₹10 billion! That is what Ekkaa Electronics plans to invest in a new manufacturing facility in Noida, focusing on LED displays. In a freewheeling chat with EFY’s Yashasvini Razdan, Sagar Gupta revealed the details of his plans to increase value addition from 5% to 40% per product as the company aims to enhance self-reliance in manufacturing of LED TVs…
Q. Can you tell us more about your commercial display division and the digital signage products you offer?
A. In India, as in the rest of the world, there’s a significant shift towards AI development, particularly in commercial displays and outdoor displays. In cities like New York and Shenzhen, buildings are adorned with dynamic displays capable of projecting advertisements and animations. We aim to introduce this culture in India, where there is currently no manufacturing for such displays. Our focus extends to various types of commercial displays, including outdoor displays, such as mini LED screens, which have immense potential for advertising. Additionally, we plan to venture into interactive displays, a rising trend in the market. These interactive displays are in high demand in schools, institutions, offices, and co-working spaces, where wireless connectivity and seamless presentations are essential.
Q. How do you foresee the growth in demand for the commercial displays in India?
A. We have observed a significant and emerging demand for interactive displays in India. Additionally, when we engage with showroom owners and brand proprietors, we identify a pressing need for commercial displays and smart displays in the Indian market. Many of them express a desire for these products, but they face challenges in sourcing them locally. Often, they can only find such products through imports, and after a few years, they may abandon the idea due to various complexities. Our goal is to change this landscape by becoming a major supplier of these products in the Indian market. By doing so, we aim to stimulate and meet the growing demand for these displays. This shift will not only make these products more accessible to businesses and consumers but also contribute to the development of this segment within the Indian electronics industry.
Q. Can you provide details about the new manufacturing facility in Noida?
We believe there is a need to establish a global unit that can cater to global companies across all countries, offering comprehensive export facilities. This will allow us to compete on an equal footing with companies supplying products worldwide. Manufacturing has gradually gained momentum in India in the past five to seven years. I say ‘gradually’ because changes in duty structures have incentivised local manufacturing over complete importation of finished goods. While we continue to import raw materials, our focus has shifted towards domestic production in India over the last five to seven years. It is evident that the time has come to expand our manufacturing capabilities and construct mega factories capable of serving India and the entire world. To achieve this vision, we require top-tier equipment, state-of-the-art facilities, and significant investments in research and development. This will enable us to meet the global demand effectively. With this vision in mind, we are planning to enrich our LED TV production. We are embarking on complete backward integration, aiming to manufacture every component except semiconductors. The scale of the new plants will be unprecedented, making them the highest capacity plants in India. We are also in discussions with some of the world’s most renowned brands. We are establishing our presence in Noida for this purpose, and this is the rationale behind our decision.
“Our next step will be to explore the bonding of open cell components in India”
Q. Can you explain your strategy for backward integration, both current and future?
Our existing plant is not limited to just assembly; we’re already engaged in some manufacturing activities. We perform injection moulding and SMT processes. With the new plant, we’re planning to expand on this foundation. However, it’s important to note that we can’t immediately transition from raw materials to complete backward integration, encompassing semi-finished and finished goods from day one.
Now, we can engage in complete raw material processing, converting them into semi-finished goods currently imported into India. Our plan is to become India’s first major manufacturer of backlights for LED TV panels, which are entirely imported right now! Our long-term vision includes gradually venturing into semiconductor manufacturing as well, as the plant becomes more viable and economically sustainable, potentially surpassing the significance of mobile manufacturing.
Q. What will be the initial production capacity for LED TVs at the new facility, and how does it compare to the Sonipat unit?
A. Currently, in Sonipat, we manufacture approximately 125,000 pieces per month. Moreover, we’ll get additional capacity of 25,000 pieces per day in the new plant.
Initially, in the new facility, we aim to have a production capacity of 500,000 pieces per month. However, the plant’s capacity can be extended up to 700,000 to 800,000 pieces per month, and potentially even up to one million pieces per month.
Q. How are you funding the ₹10 billion investment?
A. Approximately 40% of the committed investment has already been utilised, and the remaining six billion will be allocated over the next three years in six-month phases. Our current funding sources primarily come from the company’s internal funds, and we have a substantial reserve for this purpose. Additionally, we are securing corporate loans and exploring debt financing options with our machine suppliers to support our funding needs.
Q. What ROI do you expect from the ₹10 billion investment?
A. We anticipate recouping our investments within a three-year timeframe. It’s a high turnover segment focusing specifically on LED TVs, but profit margins are relatively low due to its commodity-like nature. Like other manufacturing, where profit margins are limited, LED TVs yield approximately 4% net profit in the market. However, our strategy involves diversifying into different product lines, including washing machines, commercial displays, and multimedia speakers. We aim to achieve substantially higher net profits with these products than the LED TV segment.
Q. What motivated you to invest this amount?
A. In the current period, India is emerging as the next manufacturing hub, poised to drive economic growth for the next decade. This is happening when the global economy is grappling with recessions and de-dollarisation’s effects. Even China, a dominant player, is experiencing these effects. As a result, there is limited scope for further expansion in China. Now, virtually every company worldwide is looking towards India for the next five to ten years due to its immense potential and anticipated growth. Given these circumstances, we believe this is the opportune moment to invest in core manufacturing and establish mega factories in India. India is poised to become the next major supplier to the global market, and these factors have shaped our decision-making process.
Q. Can you outline your strategy for investment in the next few years, focusing on R&D, machinery, and other expenses?
A. Our investment strategy involves breaking it down into six equal phases over three years, totalling ₹1 billion every six months. These funds will be primarily allocated to R&D and expanding our production capacity. We intend to continually increase and enhance our manufacturing capabilities while investing in research and development. Additionally, we plan to venture into backward integration. Open-cell manufacturing is not present in India and involves five distinct processes. We aim to engage in some of these processes gradually. Manufacturing a complete open cell requires substantial investments, with each process demanding a substantial budget, ranging from ₹2 billion to ₹200 billion. To align with these plans, we also intend to take advantage of government initiatives, such as reduced duties on open cell manufacturing in India. Our next step will be to explore the bonding of open cell components in India.
Q. Can you provide details about the tax incentives, subsidies, and government support that your new manufacturing facility is benefiting from?
A. We have two types of policies to consider: state-level policies and central government policies. At the state level, we have chosen Uttar Pradesh (UP) because it offers favourable electronics manufacturing policies, given that the entire electronics industry ecosystem is well-established and accessible in Noida. In UP, we benefit from the government’s capital and interest subsidies. On the central government front, we are engaging in MOOWR (manufacturing and other operations in warehouse), a well-structured initiative to promote the ‘Make in India’ campaign. This scheme is particularly advantageous for export-oriented ventures, as it offers significant benefits, including deferred duties and various taxes, such as GST when importing raw materials from around the world and subsequently exporting products. The MOOWR aligns well with our objectives, and we are actively pursuing it. These are the key policies that are currently relevant to our plans.
Q. Are you seeking external investors or partnerships to support the ₹10 billion investment?
A. Our objective is to take the company public by 2025 or 2026. We are not pursuing private equity investments because our current financial requirements have been adequately addressed. We don’t want to dilute our equity at the current valuation, especially considering the turnover we have achieved. However, I am confident that our valuation will significantly increase once we reach our initial turnover targets within the next one or two years. If we find a strategic partner who can contribute to our industry growth, distribution, supply chain, procurement, or manufacturing capabilities, we would prefer such a partner over a purely financial one. After 2025 or 2026, we plan to explore private equity options as part of our expansion strategy, but not before that.
