowdown and we are getting a sense of it. And the key to growth in this business is the new customer acquisition, and that’s what we’re working on. As I said, that one customer give almost closed, just seven days away from signing and another customer, which we are confident about, I think we’re going to close in the current quarter itself by March end.

Aditya Bhartia — Investec — Analyst

Sure, sir. And when you think about the INR5,000 crore to INR6,000 crore of revenue potential. Firstly, is that for next year or given that we will be starting this business progressively over a few quarters unless the number is likely to be realized? And secondly, the size of INR5,000 crores to INR6,000 crores will be what proportion of the overall business that these customers may be doing in India, if it’s a domestic contract?

Atul Lall — Vice Chairman and Managing Director

So in the current fiscal, we should close somewhere around INR4,000 crore in mobile revenues. We feel that in the next year, because it’s going to take certain time to launch the products with the new customers, we should be able to double it to around INR8,000 crore.

Aditya Bhartia — Investec — Analyst

Okay. And sir, what proportion would this — whatever INR5,000 crore to INR6,000 crore of annual revenue potential for these two customers be of the overall business that they will do in India?

Atul Lall — Vice Chairman and Managing Director

Sorry, just come again please.

Aditya Bhartia — Investec — Analyst

What percentage of business you will make —

Saurabh Gupta — Chief Financial Officer

We are just trying to assess the size of these customers.

Atul Lall — Vice Chairman and Managing Director

Graduated shift, the potential is much, much larger. But I think, first Dixon has to pool its credentials and deliver on the committed deliverable. Then the scope is much larger, free periods.

Saurabh Gupta — Chief Financial Officer

So as you said, the opportunity is much, much larger. But initially, like it happens is us across the — across customers, which starts with lower volumes. We have push to our execution, delivery and then gradually the numbers increase. So please be rest assured that the opportunity size and the customers that we are working with are much, much larger and definitely, they should grow year-on-year.

Aditya Bhartia — Investec — Analyst

Understood. And just one last question these customers — this contract is mainly for domestic market or there is an export limit in world?

Atul Lall — Vice Chairman and Managing Director

So one customer is the combined about domestic and exports, Adtiya, and another customers is mainly domestic focus to start with.

Aditya Bhartia — Investec — Analyst

Understood. Thank you so much, sir.

Atul Lall — Vice Chairman and Managing Director

Thank you.

Operator

Thank you. Our next question comes from the line of Niket Shah from Motilal Oswal AMC. Please go ahead.

Niket Shah — Motilal Oswal AMC — Analyst

Yeah. Thanks for the opportunity. I had two questions. One is the new mobile order that we just talked about, just wanted to understand what kind of margins will that order increment — on that incremental revenue can we generate, will it be at far more competitive margins as compared to what the blended margins of the business is?

Atul Lall — Vice Chairman and Managing Director

So Niket, those margins will be definitely higher than what we are doing today, because, yeah, so those commercial had been partly negotiated. So and plus the fixed cost gets absorbed of the top — of the team there out of much larger revenues, of course, we need to build a bigger team, but clearly there is some kind of fixed cost, which gets absorbed over the larger revenues. So we have the benefit of operating leverage also kicking-in. So yes, the margins in both these customers will be much, much better than what we are considered.

Niket Shah — Motilal Oswal AMC — Analyst

And I’m assuming the working capital cycle doesn’t change in the new order versus the existing mobile order?

Atul Lall — Vice Chairman and Managing Director

That focus will always be there. Initially, yes, there can be some requirement of working capital, but once the business ramps up and stabilizes the working capital intensity will not be there.

Niket Shah — Motilal Oswal AMC — Analyst

Got it, got it. And the second question was within your existing segments across the board on the segment that you present. As we stand today, do you think there is like to be any downward in estimates within existing customers either to be slowdown or change in strategy from that customer. The reason why I’m asking this question as well, while new customer addition is obviously an area of growth for you, but the existing client also when it declines kind of comprehensive for the higher growth. So just trying to understand that, one is on the new customer addition that is clearer tailwind. But do you think within existing customers, is there any scope for downgrades? Thanks.

Atul Lall — Vice Chairman and Managing Director

Niket, taking you to the various businesses, we shared with you that in the mobile current customers business there has been a pressure. There has been a challenge. Taking you through the other businesses, starting with LED television, the current order book looks good. We are also working on some new customer clients with the current order book also, we are going to have almost 18% to 20% growth. In Washing Machine, we have an extremely good order book with the existing customers itself. In the current fiscal, in semiautomatic, we’re going to grow from 1.1 million that we did in ’21-’22 to around 1.5 million in the current fiscal. And this trend is going to continue, we feel that they going to have almost 15% growth in the next fiscal with the current customer itself. In the new category of FATL, obviously, the space was small. So we are going to be doing almost 160,000 in the current fiscal and this quantity should double in the next fiscal.

In lighting business, we had a challenge, but please be rest assured, we are on an extremely strong recovery — month-on-month and quarter-on-quarter, we’re keep on growing in our existing businesses itself in lighting. Then we have security surveillance systems. Security surveillance system is going to take have a challenge for a quarter or so, because we are shifting the campus to a new site. So there will be some additional costs and the volumes are going to be fairly steady with a single-digit growth. Then we have new businesses. In new businesses, wherein we are in hearables, wearables, yes, there is going to be significant growth, because we are going to be adding new experience for both. And in telecom devices, that is the new business we just started with Airtel and that’s also going to be high-growth business. So this is going to be the trend. We feel confident about our existing business as well except for mobiles, whereas we’re working on new customer acquisition.

Niket Shah — Motilal Oswal AMC — Analyst

Got it. Got it. Perfect. Thank you so much and I’ll come back in queue.

Operator

Thank you. Our next question comes from the line of Ankur from HDFC Life. Please go ahead.

Ankur Sharma — HDFC Life — Analyst

Yeah. Hi sir, good evening. Thanks for your time as always. Sir, one, if you could just remind us on your top line and margin guidance for ’23, obviously, we are very close to completing the year and also overall any guidance for ’24 on top line and margins?

Atul Lall — Vice Chairman and Managing Director

Yes. So Ankur, we did around INR9,100 crores — INR9,200 crore revenue in the first nine months. Broadly, we should end quarter four, somewhere between INR3,000 crores to INR3,500 crore of revenues that should take us to broadly somewhere between INR12,200 crores to INR12,700 crores revenues. So that is the broad guidance. But I see that the margins in Q4 should also be on — it’s not in the similar lines at least, much higher in the quarter one and quarter two numbers. So we are hoping to close that closer to 4% kind of margins. As far as, the guidance for next year is concerned, clearly we have a big growth coming in all the verticals wearable, hearable, telecom, TV as we mentioned, can be a 15% to 18% growth. Fully Automatic Washing Machine can be 100% growth for us, because the business just started to ramp up now. Mobile as you had guided for, we are looking for these two customer account acquisitions and this should really add to our top line. So there’s a somewhere between, I would say next year, it can be somewhere between INR19,000 crores to INR20,000 crores kind of revenues — somewhere between INR19,000 to INR21,000 crores kind of revenues, but we are in the process in the next couple of months, we will be doing a budgeting exercise for next year. And I’ll be in a better position to share this number with you. But yeah, this is the growth numbers that we should look target for next year.

Ankur Sharma — HDFC Life — Analyst

Okay, fair. Second, sir, not just for Dixon, but for the industry as a whole, we’ve been hearing of a slowdown. When we look at GSK numbers, for example, for ACs were watches the numbers which are out for October, November. And I understand the Diwali piece being slightly earlier last year, but still we see single to high-single-digit declined as you said, even on TVs. not seen any growth at least on the industry side. So how are you seeing, at least for the near term. So I understand ’24 maybe you obviously because of new customer additions etc., Dixon may see growth. But on the — overall industry, if you could talk about some of the largest segment, what are you hearing from your end customers?

Atul Lall — Vice Chairman and Managing Director

So I’m kind of segue about it, what you are saying is correct. So we have to keep watching, and let’s see how it evolves. So we can’t be absolutely — about it. I think it going to be guided kind of growth in existing businesses. In Dixon SKUs, one of the extremely important is to run the existing businesses much more efficiently, acquires new customers, riding the growth portfolio and ensure with the new businesses that we have entered into are executed well. That’s going to be the key trigger for Dixon.

Ankur Sharma — HDFC Life — Analyst

Got it. Right. And sir, sorry, just on the lighting piece, if you could remind us, I think that’s been weak for quite some time. So and I know that’s for the industry as a whole. But what’s really driving that or is it — I mean, is it the penetration levels are high and because you also just because of drop in pricing. I’m sorry I missed that. So what’s kind of driving the weakness in lighting again?

Atul Lall — Vice Chairman and Managing Director

So in lighting, we feel confident then we are on a correct revenue path. We’re going to have growth in value turnover. We’re going to be adding new SKUs. We’re going to be light — launching the new of product of strict and product lighting in the current quarter itself. We have built our R&D team for professional luminaires, which are going to be launching in a couple of quarter. We are going to start leveraging our acquisition those modulating front. There is lots of efforts going into value exiting and cost optimization, which is led to the expansion of operating margins from 6.7% to 9.1%. We feel that we can sustain these margins. So we feel that lighting we are on the right track and the right steps have been taken the team has been build to put us in a growth path. Undoubtedly, the current year has been a challenge but these we will be there sure that we’re on the right path and this quarter itself will be significant reduction.

Ankur Sharma — HDFC Life — Analyst

Okay. Fair. And just one last one, on cell phones again, and given, I think, our earlier guidance was the number closer to INR5,000 crore plus, now we are talking of around INR3,800 crores to INR4,000 crores for this year. And as you mentioned, right, Motorola, volumes have been a little bit weak, but what’s really driving that, is it just their end markets, their sale things going slow. Are you just trying to understand a little more and do you think that’s going to come back next year or will volumes remain low from Motorola and therefore a lot of the incremental sales has to come from these two new customers. How should we kind of view that?

Atul Lall — Vice Chairman and Managing Director

In the Motorola’s case, their market share in India has sustained, but what we were expecting the volumes to come from exports to U.S. that it won’t materialized, because the global market, particularly, the U.S. market on the smartphone side and in Motorola’s case, most of the export was operators those numbers very implemented. That has impacted us. We are discussing with Motorola for next year’s budget. We have not concluded the numbers. We are hoping that numbers are going to be decent, let’s see, but we’re not just still concluded the numbers. With the other customers in new acquisition, I’ve shared with you. If you consolidate that the new customer acquisitions are going to materialize, I mean, it happens very soon.

Ankur Sharma — HDFC Life — Analyst

I understand. Okay, sir. I understand. Okay, great. That’s very helpful. Thanks.

Operator

Thank you. Our next question comes from the line of Sonali Salgaonkar from Jefferies. Please go ahead.

Sonali Salgaonkar — Jefferies — Analyst

Well, thank you for the opportunity. Sir, my first question is, we have seen a good rebound in margins. What was the quantum of price hikes that we have taken on an average in this quarter?

Atul Lall — Vice Chairman and Managing Director

So it basically lower value engineering initiatives, Sonali, and also cost optimization, reducing the manufacturing costs and also passing on certain increasing in the commodity prices to the customer, it takes certain time. We have shared with you that in ODM business there is certain lag in that. But in the last quarter, we have been able to do that. And that has led to the increase in operating margins in the businesses like Washing Machine and Lighting.

Sonali Salgaonkar — Jefferies — Analyst

Got it. Sir now ODM is still at about 30% of the sales, right?

Saurabh Gupta — Chief Financial Officer

ODM is around in the first nine months — slightly ODM is around 24% of sales.

Sonali Salgaonkar — Jefferies — Analyst

Okay, got it.

Atul Lall — Vice Chairman and Managing Director

ODM is actually large contributor to our profitability now, so almost 48% of our operating profits are coming from ODM business.

Saurabh Gupta — Chief Financial Officer

So last year, it was around 20% odd percent. So first of all, it is 20% has moved to 24% and on a much higher revenues. So in absolute numbers the ODM numbers are growing very fast.

Sonali Salgaonkar — Jefferies — Analyst

Got it. And lastly on the export, what has — can you quantify your export revenue for the first nine months?

Atul Lall — Vice Chairman and Managing Director

My export revenue is majorly Motorola and a small bit in Lighting. We did — we had a export order to UAE markets for lighting business. So broadly, we don’t remember the exact number, but it should be somewhere in the range of INR700 odd crores — INR700 crores to INR800 odd crores.

Sonali Salgaonkar — Jefferies — Analyst

Got it. And how much do we expect to increase that over the coming year?

Saurabh Gupta — Chief Financial Officer

So this year we should close at around INR11,000 odd crores. And hopefully by next financial year as we mentioned that, we are waiting for Motorola to give the guidance on exports for next year. So that should increase the revenues for next year on export side and there are the new customer acquisitions that we’re looking for will be both for the domestic market as it — as it there for exports. And hopefully in lighting business also we should crack some more accounts on lightning. So, yes, my sense is that number should grow at a good pace, very difficult to quantify right now.

Atul Lall — Vice Chairman and Managing Director

But in my senses, Sonali that it will be somewhere in the range of around INR23,000 crores and INR25,000 crores next fiscal.

Sonali Salgaonkar — Jefferies — Analyst

Got it.

Atul Lall — Vice Chairman and Managing Director

Let see how the Motorola plan spans out, but that was my senses.

Sonali Salgaonkar — Jefferies — Analyst

Got it. Sir, and lastly, you guided for INR8,000 crores sales in mobile phones in FY’24, right?

Atul Lall — Vice Chairman and Managing Director

That’s right.

Sonali Salgaonkar — Jefferies — Analyst

Thank you, sir. This helpful.

Operator

Thank you. Our next question comes from the line of Keyur from ICICI Prudential Life Insurance. Please go ahead.

Keyur — ICICI Prudential Life Insurance — Analyst

Thanks for the time. Sir, first question on the profitability of large ODM segment, Lighting and Washing Machine, so probably despite lower volumes is the kind of margin we have seen for Q3. So with improving trajectory, should we assume that this kind of EBIT margin or EBITDA margin are more sustainable or probably we can improve from this margins? That is first question.

Atul Lall — Vice Chairman and Managing Director

So we feel now that in our lighting — in our ODM business of lighting and washing machines, we’ll be somewhere in this range only in the coming months. That’s we feel that we are back to where we got, and we should be able to sustain it and also there has been an expansion in margins on the TV side because of larger volume to ODM/JDM business. That also we should be able to sustain.

Keyur — ICICI Prudential Life Insurance — Analyst

Okay. Second sir, on the growth side for two segments of TV and Lighting, so which TV — in TV, with this addition of JDM as well as Android licensing and on the export first on the lighting, so what kind of growth do we expect in these two segments. I got confused in TV, since you talked about 15% kind of growth in TV. I think earlier you had guided for much higher-growth. So if you can just clarify growth trajectory for these two segments?

Atul Lall — Vice Chairman and Managing Director

So what one feel is that, this year we should close it somewhere between 3.5 million to 3.6 million, which is an 18% to 20% volume growth, we feel that in the next financial year kind of order book we are looking at it should be able to have around 15% volume growth. And a large portion of it, which is going to be on the ODM business and also some contribution will start at the Google kind of business from Google kind up revenues. So next year, we are targeting to growth at somewhere around 4.2 million to 4.3 million.

Keyur — ICICI Prudential Life Insurance — Analyst

Okay. Okay. Got it. And on the lighting side, and one more [Speech Overlap]

Atul Lall — Vice Chairman and Managing Director

The run rate had shrunk. We had a revenue run rate in the last quarter of around INR75 crores to INR80 crores a month. We are back to a run-rate in the current quarter of INR110 crores. We feel that we should be able to generate a growth of around 15% to 20% from the next fiscal.

Keyur — ICICI Prudential Life Insurance — Analyst

Sir, just follow-up on lighting, so there were two export opportunities through our anchor customer in lighting, and second is the wide level export to some of the developed nations, which can be a large opportunity more of a bulk of business, so if you can divide our export opportunities in these two sub-categories and where are we in both of their journeys?

Atul Lall — Vice Chairman and Managing Director

So lot of work is being done for the developed markets of U.S. and Europe. We feel that we want to have breakthroughs both in LED bulbs, as well as the ceiling lights, in U.S. and in Europe. We feel that you go through are going to happen in the next quarter and the execution should start from Q3. Initially, it is going to be small number, but the opportunity pool is very, very large. At this stage to put a number to it is slightly premature.

Keyur — ICICI Prudential Life Insurance — Analyst

Okay, noted. Thanks a lot and all the very best. Thank you.

Operator

Thank you. Our next question comes from the line of Gopal Nawandhar from SBI Life Insurance. Please go ahead.

Gopal Nawandhar — SBI Life Insurance — Analyst

Hi sir, thanks a lot for the opportunity. Sir, my question is on the guidance in the beginning of the year, we started with INR17,000 crores and kept on reducing it almost every quarter. And even in December, when you came on the television and guided for INR14,500 crores to INR15,000 crore revenue for financial year ’23, and now we are guiding for INR12,700 crores kind of revenues for current financial year? Is there — just improvise on our forecast or plans so that we have a better handle on the guidance?

Atul Lall — Vice Chairman and Managing Director

So undoubtedly we appreciate your input. But please appreciate in our major of industry, we are a B2B company and we are closely associated with the budgeting exercise of our customers. On the basis of their inputs, we plan our capacities and we plan our numbers. And that guidance forecasting is prepared on that basis. However I appreciate and your input and advice is well appreciated and well noted.

Gopal Nawandhar — SBI Life Insurance — Analyst

Surely, sir. Second question is on the television segment. Is there any big revenue loss from any particular customer? Is there any big change in the volume for Xiaomi or something?

Atul Lall — Vice Chairman and Managing Director

Yeah. Xiaomi volumes have not exactly growing as per the plan.

Gopal Nawandhar — SBI Life Insurance — Analyst

Is that declined?

Atul Lall — Vice Chairman and Managing Director

It’s not decline, but it is not grown.

Saurabh Gupta — Chief Financial Officer

Gopal, it would be flat this year, they would not have grown. Our major growth this year is 18% to 20% growth in volumes should majorly come from Samsung. And even the next year we are expecting some more volumes from Samsung, because some higher category TVs, as well and some more customer acquisition, also led by the Google and Android license.

Gopal Nawandhar — SBI Life Insurance — Analyst

And do we expect any decline going ahead in the Xiaomi volume or we expect to maintain the volumes from the Xiamoi?

Atul Lall — Vice Chairman and Managing Director

Then let’s wait and watch because the Xiaomi is also doing is in terms of advertising. We have not heard from them for the next years budgeting.

Gopal Nawandhar — SBI Life Insurance — Analyst

Okay.

Atul Lall — Vice Chairman and Managing Director

Over the next couple of months, we’ll get a lot of clarity on our customers’ budgets and accordingly we will factor in our budgets as well.

Gopal Nawandhar — SBI Life Insurance — Analyst

Sure, sir. And on the — sir, are there any PLI incentives, which we have booked in this current quarter and the nine months if you can qualify the number?

Atul Lall — Vice Chairman and Managing Director

So we would have booked PLI incentive, Gopal, I can get back to you. I do not remembering this number, but I can get back to you after this call. As well, that would be somewhere around INR8 crores to INR9 odd crores broadly.

Gopal Nawandhar — SBI Life Insurance — Analyst

Okay. Okay. And sorry, I’m not sure whether we already discussed on the export side on the lighting because I think the commentary in the past has been, there are large opportunities and we are very close on some orders, if you can just give some color on that lighting exports?

Atul Lall — Vice Chairman and Managing Director

So and I shared that the business with Middle East is already started.

Gopal Nawandhar — SBI Life Insurance — Analyst

Okay.

Atul Lall — Vice Chairman and Managing Director

We have executed the first order and repeat orders have started pouring in. So we have a construction business from the Middle East market. And we are in early stage of Middle East, but the U.S. market, we are expecting some breakthroughs in March or really early next quarter and the inclusion to start from Q2 of next year.

Gopal Nawandhar — SBI Life Insurance — Analyst

And if I’m right, we said that that the customer, which we are concluding in the coming week, the revenues will start from Q2 of next year?

Atul Lall — Vice Chairman and Managing Director

That’s correct.

Saurabh Gupta — Chief Financial Officer

Yes. Yes. Yes.

Gopal Nawandhar — SBI Life Insurance — Analyst

So in that case the — whatever like revenue projections or estimates you have for next year it will be back ended?

Atul Lall — Vice Chairman and Managing Director

That’s right.

Gopal Nawandhar — SBI Life Insurance — Analyst

Sure, sir. Thanks a lot for this opportunity.

Operator

Thank you. Our next question comes from the line of Girish Achhipalia from Morgan Stanley. Please go ahead.

Girish Achhipalia — Morgan Stanley — Analyst

Thanks for the opportunity. So sir, in the event that you were able to close the customer in next one week and it probably takes slightly more longer time for the second customer on mobile side. What could be the incremental revenue will be from this customer that you close in the next one week approximately?

Atul Lall — Vice Chairman and Managing Director

So it’s going to take some time to ramp up and that’s what I indicated. That in the current fiscal, we close the mobile revenue somewhere around INR4,000 crores. Because it’s going to take some time to ramp up, in the next fiscal, with the addition of new customers and expecting Motorola revenues to remain almost the same. And we should double that to around INR8,000 crores.

Girish Achhipalia — Morgan Stanley — Analyst

So my question was, if you are not able to convert both, but at least one. So the first one, which is likely to happen sooner in that situation what could be the —

Atul Lall — Vice Chairman and Managing Director

Customer one should generate next year around INR1,000 crores to INR1,200 crores because it will start around Q2 and the customer two will generate around INR2,500 crores to INR3,000 crores.

Girish Achhipalia — Morgan Stanley — Analyst

Understood. And then, sir, just in terms of capex, what is the outlook for this year and next year, please?

Saurabh Gupta — Chief Financial Officer

Yes. So Girish, this year nine months, we have done a capex of almost INR280 odd crores. And broadly, we will do other INR80 crores to INR90 crores of capex in Q4, mainly for refrigerator project. So we should close this year around INR380 crores — INR360 crores to INR380 odd crores of capex. I think plans for next financial year are still — are getting made. I will be in a better position to guide by March — by the month of March. But broadly, it should be lower. It should be lower than what we have done this year as well as last financial year. But my broad sense is it should be in the range of INR200 crores to INR250 crores — INR250 odd crores to INR260 odd crores.

Girish Achhipalia — Morgan Stanley — Analyst

So capex would be lower, despite two mobile customers potentially getting added?

Saurabh Gupta — Chief Financial Officer

Yeah. Yeah. So those are customer accounts as it terms of significantly higher. In terms of capex investments and all, it will not be that much. So mobile is one business where the asset return are significantly higher.

Girish Achhipalia — Morgan Stanley — Analyst

And if you could put some color around margins for moblie business, I think it was stronger so, how much — this kind of continue into next year given that you’re going to add?

Atul Lall — Vice Chairman and Managing Director

Nine months, the mobile and EMS business, of course, turnaround 2.8% margins, of course, if I remove the EMS business, the mobile margins will be somewhere around 2.5%, 2.6%. Of course, the customer accounts that we are talking for next financial year should come at a slightly higher margins, based on the broad commercial that we have and we will be agreeing with them. And then also the operating benefit. So, yes, this margin should inch up by around if not more by at least 25 bps, 30 bps, year kind of an improvement next year on the mobile business.

Girish Achhipalia — Morgan Stanley — Analyst

And this higher margin is driven by lower PLI being given or share to them? Or is it specific operating leverage or ODM, if you able to do your backward integration that you’re targeting?

Saurabh Gupta — Chief Financial Officer

So it will be a combination of commercials, including your NPA that you charge on the customer — to the customers. I said and also the benefit of operating leverage benefit, we lead to margin expansion, among much higher volumes. And third, what I can say as of now Girish this commercial as compared to our existing portfolio will be slightly better.

Girish Achhipalia — Morgan Stanley — Analyst

What is the bill discounting number, last question, at the end of this quarter and what is the rate of interest?

Saurabh Gupta — Chief Financial Officer

Discounting number was INR130 odd crores.

Girish Achhipalia — Morgan Stanley — Analyst

And what is the rate of interest that you pay on the bill discounting?

Atul Lall — Vice Chairman and Managing Director

Somewhere around 7.5%, 8%.

Girish Achhipalia — Morgan Stanley — Analyst

Okay, thank you.

Atul Lall — Vice Chairman and Managing Director

But, lot of our interest cost, Girish, is also on according to the India’s adjustment. So if the INR15 crores interest that you’re seeing for the quarter INR4 crores is on account of the India’s adjustment, the rental premises that we have taken that gets bifurcated between depreciation and interest. So that’s more than accounting entry.

Operator

Thank you. Our next question is from the line of Amber from Nippon Mutual Funds. Please go ahead. Amber, Your line is unmuted, you could please proceed with your question.

Amber — Nippon Mutual Funds — Analyst

Hello, am I audible?

Atul Lall — Vice Chairman and Managing Director

Yes.

Amber — Nippon Mutual Funds — Analyst

Yeah. Yeah. Hi, sir, this Amber from Nippon Mutual Fund. Just two questions from my side is one this year, we have seen two major segment has seen a significant cut on the realization, one on the TV side because of open sale and then now lighting, where because of the change in technology? So going forward in all the segments where we operate, do you see anywhere where any change in technology is taking shape, which can lead to maybe relation decrease going forward because of efficiency improvement in all? Any of the segments where we operate, we are seeing any such potential technology change which can lead to lower AST?

Atul Lall — Vice Chairman and Managing Director

So as of now, no.

Saurabh Gupta — Chief Financial Officer

In fact it should get better only, because our fully automatic washing machine, which is at a much — the realizations are much higher than the semiautomatic. Those volumes would grow by more than 100% next year is what we’re targeting. So clearly the realizations should only go up and we don’t foresee any kind of thing which is happened in open sale on account of open sale.

Atul Lall — Vice Chairman and Managing Director

And even in Television, there is small increase in prices of open sale now. And also the pricing of the LED lighting were end up in bottom down. I don’t see any further reduction happening in the unit value share.

Amber — Nippon Mutual Funds — Analyst

Okay. Secondly, sir, if you can give some color about the progress and numbers on the IT hardware, which is tablet and laptop side, how the tie-up with the Acer is progressing, what kind of numbers we are doing an outlook on that client? And also along with that, if you can give some color on, is there any opportunity for Samsung smartphones as they’re moving out of feature phone. So on the smartphone side, can we get any volume from Samsung on that line?

Atul Lall — Vice Chairman and Managing Director

So on the IT product side, we were a beneficiary of IT PLI scheme. We achieved both the capex and the revenues. And our anchored customer, there was Acer. We continental manufacture laptops for Acer. Now the Government of India is coming out with another PLI scheme, which is much larger in purpose and much more attractive. We’re expecting new PLI scheme and IT hardware. If we rolled out in next 30 to 45 days, we will be participating. And Acer is always there as a customer. We’re also in dialog in discussion with some other large global brand. We’re going to be participating in the new PLI of IT hardware. For Samsung, we are already doing, their 4G and 5G phones. In fact, this month itself we will doing more than 1 million a month.

Girish Achhipalia — Morgan Stanley — Analyst

Okay. Sir, just on a follow-up on this, if you can give some color on the numbers in terms of laptop this year and next year you are targeting. And secondly, whenever this new IT hardware PLI gets rolled out. So will we get automatic qualification for the same? Or do we need to apply again for the same, how that will work out?

Atul Lall — Vice Chairman and Managing Director

So just answering to the second question, first, we have to apply again. But we are confident that we will be awarded for PLI under the IT hardware under the improved. Second, I think it’s slightly premature to put the numbers to it, because let the scheme be rollout and then the contracts for the potential brand is almost include. So I think slightly early.

Girish Achhipalia — Morgan Stanley — Analyst

Got it, sir. Thanks a lot, sir and all the best for the future and interest — thanks.

Operator

Thank you. Our next question comes from the line of Pulkit Patni from Goldman Sachs. Please go ahead.

Pulkit Patni — Goldman Sachs — Analyst

Yes, sir. Thanks for taking my questions. Sir, both related questions, I mean, if you look at — when we look at the Motorola revenue, which you said actually declined. I mean, how do these contracts work, because we are investing capital into setting up additional capacities for these companies. Isn’t there sort of a committed volume for a particular period? Because I’m just trying to understand how volatile can this business be given the fact that it can vary so significantly on a quarter-to-quarter basis? So if you could just explain, how does our terms with these customers work in terms of continuity of business? That would be my question number one.

Atul Lall — Vice Chairman and Managing Director

The way it works, we’ll give that there are certain committed volumes. And if the customer, and I’m talking about especially the relationship that you are mentioning, does not meet the volume commitments and they compensate us for capex investment and also certain fixed cost, but as soon as margin and profitability element is not covered under the contract. So you would have seen the margin expansion in this business. The deferred cost and amortization on the machinery is covered at a higher-rate of the lower volumes that’s the way it works. That’s the way this contract have been structured, but then we will roll over into profitability.

Pulkit Patni — Goldman Sachs — Analyst

Understood. Understood, sir. Sir, second question is related like this is one quarter, where on a Q-o-Q basis across more segments, we’ve seen decline and it’s not only a pricing decline, it’s a volume decline. But at the same time our margins across most segments has improved. Now given that there is an element of fixed costs in the past you’ve highlighted, a few times that because this ramp up on certain segments as a result of it margins were lower, it’s very counterintuitive that this volume decline on a Q-o-Q basis, but across all segments almost, we’ve seen margin expansion? So if you could again explain that a little better that — is that the degree of value engineering or cost cutting we are capable of doing that despite lower volumes we can actually improve margins? I mean, that will just help us understand this better.

Atul Lall — Vice Chairman and Managing Director

So undoubtedly across our ODM businesses, [Indecipherable] lighting and washing machine significant initiatives has the [Technical Issues] on value engineering, on better sourcing, on passing the cost increases to the customer. It has led to this margin depreciation. [Technical Issues] This is showing both in lighting and in washing machine. Televisions larger share of ODM/JDM business [Technical Issues] this improve the margin. That is the reason. In the case of the EMS business of [Indecipherable] hearables, wearables, half effort has gone in for improving the productivity and volume, which has led to — so this is the code we have taken. And having in the last quarter, these has done well to implement all these initiatives.

Pulkit Patni — Goldman Sachs — Analyst

So sir, when the volumes come back, which is what we are expecting in the next year, then these margins could see another leg-up or that seems difficult?

Atul Lall — Vice Chairman and Managing Director

No, I think they can be small upside to it, increasing volume definitely the operating leverage would kick in.

Saurabh Gupta — Chief Financial Officer

Pulkit, definitely the margins get extract [Technical Issues]

Pulkit Patni — Goldman Sachs — Analyst

Understood, sir. That’s helpful. Thank you.

Operator

Thank you, ladies and gentlemen, that was the last question for today. I now hand over the conference to the management for closing remarks.

Atul Lall — Vice Chairman and Managing Director

Thank you so much, Anirud. Thanks everyone for participating in the call. Really appreciate it. All the best. Have a great day. Thank you.

Aniruddha Joshi — ICICI Securities — Analyst

Thank you very much. Thank you.

Operator

[Operator Closing Remarks]