Delay in passing of price hikes in the ODM business, and higher contribution from low margin products affected the gross margin in Q2 for Dixon | Q2 FY22 Conference Call Highlights

• Delay in passing of price hikes in the ODM business, and higher contribution from low margin products affected the gross margin in Q2.
• Order book is strong for H2FY22 in terms of both revenues and profitability. The company expects no major impact of chip shortage on business. Price hikes delays took toll on gross margins.
• Dixon is confident of price hikes in the coming quarters, due to advance payment to procure inventory for upcoming season and management guidance of a revenue target of ~| 12,00 crore in FY22.

Consumer Electronics segment:

o Additional 5.5 million (mn) capacity is being added for LED TVs. Increasing backward integration by increasing SMT (surface mounted technology) line capacity from 1.8 mn units to 2.7 mn units. Investment in injection moulding and plastic processing machines which will start from Q4FY22 onwards. Increasing focus on ODM business

o Manufacturing capacity of 35% of total India requirement. Introduced large screen sized 75” & 90”

o Monitor manufacturing capacity of 1 mn (million) units is ready. The company has signed a supply agreement with a global brand, which will start from Q4FY22 onwards. Expected volume in first year is 0.5 mn/units, which will increase significantly in the coming years. The revenue and profitability number will be in line with TV business

 Lighting Products segment:

o Healthy order book for H2FY22 onwards. Received license to start supply in Europe. Approval in the US markets is still awaited

o Management expects margins to normalise from Q3FY22

o Applied for lighting PLI. The company has planned | 100 crore capex in five years in this category

 Home appliances segment:

o Order book is strong. The management expects normalisation of margins from H2FY22 onwards

o Set up a new capacity in Dehradun. The present capacity of semi-automatic machines will be increased to 2.5 mn from current 1.5 mn units by Q2FY23

o Received new order of 30,000 units of automatic machines by customer. This order will start from November 15, 2021

o Dixon’s total installed capacity of semi-automatic and automatic machines will be 3 mn against India’s requirement of 7.8 mn units

Mobile and EMS segment:

o Received 2.5 lakh units of mobile order from Motorola under PLI. Also secured contract from Nokia to manufacture 0.5 mn feature phones. Also signed deal with Orbit to export mobile

o Confident of reaching ceiling in mobile PLI by November 2021 (i.e. | 2000 crore)

Security Systems segment:

o Management believes this segment has returned to normal utilisation levels. The company aims to expand capacities further for this segment

New Products:

o Ready to start manufacturing refrigerator (Direct Cool) with initial capacity of 0.6 mn in FY23, which will be expanded to 1 mn units by FY24

o Received an approval of PLI in IT hardware/Laptops. The company will start production from Q3FY22 onwards

o Received an approval for telecom PLI in partnership with Bharti Airtel (51% owned by Dixon)

o Dixon has applied for PLI to manufacture AC PCB in partnership with Japan’s Rexxam (with 60% staked owned by Rexxam)

o Management has guided at an EBITDA margin of ~2.8-3.5% for new additions

Others:

o Capex of | 300 crore in FY22

o Company is planning a capex of | 200 crore to set up 0.7 mn units of refrigerator.

o Plan to buy Bharti’s telecom equipment plant for | 120 crore

o EBITDA margin guidance of 4-4.5