00:00 Welcome to BQ Primer, very good morning to all the viewers, I am Heeral Dadia.
00:04 One space that is in focus is the electronics manufacturing space and this is on the back
00:09 of the government which has gone ahead and imposed import restrictions on tablets, laptops,
00:15 all-in-one PCs and ultra-small form of computers and servers.
00:21 Now clearly, companies will no longer be allowed to import respective devices without a license
00:27 and this is something which will actually go ahead and boost the domestic manufacturing
00:32 as well, clearly giving an impetus to the 'Make in India' dream that India wants to
00:38 achieve overall.
00:39 The import restrictions will be effective from the 1st of November 2023.
00:44 Now what this would actually mean for the manufacturers in India, joining us on the
00:49 show to discuss more is Saurabh Gupta, CFO at Dixon Technologies.
00:53 Saurabh, good morning and welcome to the show.
00:55 Yeah, good morning.
00:57 Saurabh, my first question coming to you is your initial comments on the restrictions
01:02 that have been imposed.
01:04 How long has the government taken to actually hear the ask of the industry?
01:09 Yeah, so basically if you look at all the other categories, the government has imposed
01:16 tariffs at various points of time to encourage domestic production.
01:20 In this particular category, IT hardware product, it's an IT product and you can't impose tariffs
01:27 as per that.
01:28 So, government came out with non-tariff measures.
01:31 I think so it will go a long way in boosting the local production and eventually making
01:36 India a global manufacturing hub in this particular category as well.
01:39 It's a large market globally and India also it's a large market and significant portion
01:44 of that market is getting serviced through imports.
01:47 So it's a big substitution play as well.
01:49 So my sense is, yeah, it is a big landmark judgment by the government.
01:54 That's a landmark judgment.
01:55 Absolutely, Saurabh.
01:56 Saurabh, overall, if you have to look at what the government has done, how are you seeing
02:03 the benefits to start trickling in for a company like yours?
02:09 So I think so it's a large opportunity.
02:11 If you look at the overall market, it's around $9 billion and clearly it's a growing market
02:16 in India and eventually over the next few years it will be a $13-14 billion market.
02:22 So my sense is we are a large player and we are a beneficiary and of course we will now
02:26 apply the revised IT hardware PLI scheme and we will be very aggressive in applying for
02:31 that.
02:32 So as of now, in our scheme of things, we are manufacturing for Acer.
02:35 We expect that our volumes with Acer will go up and we are also in discussion with large
02:40 global brands.
02:41 So clearly we think that over the next six to eight months, we will increase our capacities.
02:46 There will be a stabilization phase, ramp up phase and by next financial year, we will
02:52 start to have meaningful revenues in this particular category.
02:55 So Saurabh, my key question is 17 facilities aggregating to 2.5 million square feet, if
03:01 I'm not mistaken, is what the company has currently.
03:05 What's the utilization level?
03:08 So as of now, the utilization levels across all our factories is almost closer to 100%
03:12 because we are now just two to three to four months before the festive season.
03:17 So we have a very strong order book in most of the verticals except maybe one or two verticals
03:22 where the utilization levels will be 85%.
03:25 But broadly, the utilization levels are very good.
03:28 You're right, we are presently around 90-odd factories, 1.5 million square feet.
03:33 We are adding some large infrastructure and hopefully we will be around 4.5 million square
03:38 feet in the next 12 to 15 months.
03:41 So clearly, we are sitting on a large opportunity and this again, IT hardware along with mobiles
03:47 will be the largest triggers for our growth.
03:50 Right.
03:51 So Saurabh, from the total capacity that the company has, what percentage of it is dedicated
03:55 towards laptops, tablets, all-in-one PCs as well as the ultra small form of computers
04:01 and servers?
04:02 You know, how much of it is in terms of the company's business?
04:08 As of now, it's a small business, last year we had a very small contribution coming in
04:12 from this category.
04:13 This year also, it will be marginally be growing because we will also take some time, five
04:18 to six months to put up those additional facilities, infrastructure, mobilize the resources.
04:24 But my sense is next few years, it can be a large opportunity for us.
04:29 And if you look at the 9 billion opportunity that I'm talking about, we will capture a
04:33 large pie of that growth in India.
04:37 And we think that over the next two, three years, India can attain a scale and size and
04:41 so is the case with Dixon.
04:43 And we think potentially over the next two, three years, there can be export opportunities
04:46 as well.
04:47 So overall, the last thing that I was just reading in the earnings call is that in the
04:51 first quarter of FY24, laptops, tablets, IT hardware products was around 86 crores in
04:57 terms of the revenue contribution.
05:00 As you already mentioned, Acer is the anchor customer for the segment.
05:03 Now, you are in discussions with other large global brands as well from a manufacturing
05:09 perspective.
05:10 How much do you think will the company be able to scale up from this 86 crores per quarter,
05:17 if you have to look at the next, say, 18 to 24 months, either from a quarterly perspective
05:23 or from a yearly perspective, taking the capacities that would be coming at play?
05:28 So those numbers have to be worked out.
05:32 I think so over the next four to six months, we will work out those volume numbers, infrastructure,
05:37 and we are in advanced discussions with some large brands.
05:39 So we have that kind of visibility.
05:41 But clearly, my sense is over the next two years time, this can be a three to 4000 crore
05:46 kind of opportunity for us annually.
05:49 Okay.
05:50 And right.
05:51 And overall, from an infrastructure perspective, how are you looking to add that capacity,
05:59 fund that capacity?
06:02 What's the plan on that end?
06:03 Yeah, so we most likely will be adding some capacities in the northern part of India and
06:09 we're looking something in southern part of India as well.
06:12 So clearly, that capacities will be ramped up or will get established over the next five
06:17 to six months.
06:18 And yeah, by next financial year or by Q4, we'll start delivering revenues with the new
06:25 prospective customers.
06:26 Right.
06:27 So another aspect I want to consider over here is, you know, when it comes to electronic
06:32 part of the manufacturing, may it be hardware, computers, television, mobile phones, etc.
06:39 A lot of your components are still imported, specifically from the Chinese markets as well.
06:46 Right.
06:47 So when a Dixon is doing its production, what percentage of the components are imported
06:52 and what percentage of the components are locally sourced?
06:57 Yeah, so one, I think so it differs from vertical to vertical.
07:01 So in some verticals, like in lighting and washing machine, a significant part of validation
07:05 is happening in India.
07:06 Lighting, almost 50% validation happens in India.
07:10 Washing machine, almost 60 to 65% of validation happens in India.
07:14 But in some categories like mobiles, where it is presently, the validation in India is
07:19 now around 20% or percent, which was earlier a single digit.
07:23 So clearly we have come a long way.
07:25 And we think with the scale coming in and with the mobile PLI, a lot of capacities are
07:29 coming for components in India.
07:31 And we think over the next few years, this validation in mobiles can also go to potentially
07:36 30 to 32% or percent.
07:39 And similarly, a lot of localization is happening on the TV side as well.
07:43 So still, yeah, I would say in some of the categories, still a lot of dependency on imports.
07:48 But my sense is every year that is getting diluted and a large component ecosystem is
07:52 getting a component ecosystem is getting created.
07:55 Of course, it takes time.
07:56 So over the next two, three years, we'll have a very good, decent component ecosystem in
08:00 India like the way we have in China.
08:04 Right.
08:05 So any plans from a backward integration perspective on this aspect sort of in the near future?
08:10 If you look at the PLI scheme, the way it has been structured is that apart from the
08:16 final assembly, every year you have to localize certain components and then only you get certain
08:20 incentives from the government.
08:22 So localization on PCBs, on display, on battery, on power adopters, every year you have to
08:28 do that.
08:29 So that is mandatory.
08:30 And once you tie up with some large brands and clearly you have a scale and size, then
08:35 gradually you have to get into the components.
08:38 So for us now, lately, if you look at our last few years, our growth has been majorly
08:42 into adding new verticals around IT hardware, variables, telecom.
08:46 But now we are absolutely committed to get deep into the components.
08:50 Every vertical we are looking at are our capexes on backward integration capabilities.
08:56 And so would be the case across mobiles.
08:58 So would be the case across IT hardware products.
09:01 Right.
09:02 And my last question coming to you, Saurabh, is the latest notification that did come in
09:07 from the DGFT was that the import of electronics of all of these products will be allowed till
09:14 31st without a license, but post that, a license will be required.
09:19 Right.
09:20 So if someone gets a license, how do the dynamics change?
09:23 Because how difficult is it to get a license to import?
09:26 Because anyone who's importing right now gets a license, then how does anything change from
09:35 a localization perspective?
09:37 Now, so basically the similar thing has been done in TVs couple of years back.
09:42 They put TVs also under the restricted category.
09:46 And clearly, our understanding is that licenses, once it goes to a licensing kind of regime,
09:51 see the whole objective of the government and the whole policy decision or initiative
09:55 taken by the government is to incentivize domestic manufacturing and also make India
09:59 manufacturing hub in this category.
10:02 So my sense is once this intervening period of till 31st October goes, and that has been
10:08 done majorly to meet the demand for the festive season, my sense is those licenses, once it
10:13 goes to the licensing regime, those licenses are not easy to come by.
10:17 So ultimate objective is for the government is to ensure that domestic manufacturing is
10:22 taking place to service the domestic consumption.
10:25 Right.
10:26 I think that's something we should be awaiting and watch as well as to how it impacts.
10:30 But thank you so much Saurav for joining us on the show and sharing the views.
10:33 And this is going to be an interesting move going ahead for the manufacturers and a company
10:38 like Dixon as well.
10:39 Congratulations once again, and good luck.
10:41 And we'll speak to you soon again on how things develop going ahead.
10:47 Thank you and stay safe.
10:48 So that's the management of Dixon Technologies clearly indicating that in the next three
10:52 to four years, this category could become as big as almost three to 4000 odd crores
10:57 for the company itself.
10:59 So good business that could be in the making for the brand.
11:03 That's all that we have on this session.
11:04 Thanks for watching.
11:05 And lots more lined up on the other side.
11:07 Please stay tuned to BQ Pride.
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