Indian contract handset makers may miss FY23 PLI targets

The two who met the FY22 targets were Padget Electronics, a Dixon Technologies subsidiary, and UTL Neolyncs, which makes the JioPhone series. UTL Neolyncs is a JV between Bengaluru-based UTL Group and Neolync Solution, in which Reliance Industries holds a 40% stake. But both are also facing a slowdown now and are likely to miss the FY23 targets.

Domestic contract handset manufacturers are struggling to get contracts from smartphone brands despite being eligible for the production-linked incentive (PLI) scheme as weak demand has forced companies to recalibrate their requirements. This has led to the local electronic manufacturing service (EMS) players finding it hard to meet the incremental production targets under the PLI scheme.

Three of the five domestic companies eligible under the PLI scheme—Lava International, Bhagwati (Micromax) and Optiemus—have failed to meet the incremental production targets for FY22 under PLI and most of them may miss the FY23 targets as well.

Indian contract handset makers may miss FY23 PLI targets

The two who met the FY22 targets were Padget Electronics, a Dixon Technologies subsidiary, and UTL Neolyncs, which makes the JioPhone series. UTL Neolyncs is a JV between Bengaluru-based UTL Group and Neolync Solution, in which Reliance Industries holds a 40% stake. But both are also facing a slowdown now and are likely to miss the FY23 targets.

Dixon said it is facing a severe slowdown in orders, owing to the weak demand for handsets amidst rising prices. The company makes smartphones for Motorola and feature phones for Nokia.

“Motorola volumes have been under pressure in the current quarter, which has impacted our performance in mobile business,” Atul Lall, managing director, Dixon Technologies, said in their recent earnings call. He added that while Motorola’s India market share has sustained, the volume for exports, particularly to the US, did not materialise.

Smartphone shipments have declined in five out of the past six quarters, as per Morgan Stanley, while IDC India has estimated a 10% on-year decline in 2022, adding that a recovery will be difficult and elongated in 2023.

All the local players are now hoping to sign manufacturing contracts with top Chinese players such as Xiaomi, Oppo, Vivo and Realme, who in turn are looking to get benefits of the PLI scheme and ramp up local value addition and start exports out of India, ET reported in its January 9 edition.

Dixon’s Lall said the key to growth in the mobile manufacturing business was new customer acquisition, as there was a slowdown in the market. He added that Dixon was close to signing two new customers for its mobile business.

But a big hurdle for the Chinese players in awarding contracts to local manufacturers has been the trust deficit, which has meant that no deals have been finalised even after several months of talks.

“Xiaomi, Oppo and Realme have done factory audits of Optiemus, Bhagwati and Lava, but even after a year of talks, no final offer has been made,” an industry executive said.

Another executive said there’s a trust deficit towards domestic manufacturers such as Lava and Micromax, which have their own consumer-facing smartphone brands. “The fear is they will learn from the Chinese brands and implement for their own brands.”

The second executive said the domestic EMS players need to be given the designs, components and other manufacturing recipes. There is always a possibility of them implementing the processes for their own brands.

But Rajesh Agarwal, director of Bhagwati Products, downplayed this, saying Bhagwati and Micromax are two separate entities and contract manufacturing is undertaken under strict confidentiality agreements. He added that the company is in advanced talks with multiple Chinese smartphone brands to start manufacturing for them.

ET’s emails to Optiemus and Lava International remained unanswered till press time.

However, Agarwal agreed that because of low demand and poor market share of Indian smartphone brands, the contract manufacturer will be missing the PLI targets for this fiscal year (FY23) as well.

“We have big plans for Micromax in 2024, which is when we are hopeful to meet the incremental PLI targets,” Agarwal added.

For Lava, the baseline for the first year was too high for them to meet the incremental targets for FY22, said the first industry executive, under condition of anonymity. The company presently manufactures its own smartphones and feature phones, and also manufactures for HMD Global’s Nokia brand.

A third executive said Lava missed the targets last year by around 15%, but they are hopeful to get more business from HMD, which may help them meet the targets for FY23.

“For smartphones, we are looking to increase our production with both our EMS partners—Dixon and Lava,” said Sanmeet Singh Kochar, vice president, HMD Global.