We have 9 factories of which 2 are located in South India at Tirupati and were started some 15 days ago. Production at one of these two factories has reached 60-70% level. It is a TV factory. The demand is slow at the second factory, where security surveillance systems were manufactured.
Atul Lall, Managing Director, Dixon Technologies (India) Pvt. Ltd talks about the plants where operations have started, unsold inventories, revision of pricing contracts, issues in sourcing raw materials and opportunities in the post-COVID world during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:
Q: Certain relaxations have been granted after lockdown 4.0. Can you tell us about the level of operations that have been started and the current capacity of production of your company?
A: We have 9 factories of which 2 are located in South India at Tirupati and were started some 15 days ago. Production at one of these two factories has reached 60-70% level. It is a TV factory. The demand is slow at the second factory, where security surveillance systems were manufactured. We are starting the process of manufacturing set-up box in that factory and hope that we will be able to use 30-40% capacity of that factory. In addition to this, we have five factories in North India at Noida, where one mobile factory has reached 40-50% production capacity, while the second mobile factory’s production has also reached 30-40% of its capacity. The bulb and light factories were started three days back from here and have reached the 15-20% level. However, the bulb and lighting facility located in Dehradun has reached 50% production level, while production capacity of washing machine factory is low yet. Some time is required to ramp up the production capacity and demand, which is likely to go high shortly. But it is difficult to say anything specifically about capacity utilization.
Q: Can you update us about the unsold capacity that is lying at your end?
A: We make products for other brands and we don’t have our brand. We are not consumer-facing and that’s why we don’t have any problems related to finished goods. Minimal inventory is available with us and that has been picked up by the brands. Thus, we don’t have any problems on that front.
Q: Is there any revision of pricing of the contracts or order books that were placed by your clients?
A: There is no change in pricing of those contracts and I believe that it is not going to come this way.
Q: How do you foresee things in this regard?
A: I don’t think that there will be a significant change. But there has been some discrepancy due to currency and it may have some impact on costs.
Q: Some reports are claiming that the discretionary spend of consumers will be hit which will have an impact on demand. What is your assumption and tell the time by which full-scale recovery will happen and what is your outlook for the next six months?
A: You are right, but surprisingly what I am seeing since our TV factory was opened that TV demand, particularly online sales, is healthy. Similarly, the demand for cheap mobile phones is also very good and customers are not planning less for it but are asking for more. Lighting is a low-value product, like bulb or tube light, and that’s why I think demand will return in this segment in the next 2-3 months. However, Security Surveillance System will take more time because it is a discretionary spend and taking value is more. In the case of the washing machine, the actual season starts in the monsoon season, i.e., July and August, and I feel it will also restore its demand. But we will have to wait to know what exactly will happen.
Q: Are you facing any issues in sourcing the raw materials, if yes, what is your dependency on sourcing them from other countries particularly China? We are talking about Atma Nirbhar Bharat and there are talks that India can be a sourcing hub. So, do you see any opportunity for India in terms of component manufacturing that is sourced from the outside world but can be made in India?
A: In our case, we import several components from different Asian countries including China. Fortunately, we are not facing issues related to imported components at present as there is no issue in the supply chain, may it be international or local, and to a large extent, it is under control. As far as the opportunity of localization is concerned then Dixon will have a focus on it and it is a big opportunity for the country as well as the industry. Dixon has prepared a road map to localize components, motors dynamos and gyre boxes which were imported. So, I feel that the country’s content will significantly increase in our products in the next one-two years.
Q: Are you looking forward to changing the CapEx plan that was formalized earlier and are you looking forward to new business opportunities in the post-COVID world?
A: Dixon has a strong balance sheet and is free of long-term debts. We were carrying cash on March 31, 2020, and the debts stand at just Rs 30-40 crore and the balance sheet is healthy. I feel that the consumer durable and electronic items that will be sold in India are going to be made in India. Brand owners will outsource more and more from outside and go for contract manufacturing and Dixon has a scale, skillset and capability in it. So, we have no plans to reduce our CapEx. We have cash/ liquidity and that’s why will go ahead with the CapEx plan that was made in the pre-COVID world.
Besides, I feel a lot of opportunities will come for that Dixon and we will invest in the government’s production-linked incentive (PLI) scheme on mobile phones and increase its capacity in the segment. Mobiles will be made not only for domestic consumption but also for export purposes. The second vertical that we are exploring belongs to medical electronics and team is working on it and I feel that a roadmap for the same will be designed in a short period.
Q: How is the new order book of Dixon?
A: Customer acquisition is a continuous exercise for us. I am in a silent period and that’s why can’t provide any details about the clients but have acquired significant customers in every vertical. The order book is different in different verticals as I have said that order book for cheap mobile phones and television is very healthy but demands are low in washing machine and security surveillance system. Demand is not too good or too bad in case of lighting division. It is somewhere in midway. – Zeebiz