Dixon Technologies, a contract electronics manufacturing company is in talks with global brands in the IT hardware segment and will start manufacturing by the next financial year, making this segment the second largest in terms of revenue after mobile and EMS, according to the CFO Saurabh Gupta.
“The company has been manufacturing laptops for Acer brand and manufacturing for Lenovo will commence from H2 of this fiscal year under the IT hardware PLI scheme. The company is also in discussion with large global brands and hopefully the manufacturing for them should commence by next financial year,” said Gupta. “We feel we will be able to capture a large share of the overall pie,” he added.
He said that there is a substantial opportunity in the IT hardware segment, with a market size of around Rs 66,000 crore (in manufacturing). With the government’s push for domestic manufacturing, Dixon aims to capture a 15 to 20 percent market share over the next two to three years. The company has been manufacturing laptops for brands like Lenovo and Acer under the IT hardware PLI scheme since entering the segment in 2020.
“Total IT hardware potential in India is around $10 billion, out of which $2 billion was already manufactured in India – primarily to meet the government requirements, because the government had a condition of preference to make in India,” he said.
The $8 billion (Rs 66,000 crore) market which was basically serviced through imports – 90% of which is coming from China, he said. “The government, in order to encourage domestic manufacturing, reduce the foreign exchange outflow, has imposed non-tariff barriers in the form of restriction on imports and also modified the IT hardware PLI where the outlay has been raised by two-fold to Rs 17,000 crores and the duration of the scheme has been increased to six years and the average incentive has been raised to 5 percent from 2 percent. The scheme comes with a significant backward commitment” he said.
However, one roadblock for the IT hardware manufacturers is the Union Government’s licensing requirement for imports of IT hardware such as laptops, PCs and tablets, under which importers of these products have to seek authorisation from the government. This is expected to end in September on the existing import management system for laptops and tablets after evaluation of import data.
Since IT hardware is an ITA (information technology agreement) product -- which all the countries have signed, the government couldn't have put a duty on this product. So, unlike mobile phone where the government imposed a duty of 20 percent to incentivise domestic manufacturing, it will be put under the restricted category.
After mobile phones, laptops and tablets will be another large category for Dixon, said Gupta. To tap the opportunity, the company is in advanced talks with various other multinational laptop and tablet brands.
"In the process, in another three to four years we feel confident that the localisation level can go to 35 percent to 40 percent," he added
Optimistic on JVs than M&As
Looking ahead, Dixon Technologies plans to drive growth more through joint ventures and partnerships rather than mergers and acquisitions. Gupta mentioned evaluating multiple partnership opportunities, including potential collaborations with (Original design manufacturer) ODM partners and component suppliers like HKC Corporation (HKC).
It recently announced a joint venture with HKC for manufacturing of Liquid Crystal Modules (LCM), thin film transistor liquid crystal display modules (TFT-LCD Modules), assembly of end products such as smartphones, TVs, monitors and auto displays and selling HKC branded end products in India.
“Our core is deep understanding of electronics, scalability, an anchor customer and possibility of further customer acquisitions, possibility of deepening the manufacturing and owning the designing and the IP and should generate over 30 percent return on capital employed (ROCE). This way we will not pay a very hefty premium on getting an acquisition,” he shared.
Server manufacturing plans
On the plans to start server manufacturing, he said it will take some time. "We will start with laptops and tablets, and then once we deliver & execute well on that, then the relationship with brands can potentially extend to servers. Once the industry attains a scale and starts generating operating leverage and becomes cost competitive then India can become a hub for sourcing global requirements of IT hardware products,” he added.
Plans for PCB manufacturing
Additionally, Dixon is exploring opportunities in printed circuit board (PCB) assembly, aiming to expand its presence in the automotive and industrial sectors.
Gupta shared that they have already put up a team and looking to build something in the southern part of India. PCB assembly market is growing at 30-35 percent. This would entails the working capital for two- three months, he added.
"As of now, the working capital intensity has been broadly in the range of zero plus minus 1 day, broadly in the last seven years. But now we think that if some businesses can come to us at a higher margin of 10-11 percent even if there is a working capital requirement, we will go ahead with it as we have a very strong balance sheet," said Gupta.
Recently, government also levied 30% anti-dumping duty on bare PCB from China & Hong Kong on six layers and lower. It doesn’t impact mobile which is mostly six layers, this move by the Government will strengthen the PCB manufacturing in India for self-reliance,” said the CFO of Dixon Technologies.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
