Dixon Technologies (India) Limited (DIXON) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Dixon Technologies Q2 FY '27 Earnings Conference Call hosted by DAM Capital Advisors. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Panes Shah from DAM Capital Advisors. Thank you, and over to you.

Thank you. Good evening, everyone, and welcome to Dixon's Q2 FY '27 Earnings Call. Today, we have with us the management being represented by Mr. Atul Lall, Vice Chairman and Managing Director; and Mr. Saurabh Gupta, Director and Group CFO. At this point, I will hand over the floor to Atyou'll sir for his opening remarks, post which we will open up the floor for Q&A. Thank you, and over to you, sir.

Thanks. Thank you so much. Good evening, everyone. This is Atul Lall, and joining me today is our Director and Group CFO, Sarah Gupta.

Good evening, everybody.

I would like to warmly welcome all our stakeholders to discuss our Q2 performance for financial year '26, '27. Key highlights for the quarter are as below. Revenues for the quarter ended September 30, 2026, was INR 21,806 crores and EBITDA, excluding fair value gain on the stake held by Dixon and Athene Limited for the quarter was INR 609 crores. PAT after minority interest and excluding fair value gain on the stake held by Dixon and aseptic Limited for the quarter was INR 293 crores. Margins during the quarter were impacted on acceleration of mobile PLI 1 scheme, along with elevated global memory prices due to rapid expansion of air infrastructure. the pass-through of higher input costs through corresponding increasing in selling prices resulted in a lower reported margin percentage, particularly in mobile and IT hardware business despite the recovery of increased cost through pricing adjustments. Our mobile business has remained resilient, sustaining volumes at broadly stable year-on-year levels despite a challenging operating environment. Export volumes for our anchor customer is expected to ramp up meaningfully from Q4 with further growth anticipated along with exports of feature phone in the smartphones, exports of Tanshin Group's planned for the next fiscal. Profitability in washing machine and refrigerator was steadily affected by fluctuations in polymer prices, rising freight cost and transit time, unfavorable foreign exchange movement and higher cost of other inputs. These pressures are expected to ease as cost pass-through initiatives gain traction and operational efficiencies progressively strengthened. During the quarter, we also undertook calibrated pricing actions in response to the sharp rise in input cost. However, with the continued increase in prices, there is always a lag in passing off the same. Near term external headwinds do not alter our medium- to long-term growth story. And we continue to see strong opportunities for increasing localization and deepening of manufacturing, new customer additions and India's growing position in the global electronics manufacturing ecosystem. Our strategic foray into display modules, camera modules, mechanicals and other critical components represent a significant step in Dixon's evolution from a scale electronics manufacturing services player to more deeply integrated electronics manufacturing ecosystem by building capabilities across critical components, we aim to enhance domestic valuation, the strengthened supply chain relates improve cost competitiveness and deepen customer engagement and progressively and low opportunities for margin expansion, thereby strengthening Dixon's comparative mode of sustainable growth. Beyond our established business and component integration initiatives, we're actively evaluating opportunities to build a high-end specialized EMS business with focus on higher margin, low volume product categories with the strong economics and superior margins. One of the strategic areas, which is being actively pursued is manufacturing of silicon photonics optical transceivers and advanced packaging capabilities to capture a rapidly growing air infrastructure, hyperscale data centers, telecom centers and high speeding computing technologies that can transfer increasingly large volumes of data with great bandwidth. As India bodes advanced technology manufacturing ecosystem, Dixon aims to be among the first of the Indian companies to establish capability in these segments through strategic acquisitions or partnerships. The initiative would accelerate moving up the technology value chain, expand our presence in high manufacturing and position us to capture emerging opportunities in new generation electronics, and this is also aligned with the government policy framework of Viasat. Now I've shared with you the business performance and insights in each of the segments, mobile and other EMS businesses. Revenue for the quarter was INR 2,093 crores with an operating profit of INR 509 crores. Our mobile manufacturing business continues to be a key pillar of Dixon's growth strategy, and we remain focused on scaling volumes, strengthening operational efficiencies and deepening our relationship with leading global and Indian customers. Despite a challenging industry environment with India's smartphone market declining by 26% year-on-year in Q2 FY '26, '27, according to industry's reports Dixon has demonstrated resilience by sustaining into smartphone manufacturing volume at broadly stable year-on-year limits. This reflects the strength of our customer relationships, execution capabilities and ability to date a volatile demand environment. Exports are poised to become an important incremental growth driver for our mobile business, export volume for our anchor customer is expected to ramp up meaningfully from Q4 with further growth anticipated along with exports of feature phones and smartphone for transient group brands from the next fiscal. So whether these opportunities will drive significant incremental volumes in the next fiscal improving capacity utilization, operating leverage and strengthen Dixon's growth trajectory. MPMS that is mobile phone manufacturing scheme of the government of Inda presents a significant opportunity for Dixon to accelerate growth by scaling volumes and actively engaging with the existing Indian brands to build long-term manufacturing partnerships to drive incremental volumes, a strengthened market position and capture a large share of India's mobile manufacturing opportunities. Consolidation of Vivo operation is expected to commence from Q4 with significant volume anticipated for the next financial year. Construction of a 1 million square feet facility in Noida with higher capacities has almost been completed, and we expect the operations to bend from Q3 of this fiscal. Long-chain JV is expected to commence operations with Q3 of the current financial year. We are also exploring opportunities to expand the partnership beyond mobile phones and to adjacent categories, creating revenues for business diversification and incremental growth. You take us a 20% substrate and ECM is beneficiary operates the largest camera manufacturing plant in India. We have already expanded our capacities from 80 million to 120 million annually, along with deepened manufacturing which is a margin accretive and will further expand capacity to 180 million to 190 million units annually by next fiscal. The first phase covering automotive and notebook display is expected to commence trials in Q3 followed by mobile disparate has in Q4 with mass production targeted to begin in the next fiscal year. Telecom and networking products revenues from -- for the quarter was INR 1,837 crores, this segment has been scaled meaningfully supported by expanded customer relationships, healthy order book, increasing localization and sustained investments in telecom infrastructure. While our established portfolio of customer premises equipment, including fixed wireless devices, broadband equipment and other networking products continues to provide a strong foundation with a strategically expanding into more complex technology-intensive product categories. Production of complex microwave backhaul radios for large global brand and scaled up successfully, and we also expect to export the same during the current fiscal. Additionally, we'll be adding complex optical platforms and industrial video products to our portfolio starting next fiscal year. We are pursuing a large opportunity to expand our services to an anchor customer and to serve global markets from our facilities in India with products such as optical network terminal that's vents and optical line terminal as and actively working on IP acquisitions for IPTV set-top boxes in line with our efforts to increase value addition and deepen our role and serving end customers. We are in advanced discussion with Tier 1 network equipment OEMs to manufacture the aggregation routers for India -- these are critical 4G to 5G networks connecting cell sites and Gobantass to the core network. Successful execution will not only add high-value telecom products to our portfolio but also create a pathway to serve global markets. Our joint venture with Gemtekavani's ODM, will manufacture of optical transfers as a small form factor pluggable SPs and bidirectional optical serviceable bosa with our approved electronics component manufacturing scheme application. This JV positions us to capture a share of the growing demand and telecom and data center segment and is expected to commence operations in Q4 of this fiscal. Our anchor role in upcoming telecom manufacturing 1 will potion us at the center of an ante design manufacturing in component systems, capitalizing on significant CapEx and OpEx incentives to deliver scalable and globally cost-competitive manufacturing. IT hardware products. Revenues for the quarter was INR 2,160 crores, Dixon's IT hardware vertical is witnessing a very significant growth driven by increasing volumes, deepening customer engagement, leading to a strong order pipeline with further expanding the product portfolio into high-end gaming laptops for a global brand. On laptops and all ones in our Chennai facility, we have installed capacities for desktops with production starting in Q3 of this fiscal -- we have received a large order tablets from 1 of our existing customers under the UP government scheme in Noida facility. Our new manufacturing facility adjacent to our current facility in Chennai for our 60-40 joint venture with Inventec operation from Teva which is 1 of the worst top 5 PC audience is expected to start trial in Q3 of the current fiscal. The order book in this category from our -- all our customers looks very healthy. And as a result, we transition from hybrid category with INR 250 crores of CapEx commitment to global category with INR 500 crores CapEx requirement under ITPR, with correspondingly increasing revenue thresholds and higher incentives payout. Our focus is now moving beyond assembly towards increasing value addition with manufacturing of SSD for which the line has been set up and exploring opportunities in mechanicals and power supply, which will deepen localization and lead to margin improvement. With the scale and broader product portfolio, deeper component localization and access to global technology partners, Dixon is well positioned to build IT hardware into a major growth vertical and progressively development as a competitive manufacturing hub. Home appliances. Revenue for the quarter was INR 586 crores with an operating profit of INR 48 crores. For semiautomatic washing machine, the volume grew by 27% to 6.3 lakh units during the quarter and by 16% year-on-year to 10.9 lakhs for the first half year ended September 2026. For ATL that is fully automatic top loading, the volumes grew by 24% year-on-year to 1.3 lakh units during the quarter and 23% year-on-year to 2.2 lakh units for the half year ended September '26. The segment continues to deliver a very strong growth, supported by capacity expansion, broader portfolio, in-house molding and tooling capabilities, investments in backward integration will enhance operating leverage and drive sustained profitability. Having established a strong foothold in semi-automwashing machines and fully automatic top loading washing machines. The company is progressing towards the launch of fully automatic front-loading washing machines in 2, 3 of the current fiscal interpay. We are entering into adjacent categories such as dishwashers and microwaves which will be launched in Q4 of the current fiscal, creating opportunity to address a wider consumer base. In washing machines, we have established the largest manufacturing capacity in India with an annual capacity of 3 million units or semi-automatic washing machines. 0.6 million units or fully automated prop-loading washing machines and 0.3 million units for fully automatic front loading machines. This takes us our total capacity to 3.9 million units against an estimated annual ending requirement of 12 million units, with capacity equivalent by approximately 32% of the total market we are well positioned to capitalize on the growing outsourcing opportunity, onboarding new customers and scale volumes across product categories driving improved capacity utilization and long-term revenue and earnings growth. Likely -- the lighting industry has experienced a challenging operating environment of new demand and pricing pressures. Despite these headwinds, Dixon Lighting business has demonstrated resilience and continue to pursue growth opportunities through portfolio expansion and customer additions. We're strengthening our buses in the indoor lighting segment by expanding product portfolio and offering a wide range of design-led solutions, we continue to premiumize the product portfolio with multiple launches and CO down data categories. In the coming quarters, we'll also be focusing on expanding the range of outdoor letting portfolio. We are further ramping up our SMT capacity with the new guidelines for cell plastered lamps and increased customer requirements. We've commenced exports of stripline to a large U.S. retail chain and expect to secure additional orders across the broad lending portfolio and are also in discussions with a large German region. Going forward, the company will focus more on premiumization and design and higher value-added lighting solutions, by broadening its product offering and customer reach, which will strengthen Dixon's comparative position in the market. Consumer electronics, as LTV and regiterators, revenues for the quarter was INR 1,115 crores in operating profit of INR 40 crores. Our LED TV and Letica business are operating in a challenging environment, characterized the overall softness in consumer demand and inflationary pressures across key input costs. However, we remain focused on expanding our customer base, increasing ODM participation and strengthening our product portfolio. We believe the current demand is cyclical rather than structured structural and Dixon remains well positioned to benefit as industry volumes normalize. LED TVs, demand and value and iteration remained soft, impacted by sharp input cost inflation, driven primarily by global memory supply tightness. However, demand for large screen televisions that is 15 inches and above, and PMA-cumulatind order models remained relatively healthy. We have initiated local LED production and plan to transition fully to an ODM model by Q3 of the current fiscal based on the customer demand and market feedback. We've also integrated low-cost main boat support per lightweight operating systems, the Scalia, U.S., an Thunder Cloud and to our Q3 cloud portfolio. Refrigerators Q2 also saw an uptick in commodity prices and elevated sea freight costs, which necessitated corresponding increase in selling prices, which further baron consumer demand and impacted near-term volume growth. Despite an industry-wide decline in Direct Cool segment, we sustained our volumes with portfolio enhancement and onboarding new brands. For a large brand now, we have started manufacturing side-by-side recites and will start manufacturing multidoor French low registrators from next month. To support future growth, we are expanding our credit facility by almost 375,000 square feet trading capacities for deep previous busy coolers and 2-door refrigerators. This expansion will enhance our value mix and establish a broader, more robust appliance platform over time. Despite the near-term softness, we remain positive on medium to long-term growth prospects category, supported by a low household penetration premiumization and increasing customer demand. Recent electronics or 460 ACPCoint venture with rigs and continued strong growth trajectory, characterized by robust cash flow generation and an industry-leading ROCE profile new facility in Chennai started commercial production in August '26, with expanded capacities to meet increased demand for our accustomers. We are in active discussions to onboard a couple of plants. Arable bills a 50-50 joint venture with the margin Marketing Board continues to deliver a strong financial performance supported by broad-pacevenue growth, healthy cash flow generation and a lean balance sheet. Building on this momentum, the JV has also started manufacturing dash cams, smart watches, power banks, headphones and exploring other electronic categories. This diversification will improve our capacity utilization and unlock operating leverage. With that, I'll conclude my remarks, and we are both happy to take any questions. Thank you.

[Operator Instructions] We'll take our first question from the line of Sid Tabara from Nomura.

Congress on our set of numbers. Sir, first question is on the mobile side. So if you can share the volume for the current quarter and how to think about the outlook for the second half, given the weakness in the consumer demand will you still maintain or if you can give some color for the second half? And second is on the export side. I mean, if you also can break it up into what is exports in quarter 2? And where do you see the outlook for maybe next year?

Yes. So in Q2, we have done approximately 9.7 million. So total in H1 that is Q1 and Q2 combined up to September, we have done approximately 17.2 million. And the outlook for we feel they should be somewhere around 33 million, 34 million. And in this, I'm not including the VIVO quantities, and that's how it looks. So our anchor customer that is Motorola through the NBM is a scheme, we want to be expanding our export of this fiscal. And as I mentioned in the opening remarks, for transcon, we'll start exporting the feature phones from next fiscal. So the market has shrunk, but our volumes are going to be in the range of around 34 million in the current fiscal. That's how it looks.

Only Vivo signed, I mean, with the plant starting now in quarter 4, what do you think we should aspire for the next year? And how should the volumes ramp up there? .

So the integration process is on, we target to start production from Q4 of the current fiscal. Vivo has almost 20%, 22% share. So their total volume is around 3 million. We feel that in the JV, we should be doing. Sorry, 30% . We feel that in the JV, we should be doing about 20 million, 21 million. And that's what the number looks like.

Understood, sir. And lastly, sir, on the customers' additions, do you see that this MMA scheme now in place? Will there be more potential to add more customers in the coming years? And where do you see the total exports for us sort of trending in the next few years?

So one can see a traction from our anchor customer. The outlook given is that we should be doing approximately 3.5 million units per quarter. That's almost 14 million. And out of that, almost 6 million to 7 million is going to be exports, if not more. We have also acquired 1 Indian brand as a customer, which is doing extremely well. We feel that from that customer for that, the production has already started. We feel that for that customer next year, we should be doing almost 8 million to 10 million. So these are new customer acquisitions which have already come on board. So there is a pressure in the market. But I think because of acquisition of our new customers and exports coming into play and our deep stickiness with our existing customers, we're going to grow significantly and all the more with the integration of go into the system, the numbers are going to be very good.

Next question is from the line of Santhosh Seshadri from Avendus park.

[indiscernible]

Sorry to interrupt. Can I use your handset more, please? Your audio is not clear. Go ahead, please.

Congratulations for a good set of numbers. My first question is on some of the new projects that you mentioned that you are working on. In your opening remarks, you mentioned that there are some projects that you are looking beyond mobile phones. And also in the previous calls, you spoke about investments in depreciation manufacturing and entry into industrial manufacturing and further opportunities. Can you put in perspective, which of these segments will see major capital allocation? And where do you see the management spending most of the bandwidth internally, and also on the revenue front, how should we think about the revenue contribution from these segments? I actually don't want a number here, but actually, like 5 year down the line, do you think any of these opportunities are large enough to overshadow the mobile segment? And yes, what are the steps that we are taking?

So certain sectors, certain domains that we are pursuing very actively. The first 1 is the IT products category. If you see the numbers from practically miniscule numbers. In the current quarter, we have grown to almost INR 2,100 crores. We already have 4 out of top 5 global brands as our customers. We are migrating from the present hybrid category, wherein we had compared to a CapEx of INR 250 crores under PLI to the global category, wherein we are upping our CapEx plans to INR 500 crores. This is because of the order book and also what we have foreseen -- so we feel -- and this year itself, we feel confident that we're going to be somewhere around INR 6,000 crores in this business. We feel that in the next couple of years, this is going to be almost INR 15,000 crore to INR 20,000 crore business for us. Further, as I mentioned in my opening remarks, that our joint venture with Inventec is going to get operationalized by Q3 end of Q4 of the current fiscal. And that is further going to add volumes, and we are attempting a foray both into general and AI service. So this is IT products, IT devices category. In IT devices itself, we have diversified and expanded our product portfolio. We've got into tablets where the business is already happening. We're already doing AIOs and the line for desktops has been established in the production in start from Q3. Further in this, we are deepening manufacturing. So the lines for SSD has already been set up. The trials by the customers of our SSD solutions have been operationalized, display in line in our new factory is set up and the trial that would happen by Q3. And further, the team is evaluating setting up footprint for mechanical enclosures. And also we are exploring power supply. So here we are we feel that it is going to be a large growth opportunity for us. And the second large growth opportunity that we are pursuing is 1 in the precision engineering side. And second, in the deepened technology of optical solutions wherein we are looking at trans receivers and we're looking at other optical situations with advanced packaging. So in trans receivers, we have already got into a JV with Gemtech of Taiwan. Initially, this is going to be lower gigahertz, but finally, that's going to be for telecom net. But finally, in the JV, we're going to be upping the game for higher gigahertz for data centers. So optical trans receivers transducers is going to be another very high-growth area in the company. So the huge focus is going to be on optical side, advanced packaging side, silicon photonic side. This is a growth area we are actively pursuing. So these 2 are very tangible things we are looking at. The team is working, and as I mentioned in my opening remarks, also on high-margin, low-volume business, but that total candid, is still at an early stage, but we are pursuing that. So these are the 3 areas. Otherwise, there are expansion plans across all the categories. I shared about mobile. I shared about expanding capacity and expanding product portfolio in our washing machine business. I shared about expanding our capacity from 1.4 million units to almost 3 million units in refrigerators, expanding the broad portfolio from just direct pools, we have already launched many parts we started manufacturing side by side. The infrastructure is getting in place. So buy coolers, deep freezers and post pre. So this is all the growth path for Dixon. Please be rest assured the numbers will be good, will be very good.

Just as a follow-up, what is the -- can you elaborate on the precision manufacturing side what is the capability that you are trying to build here? Is it something to drive a new vertical? Or does it augment the existing capability that we have in the mall space?

So it's in 2 tangents, but definitely, we will be first acquisition of precision enabling capability in the existing body. Where I'm referring to the mechanical enclosures for laptops. And possibly, we are also going to be looking at the business case for the mechanical and it's a deep precision engineering for the smartphones. Further, we are looking at also some opportunities in the precision engineering pace beyond the consumer space.

Next question is from the line of Sameet Sinha from Macquarie.

A ncouple of questions from my side. So Atul, you're talking about Motorola ramping up under the NPM stream looking to do more exports, especially next year. Can you talk about some of your other smartphone partners? How the conversations going with them now that this additional incentive is available to the cost disability help promote the conversation of using India as an export base. And secondly, when you mentioned cost pass-through, you mentioned the word initiatives along with that. So that made it a little more formal in my opinion. So is -- I would have assumed that cost pass-throughs are part of the business and probably part of the contract that you have with your customers. So can you talk about what you meant by initiatives and how should we see the progression of this pass-through?

So responding to the second part of your question first. In our EMS business, when I'm talking about moblies, when I'm talking about laptops, IT products, when I'm talking about hearable variables when I'm talking about telecom equipment. It's an automatic pass-through. There is no time like nothing of that time. It's an absolute EMS business. But when we are looking at our appliances business, when I'm looking at a refrigerator business, when we're looking at our washing machine business, there, there is some kind of a time lag. That's the nature of the contract. So I hope I'm making it clear. So I reiterate that in a complete EMS business, it's an automatic part. Whatever is the cost, whatever is the volatility in the prices as an automatic. But in our ODM solutions, specifically when you are talking about lighting, refrigerators and washing machines and a bit of our television business. In this, there is some black. And so over a period of time, it takes some time for passing through the caution trees. That's the way it is. As far as the export volumes are concerned, the contract with Motorola have been finalized and the ramp up has started, and the ramp-up is significant, and they are committed to meet the requirements. These appreciate incremental degen to a baseline in MP&S is INR 5,000 crores every year. Second, our business modalities and business model of starting the feature phone is exports from Tanshin Group who start with will happen from next fiscal, that has been finalized. And later, we're going to start doing the smartphone as well. So presently, these are the 2 customers for a [indiscernible] Half of that in the new customer acquisition, we have acquired a large Indian brand, which is doing really well. So that's where we are.

Okay. One quick follow-up on the cost pass-through. I mean these are smaller revenue contribution business. Can you help -- can you tell us how what the margin impact was because of cost pass-through not going through?

So let's say, in our washing machine business, which is traditionally 11% EBITDA margin, it will be 10.5% to 11%. The margins compare to 8.6%.

So basically, Sameet, there is a -- if you look at the first 6 months numbers, broadly 3% for washing machine business and A similar number would be also there in the lighting business as well. So that is the kind of impact because of the increase in commodity prices, especially the volume and prices in washing machine, then also the higher freight cost and also the foreign Sovent teaser it's an ODM business for us. So that is the kind of impact that we have seen. So yes, but there are -- we have been passing on that increase. But of course, the cost has also been pleasing. So the in that sense.

[Operator Instructions] Next question is from the line of Sonali from Jefferies.

And congratulations on a very strong sales number. My question is, firstly, on the sales number itself. As compared to the run rate of the last few quarters, there has been a significant year-on-year growth. could you articulate exactly from which segment, whether it's mobile -- in mobile, which customer or any other segment that this growth is coming on?

Yes. So Surat, basically, if you look at the volume growth, so year-on-year, the volume has been slightly marginally lower -- the reason the growth in mobile revenues are there or IT revenues is there is basically because the selling prices have gone up, selling prices also largely has gone up because of the component prices and especially the memory prices. Memory prices have gone up significantly. And memory, which used to be like a 12%, 13% bit of material of any smartphone is now a significant increase because where the prices of memory has significantly gone up. So our year-on-year increase in selling prices is almost closer to 35%, 40%.

Got it. Very clear, sir. The second question is with respect to the balance sheet. If I look at the September balance sheet numbers, the receivables and payables have surged as compared to March '26, -- any particular reason for the same? .

Yes. So 1 are -- so we are basically beneficiary of -- we are beneficiary of 2 PLIs now. One is the IT hardware, which has also shown good numbers in this quarter. So that number is also the P&I receivable for this particular year for the first 6 months and also the PLI is spending for last year. Last year, that shows that is a medical side for IT hardmaand then also the telecom side. And then we have some bit of P&I mobile side as well. So yes, there is a receivable number and there is a correspondingly paper number also.

Got it. My third question is, again, is on the memory situation. Probably this is more of a strategic or a global question. Now I understand that the key customers or the OEMs will help you source the memory chips in most of the situations. But how are you looking at the supply chain? I mean, are there any constraints in terms of procuring? Or are they able -- are they being able to comfortably procure the memory chips and also some other components like PCB, et cetera.

Sonali, on the supply chain side, I think we are in a good position. I'm not seeing any impact on the production as such. So costs undoubtedly have significantly increased. And we feel that they're going to be on a higher plane for time to come. But as far as the production and supply is concerned, we are fine.

Yes. So Sonali, there is absolutely no problem on the supply chain side. We are getting the metrics. There is absolutely notion that the question is about the pricing of the memories. And yes, if you look at the latest results of SK and their commentary and all what they mentioned with Samsung and all, they mentioned that this might continue for some more time.

Understand. Very clear. And just the last question.

Sonali, I request you to join back the queue, please, as we are participants waiting for the queue. Next question is from the line of Renu from IIFL.

Congratulations team for strong results. So my first question is, we did highlight IT hardware as a next growth pillar after mobile and targeting nearly INR 15,000, INR 20,000 crores of revenue in 2 years. So if you can help us understand this INR 20,000 crores target when we look -- does it include a revenue contribution from the data center or conventional servers? And what kind of investments are we targeting to do under the global category within the PLI scheme for the IT hardware product? That's the first question.

So 1 has mentioned in Sir's opening remarks, so when we are looking now, we are upping our game on IT RPM because the order book looks very good. So we are upping -- we're increasing the investment commitment from INR 250 crores, which was at the grid category to now a global category, which is of INR 500 crores. So we are seeing significant traction from modern customers. So this INR 18,000 crore to INR 20,000 crores kind of a number that we feel confident about in the next couple of years would only come from the laptop in the tablet business and then something for the desktops and other kind of things. There as of now, not incorporating or not including any business which can happen from the service. So once JV with Inventec gets operationalized by Q4, then we'll set together the server strategy. But yes, as of now, this we see that this kind of potential can come only for our existing business of laptops and uprates.

We feel confident . That we should be touching a number of almost 1.8 million to 2 million units next year. The final plan is that we need to get a number of 4 million in this category. That -- so 4 million at today's run rate of INR 50,000 to INR 55,000 per unit is almost INR 20,000 to INR 22,000 crores. Plus tablets plus AIOs first desktops. Server is separate.

Yes. So basically, just to add, this year, we're looking at a volume of close to 1.3 million, 1.4 million, which will translate into revenues of close to INR 6,000 crores to 6,500 crores. So assuming we are looking at a number of which is 3.5 million to 4 million, you can just multiply and that is the kind of the growth we're expecting there.

Sure. Would it put the interesting -- the second part of the portfolio is while similar, the telecom export ever, we have been a strong ambition from tech. So in your view, when do we -- by when should we start to commence the export part of the business under Semtech JV. And as an update, if you can share what has been up for the HKC JV? Or should it be commercialized by fourth quarter or there could be further delays. And any change in the numbers or growth expectations in fiscal '28 from the mobile components JV, both QTC and HPC, if you can share that.

So Renu, as far as the exports is concerned, that's from our telecom venture. And to start with already the order book is there for the microwave rate. It will be focusing on the markets of yes. And also, as I had mentioned in our opening remarks, we are upping again on the optical network side. On the optical transceiver side, a lot of work is happening there. To start with the Gemtech JV, which we are trying to start the trial by Q4 of the current fiscal and commercial production next year. Initially is going to be focused on the mobile telecom networks. And then they will be getting into the higher regard category for the data centers. But to start with, it's going to be focused on domestic market. So that's the bari.

Got it. And exports will still take about a couple of years? .

For some time. But on the -- from the telecom venture, the export is going to start. As far as the HKC JV is concerned, the installation of the line for notebook and automotive is in process and is going to get open November and the trial is going to happen by December and the commercial production will start by Q4. As far as the mobile is concerned, there was some delay, but now the equipment has been shipped up. And we feel that the line installation will happen. And initially, it's going to be 20, 25 minute capacity is going to happen by February of '27, and the trial should happen by March. And the commercial production should start early next year. That's the way it looks. What else was your question?

On Kotex? .

We have already expanded our capacity from 18 million to 20 million Also, the capital investment has happened in deepening the manufacturing, which is going to be margin accretive. And now we have to ramp up the sales volume. That's the way we are. Finally, the ramp-up of capacity over 2 years has to be taken up to 180 million to 190 million, which is as per the original plan.

Next question is from the line of Vipraw Shrivastawa from Philip Capital.

Quickly, firstly, on the Cutex side. So on the subsidiary financials, CapEx margin has declined by almost 450 bps in FY '26 compared to FY '25. And certainly, if you look at H1 FY '27 numbers for Totex, revenue has been flagged Y-o-Y mostly. So what is the management conviction first, that margins will revert back to 7% in FY '28. And secondly, there will be a volume ramp up in FY '28.

Yes. So basically, a couple of things. One, on these current year numbers, we feel that we are now in a significant expansion where we're expanding the capacity from 80 million to 120 million. Of course, the overall smartphone market, as you know, it's kind of seeing a slowdown overall. So as a result, this is a component which goes into a smartphone, which automatically gets impacted. Last year, the margins got impacted mainly because of the foreign exchange, where as part of their negotiated contracts or understandings they didn't have a ForEx pass, which we have now been able to get it done from the customers. So one, we see that, one, the volumes will keep picking up for that. So there's a lot of volumes, we feel that will keep getting better. Secondly, we are expanding -- we're putting up CapEx for deepening of manufacturing, which will help us capture more manufacturing process here, both deepening of manufacturing there, which will help us in margin expansion. And on account of this capacity expansion also, we'll start having an updating leverage. So please be rest assured on that. It is only a temporary kind of a limiter business will generate a 6%, 6.5%, 7% kind of . Then the operating leverage ensandwe're also in ACMI beneficiary, we feel the margins will see an update from year onwards.

And second question is on the working capital side. So in H1, we have seen a cash on of INR 280 crores. I think it's primarily because of memory, but what are you views on that because of memory. So if the cycle extends beyond CY '28, will this be a trend or you expect some reversion coming .

We expect a significant reversal. So of course, you are absolutely that we had kept certain strategic inventories of memory. There's also a peak season for us than working capital generally peaks up going before quarter 2 those outer money gets bogged under debtors and inventory and all. So what is strategic intent. Certain we had certain advances from our customers in March, which subsequently got paid. Also the PLI money, which is there for our IT hardware and the telecom business, which is there, which ultimately will come in, then capitalized. So we feel that out of this large part of money, which is grown to the money working capital, we feel that almost 80%, 85% of that will get released before March.

Next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.

And congratulations for good numbers. Sir, first question on the mobile side. So in overall scheme of things, you mentioned some customers and customers, some addition from Motorola. Is there any ramp down for many customers or net-net if you look at overall numbers, what should we paneling for FY '28 organically and plus Vivo. So that is first question. And second, with changing dynamics in end as you highlighted just some time back, how should we think of revenue as well as profitability in the first year of those 2 businesses?

So as far as the volumes are concerned, as we mentioned that in this year, we should close somewhere between 33 million to 34 million without -- we see that although the market is going to be under pressure, but there's going to be a decent growth in these numbers itself because fracation of new customer that is an Indian brand and also the port ramping up for our anchor customer. So that's the way it looks. And the Vivo, I think it should be a decent number of somewhere between total number of 55 million or 60-odd million. That's the way the numbers look. On the display and the camera module side or can you just .

Has a display, as you mentioned, in automotive and our IT Raines have already been installed, mobile lines will be installed by Q4. So as guided earlier also, we feel that these are high double-digit teen margin businesses for us which, of course, we expect the same to start generating those kind of numbers in next financial year. Camera modules have already spoken on my previous question. So clearly, both display and camera put together We feel that over a period of next 2 years, we should be able to expand our margins by 80 to 100 bps. So that is what we are targeting for.

And just 1 follow-up. So you highlighted FY '28 volume organically in [indiscernible]? Or so what total volume and virus if you can just clarify that. And I was just setting for QTc and SKC revenue next year or orieconomics or ESP volume, whatever you can share? So that would be helpful.

Yes. So on mobile volume, again, there are 3 levers. One is, of course, this year, 1 is you are broadly saying 33 million, 34 million, which we feel that the export ramp-up will happen for 2 of our anchor customers. Of course, 1 anchor customer, it will start happening from Q4. But again, there will be significant upside, which will happen from next financial year. So we feel that export numbers this year, we're targeting somewhere between 3.5 million to 4 million. We feel there be significant growth in those export numbers for next year. So that is added to the 34 million. Second is the Indian brand that we have just got added. So that can add another 6 million to 8 million kind of numbers for us. And on top of it, Vivo can add another 18 billion to 20 billion. So that is the potential of the kind of organic growth that we're looking -- the growth that we're looking at mobile phone business. Now as far as QTc is concerned, so of course, you have to make budgets for next year. But broadly, we should be in a kind of a number of almost somewhere between INR 2,500 crores to INR 3,000-odd crores. That is what we should be targeting for. And as far as display is concerned, we'll be putting about CapEx of almost close to INR 1,000-odd crores. So the DN potential for display business once it's completely ramped up in the next couple of years, -- it can generate revenues of close to INR 6,000 crores to INR 7,000 crores. A large part of it, of course, will be captive. So assuming that next financial year, we'll target to get at least 25%, 30% of that INR 7,000 crores.

Next question is from the line of Rahul Agarwal from Eugia.