Despite global uncertainties and potential tariff challenges, both companies expect to maintain a 35-50% compounded annual growth rate (CAGR) over the next three to five years, driven by expansion, backward integration, and increasing export opportunities.
Dixon Technologies expects 35-40% annual revenue growth.
“We are looking at 40-50% CAGR on revenues without any dilution of margins,” said Jairam Sampath, CFO of Kaynes Technology.
With rising trade tensions and the possibility of new reciprocal tariffs by the US, there are concerns about India’s exports. However, industry leaders believe India remains competitive.
“Even if reciprocal tariffs are introduced, they will not have a significant impact on India’s position in the electronics and smartphone sectors,” said Saurabh Gupta, CFO of Dixon Technologies.
Below are the edited excerpts of the interview.
Q: Given the exceptional growth that we’ve seen in the past for the sector, can it continue over the next three to five years? Your five-year revenue and profit CAGR have been 40 to 45%. Your return on assets (RoAs) have been about 23–25%. Now, considering that you have expansion plans, you are adding capacity, and you are looking at display fabrication manufacturing for the next three years at least, do you think you can sustain this 40–45% kind of revenue and profit growth and maintain your RoAs?
Gupta: So, we feel confident about the kind of opportunity that we are sitting on, both for the domestic market and now increasingly for the global markets as well. I think there is no reason why we can’t grow by 35–40% annually for the next three years, with more focus on backward integration. So, I feel that that will add more strength and should also lead to margin expansion, which we are working on right now. So yeah, 35–40% growth is definitely doable for the next three to four years.
Q: RoAs— can you build on the current levels? Do you think the expansion could help?
Gupta: My sense is we have grown from ₹2,000 crore to ₹39,000 crore in this financial year, and we have not compromised on return on capital employed (RoCE) and RoAs. In fact, those have only gotten better. Last quarter, our RoCE was almost 42% and initially, we were at 30%. We think that those RoCE and RoA profiles should be maintained.
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There should be significant cash flow generation because the businesses where the largest growth is happening for us are basically mobiles and IT hardware going forward. These businesses have high asset turns, and once we focus more on backward integration, it will have a positive impact on RoCE and RoAs.
Q: You are setting up capacities in Printed Circuit Board (PCB), Optical, Substrate, Assembly, and Test (OSAT) over the next two to three years. So that is going to be the incremental revenue driver. What kind of revenue growth are you confident about for the next three years, given the visibility and the plans that you have? Also, share your expectation on how margins and return ratios will move.
Sampath: This question is something that we have been analysing internally. Fundamentally, the EMS sector is good for 40–50% CAGR without any dilution of our EBITDA numbers. Of course, we need to improve our RoCE by improving working capital and networking capital, which perhaps will happen with scale.
Now, the additional sector that we have entered, like semiconductor assembly and PCB manufacturing, is going to be value accretive. In two to three years, they will also start contributing to revenue and profitability. So, we should be able to see about 40–50% CAGR on revenues without any margin dilution. Hopefully, we will also improve working capital management, so that RoCE remains strong.
One thing is to enjoy the tailwinds that exist, but we also need to prepare for the future. Beyond 2027-28 (FY28), we aim to reach $1 billion, which is a big milestone. However, we are acutely aware that in a few years, we will need to achieve an even higher number. So, we are also looking at new markets to bolster growth. Currently, growth is domestic-driven, supported by government policies. But over time, these factors may change, so we must prepare for geopolitical shifts.
Q: The long-term story seems intact, but what is the update on ordering activity in quarter four so far? Also, can you update us on the smart meter segment? Is demand meeting expectations, or has there been a slowdown?
Sampath: Let me take the smart meter question first. We see an acceleration. This year, we expect a very strong quarter four, thanks to smart meters. Next year, we might double the number of smart meters we deliver. Order inflows have been increasing at a rate of 25–30% per quarter. Multiplied by four, that’s a strong pipeline.
Even excluding some sectors where we are strong but haven’t received expected orders, 2025-26 (FY26) could be even better than 2024-25 (FY25). We are seeing steady growth, not just in ESM, but also in semiconductor and PCB manufacturing.
Q: On the PCB project, what is the incentive amount that you are factoring in? And if you could tell us, when does that project go on stream as well?
Sampath: That project will start getting significant revenue the fourth quarter of coming year 2025-26 (FY26) and we get about 60% total capital subsidies. We don’t talk too much about the production-linked incentives (PLIs), etc, because PLIs are visible things, and we don’t give much reliance to PLIs. But certainly capital subsidy is something which helps us to get off the ground very quickly.
Q: Regarding these delayed orders – quarter three was impacted by this ₹100 crore delay, which was supposed to be pushed over into quarter four. Are you on track with that? And I think at the end of the third quarter, you said that the year should end between ₹2,800 crore to ₹3,000 crore. Are you still within that ballpark for revenue?
Sampath: We will certainly cross ₹2,800 crore, and we will do an EBITDA of 15%. We are just a few weeks away from the end of the year. Coming year, certainly, we are a little more careful. Most of the delivery-related issues have been ironed out, and now most of the factories are firing on full cylinders, so hopefully, next year will be a strong year.
Q: There was some talk of you looking at equity fundraising as well. There was talk of a ₹1,600 crore fundraise because you wanted to acquire entities overseas. Where are you on that?
Sampath: We continue with our actions. The only thing is that the fundraise probably got deferred by a couple of months. We thought we would get the year behind us before proceeding. We have got the approval from the shareholders, so we will be launching sometime in the coming fiscal, when the time is right and the opportunity window is there. At the same time, we are not slowing down on our activities, and we do have a three-pronged strategy. One is geographical expansion, the other is strengthening our ODM capabilities, and the third is deepening our technology footprint.
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Because we realise that all these tailwinds of demand, whether created by tariff barriers or other localised demand factors, will eventually get equalised. We need to be a technology leader, so that is what we are preparing for. This is not required for our $1 billion target, but it is required for doing something beyond $1 billion by 2027-28 (FY28).
Q: I was looking at a note that came in just yesterday from Nomura. Everyone’s trying to wrap their heads around the numbers on this whole tariff business. According to these Nomura estimates, our overall electronics exports to the US have grown significantly. They were at 2.5% in 2019-20 (FY20) and are now at $11 billion in 2023-24 (FY24). So now, if reciprocal tariffs kick in, what happens to the EMS story with respect to the US market? Could you give us a ballpark sense of how this might impact you?
Gupta: So let me give you my perspective. This is an ongoing issue. Negotiations are still underway, and the broader details are yet to be finalised. But let me give you my take. India’s exports to the US are currently $11 billion, and this number will increase in 2024-25. However, it is still far lower than China’s exports. India’s share of electronic exports to the US is just 2–3%, while China’s stands at around 35%. Mexico is at approximately 22%. So clearly, China and Mexico hold much higher shares of US electronic imports.
Now, tariffs have already been implemented on both India and China, at around 20%, whereas previously, these tariffs were negligible or nonexistent. Despite this, we feel that India remains competitively positioned. The import duty on finished mobile phones in India is still 15%, and on wearables, it is around 20%. However, component tariffs are lower, so the weighted average tariff for electronic products is still only 3–4%. If the US implements reciprocal tariffs, they can either match India’s tariffs on the same products or impose an average tariff across a basket of commodities.
Given this scenario, if reciprocal tariffs come into effect, they would be around 3–4%, which is relatively low.
Regarding US-based manufacturing, we feel it is unlikely. While anything is possible, there are key challenges: Low value addition in the product.
Wage disparity—US wages are almost 10 times higher than in India. For example, labor costs in India are around $1.50 per hour, whereas in the US, they are about $15 per hour. A strengthening US dollar, which makes domestic manufacturing even more expensive.
Considering all these factors, India remains in a stronger position. However, we are in a dynamic global market, and for supply chain shifts to happen, tariffs on China and Mexico must be sustained.
Q: Right now, what is Dixon’s exposure to the US? What percentage of total revenue comes from exports to the US?
Gupta: For us, it’s a very small percentage. Last year, it was about 5% of our total revenue, mainly from our anchor customer. However, that same anchor customer is now looking to increase export volumes to the US, especially given the tariffs imposed on our neighboring country.
Q: And you don’t think that’s at risk? Will that US-based anchor customer continue to source large volumes, given the rhetoric and policy changes in the US?
Gupta: We believe we still have a competitive advantage over China. Even if reciprocal tariffs are introduced, they will not have a significant impact on India’s position in the electronics and smartphone sectors.
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