Dixon partners with Bharti to make telecom equipment under PLI scheme

Dixon group on Wednesday formed a joint venture (JV) with Bharti Enterprises to apply for government’s production-linked incentive (PLI) scheme for manufacturing of telecom and networking products. 

Under the plan, the JV is targeting the Bharti group to pick up 80-85 per cent of the value of its cumulative sales of five years. 

The JV, in which the electronic manufacturing services (EMS) player will hold a 74 per cent shareholding (the rest with Bharti), will be the first company to be applying to avail of telecom PLI incentive. 

Under the scheme, the government has earmarked an outlay of Rs 12,195 crore for manufacturers of telecom gear with incentives ranging from 4 per cent to 6 per cent on incremental sales for five years. The detail modalities are being finalised. As part of its proposal, the JV is aiming to reach a cumulative revenue of over Rs 6,600 crore in five years and invest over Rs 100 crore as stipulated under the scheme for getting the incentive.

The JV will manufacture internet set-top boxes, modems, routers, and IoT devices. The company will have the advantage of having an assured buyer in Bharti. Talks are also on with other players.   Saurabh Gupta, chief financial officer of listed company Dixon Technologies, said: “We are confident that we will cross the revenues stipulated under PLI by around 15 per cent as we are planning to hit revenues of Rs 600-800 crore in the first year of the PLI itself .”

If the JV reaches the PLI target, it will be able to get incentives under the scheme of around Rs 322 crore in the five-year period, which is three times its incremental investment.   Gupta said the joint venture could extend the product line later to include other network wireless products, radios, amongst others. While its focus will now be on import substitution, the long-term effort would be to export out of India, he said.

Dixon has identified around Rs 7,000-crore per annum market for the products under PLI scheme, of which more than 50 per cent is imported. And it is also growing at a heady space.

Experts say the JV makes sense for Bharti, apart from getting an assured supplier of products. The company, for instance, has tied up with global companies to develop products (hardware and software to power 4G and 5G networks based on open radio access network) and has its own team to function as a system integrator. However, it would require companies to make the hardware and Dixon could be the ideal player.

The Rs 4,400-crore Dixon Technologies has plans to become one of the top 10 EMS players in the globe. It is currently in the bottom of the top 20 list. To achieve the target, the revenue has to go up seven to eight times (around $4.7 billion). Dixon Technologies Chairman Sunil Vachani is banking heavily on the PLI scheme to hike his revenues. It is one of the players that is eligible for the mobile device PLI, but it, like others, could not meet the first-year sales target. It will also bid for being eligible in the IT hardware, LED, PLI schemes, too.