The Production Linked Incentive (PLI) schemes anticipated in the 2024 budget, particularly for the electronics sector, which contributes 3.4% to India’s GDP. The government has allocated 1.4 trillion INR over the next six years for sectors like semiconductors, design smartphones, IT hardware, and components.
Growth Projections and Budget Allocation:
The Ministry of Electronics and IT (Meity) expects India’s electronics manufacturing industry to grow at a 32% CAGR from 2021 to 2026. In the 2024 budget, a 40,000 crore INR PLI scheme for electronic sub-assemblies and components is expected to be announced.
Key Companies Benefiting from PLI:
Three companies highlighted for their potential benefit from the PLI scheme are Dixon Technologies, Kaynes Technology, and Amber Enterprises. Dixon has been covered in detail-
Major semiconductor Stocks in India-
Dixon Technology and Key Highlights-
Dixon Technologies revenues grew 15% YoY to Rs 3,274 Cr, which were better than our estimates of Rs 3,094 Cr. The Gross Margins improved 62 bps YoY due to lower RM costs. The EBITDA margins improved 60 bps YoY led by operating leverage, cost optimization measures across verticals and calibrated price hikes in ODM businesses i.e Washing Machines and Lighting. The company reported a PAT of Rs 67 Cr vs. estimates of Rs 87 Cr.The Consumer Electronics segment’s (FPD TV) revenues stood at Rs 882 Cr (down 5% YoY) with Operating Margins of 3.4% up 70 bps YoY. The margin improvement was led by operating leverage and increase in ODM share in the revenues. The company will rollout, Android based solutions from Google by Q2FY24 and the Tizen operating system in partnership with Samsung by Q3FY24.
Mobile Phone & EMS segment Revenues for the segment stood at Rs 1,795 Cr (up 38% YoY) with Operating Margins of 2,9% up 40 bps YoY. The company has added Intel as new customer in the mobile segment for manufacture of Feature Phones as well as Smart Phones.
Management Guidance and Strategy:
Management is confident of maintaining healthy growth and margins (4.2%-4.5%) without issuing specific revenue guidance. Key growth drivers include increasing mobile revenues, new product launches, contributions from new segments and exports, and new customer acquisitions.
Kaynes Technology's Role and Financials:
Technology is into electronics manufacturing with products used in various sectors like street lights, smart energy meters, and aerospace. They have applied for a 76,000 crore INR semiconductor scheme and are involved in a joint venture for chip assembly in Telangana. Their financials show strong growth, with significant increases in revenue and profit over recent years. Company acquired 100% stake in Digicom Electronics INC. USA for USD 2.5 million in Dec-23 which is in Electronics Manufacturing Services.Company on October 06, 2023 entered into a MoU with Government of Telangana for setting up of Outsourced Semiconductor Assembly and Testing (OSAT) and Compound Semiconductor manufacturing facility in the State (Telangana) with an investment of INR 2,800 Cr.
The company achieved a 60% year-on-year revenue growth, totaling INR 18,046 million for FY 2024, and plans to continue expansion in various sectors, including high-performance computing and aerospace.The company’s operational EBITDA margin for FY 2024 was strong, and they expect further improvements in FY 2025.
Amber Enterprises and Key Highlights-
Amber Enterprises India Ltd is the leading players in the Air Conditioners- Original Equipment Manufacturer (OEM)/ Original Design Manufacture (ODM)- industry in India. It has a dominant presence in Room Air conditioners (RACs) and major RAC components but focus on diversify the supplying components of non-room AC applications such as telecom components, smart meter components, automobile components, refrigerator, washing machine, microwave components and more. As a result of this strategic shift, our contribution from room AC has decreased from 72% in FY’18 to just 40% in FY’24. Company acquired a 60% stake in Ascent Circuits one of the leading Printed circuit board company in India. This helps us to provide more integrated solutions to the customers and backward integration into the passive components of PCB assemblies for diverse applications including aerospace and defence, medical, telecom, consumer electronics, and automotive sectors.
Overall performance of the company revenue for FY’24 was Rs. 6,729 crores compared to Rs. 6,927 crores in FY’23.Operating EBITDA for FY’24 stood at Rs. 519 crores versus Rs. 475 crores in FY’23.PAT for FY’24 stood at Rs. 139 crores versus Rs. 164 crores in FY’23.Overall CAPEX for FY’24 stood at Rs. 373 crores compared to Rs. 698 crores in FY’23.
Challenges and Solutions in Electronics Manufacturing:
Major challenges include the high cost of capital and lack of access to technology and skilled workforce. Solutions proposed involve entering joint ventures with companies from Taiwan and South Korea, focusing on globalizing before localizing, and strategic government support through PLI schemes.