Dixon Technologies set to gain from new mobile phone manufacturing scheme

The new mobile manufacturing scheme rewards incremental sales, localisation and domestic R&D, potentially supporting Dixon's exports and smartphone volumes

The details of the new Mobile Phone Manufacturing Scheme (MPMS) were released on Friday. It has two sub-schemes. Target Scheme 1 focuses on scaling manufacturing and localisation. Target Scheme 2 looks to push local smartphone brands.

 

Eligibility is complicated. Mobile phone manufacturers, including EMS, with a minimum turnover of ₹10,000 crore in FY26 are eligible. Computation of eligible sales and baseline sales is done on a brand-wise basis.

 

Existing brands must record minimum incremental sales of ₹5,000 crore every year, above the total sales of FY26. Any new brand is eligible only after it achieves total annual sales of ₹10,000 crore. “Baseline Sales” are total domestic sales of the target segment for the brand in the preceding financial year plus 15 per cent, applicable every year. So, it would be 115 per cent of FY26 sales in FY27, followed by 115 per cent of FY27 sales in FY28. Eligible sales would be calculated by subtracting baseline sales from total target segment sales.

 

The quantum of incentive is eligible sales multiplied by incentive rates, subject to threshold criteria. Additional incentives of up to 1.5 per cent will be provided on eligible sales for domestic sourcing of key components/sub-assemblies like display modules, camera modules, enclosures, batteries and USB cables. Such components must be localised for a minimum of 25 per cent of the mobile units sold.

 

The brand should be registered/incorporated in India. Intellectual property (IP) and trademark should be held within India. Management control must be with Indian citizens with over 51 per cent shareholding in the entity owning the brand. R&D and design must be in India. An additional incentive of 3 per cent shall be given on eligible sales for Indian design and R&D.

 

There are no minimum threshold sales requirements for Indian brands. FY27 shall be the first performance year. Or, if the applicant opts for a gestation period, then FY28 may be the first year. Baseline sales shall be the sales during FY26 (or FY27 if the applicant opts for a gestation period).

 

Given flat domestic sales, export growth is imperative to meet the criterion of ₹5,000 crore in additional sales. The MPMS has an outlay target of ₹62,500 crore to expand production, increase value addition, strengthen supply chains and enhance global competitiveness.

 

MPMS has a tenure of five years from FY26-31. Few players meet the criterion of ₹10,000 crore in FY26. The FY26 criterion of ₹10,000 crore for EMS could drive consolidation and imply margin pressures. Dixon Technologies and Bhagwati Products (unlisted) are eligible, and Amber Enterprises may be eligible with FY26 revenue of ₹10,000 crore as it is entering mobile manufacturing.

 

Incentives are in two ranges, 2.25-2.75 per cent and 4-5 per cent. Sales eligible for incentives are incentivised at 2.25-2.75 per cent, and in other cases at 4-5 per cent. Companies growing above their FY24-26 average growth could be incentivised at higher rates. Backward integration would be rewarded by the localisation incentives. 

 

Dixon had soft Q1FY27 results but a rebound in smartphone volumes, including market share gains. Revenue was up 21 per cent Y-o-Y. The mobile & EMS segment saw 40 per cent Q-o-Q growth and market share gains. Dixon manufactured 7.5 million smartphones in Q1FY27 and guided for 20-25 per cent Q-o-Q volume growth in Q2FY27. Returns are good, with return on capital employed, or RoCE, at 34.1 per cent and return on equity, or RoE, at 23.4 per cent. But earnings before interest, tax, depreciation and amortisation, or Ebitda, margin at 3.0 per cent is low, and inflation will keep margins under pressure.

 

The approval for the Vivo joint venture will add to revenue from Q3FY27 and the new scheme will support Dixon’s export volumes. Near-term margins are under pressure. Revenue could rise at 35 per cent per annum between FY26 and FY29. Earnings per share may grow at 78.3 per cent Y-o-Y in FY27 but moderate to the mid-teens off the high base in FY28.

 

Amber Enterprises (AEL) reported Q1FY27 revenue of ₹3,890 crore, up 13 per cent Y-o-Y. Ebitda was up 22 per cent Y-o-Y to ₹310 crore. EMS segment revenue growth was 29 per cent Y-o-Y to ₹990 crore, with Ebit margin up to 8.3 per cent from 6.4 per cent Y-o-Y. Guidance was for 40 per cent growth in the electronics segment. Adjusted net profit was ₹126 crore, up 12 per cent Y-o-Y, adjusted for an exceptional loss of ₹123 crore – further adjusted for inventory, it would be a net profit of ₹141 crore.

 

AEL is entering mobile-phone manufacturing through a collaboration with Oppo, covering Oppo, OnePlus and Realme. Trial production is targeted for Q4FY27, followed by commercial production in Q1FY28, with an initial capacity of 8 million units in year one and a ramp-up to 15-16 million units in year two across all brands.