Bracing for pressure: Phonemakers dread the day govt pulls plug on PLI
production-linked incentive
(PLI) scheme for
mobile phone manufacturing
ending next year and the government remaining non-committal on extending it,
Indian contract manufacturers
are bracing for pressure on operating income and margins.
Industry executives and experts said the end of the scheme is also expected to increase competition, as the PLI beneficiaries will lose the advantage they have from passing on some of the incentives to customers.
"The million-dollar question for the industry is 'what's remaining' if these incentives go away? The scheme has been critical in allowing manufacturers to offset higher manufacturing costs by passing incentives back to customers," the chief executive of an Indian contract manufacturer said, asking not to be named.
After the scheme ends, quality and workmanship will become crucial in becoming dominant in the industry, the CEO said, adding that the industry is expected to see more consolidation after FY26, with space for two-three more players controlling major volumes.
Analysts forecast a fall in operating margins and increase in net
working capital
days for players such as
Dixon Technologies
, which has been one of the biggest beneficiaries of the scheme.
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PhillipCapital cut its fiscal 2027 estimates on Dixon - revenue by 4%, Ebitda by 6% and profit after tax by 9% - citing "higher competition in the mobile-phone assembly space".
"Dixon shares its PLI benefits with its mobile phone clients, which is offset by favourable net working capital (NWC) terms. However, once its mobile phone PLI ends, we expect Dixon's NWC days to trend towards 35+ (in line with peers - Foxconn's were at 40+ for CY24), leading to a falling RoCE trajectory," the brokerage said.
The
PLI scheme
for mobile phones, which has been a significant driver for making India the second largest manufacturer of handsets, is set to conclude in FY26. Eligible manufacturers receive 4-5% direct incentive on incremental production, which helps offset the cost-disability they had against global peers.
In an earnings call, Dixon managing director Atul Lall said PLI incentives add 0.6-0.7% to its mobile phone
manufacturing margins
, reported at 3.5% in FY25. A significant portion of the PLI incentive (around 3.4% out of the 4-5%) is passed down directly to customers to offer competitive costs and deter competition.
The contract manufacturer expects to offset the margin loss with more backward integration of components and improving operational efficiencies. It has also signed strategic joint ventures with some of its customers, ensuring a long-term commitment.
With the scheme ending, the advantage PLI-eligible players had in commanding lower prices for customers will go away, experts said.
"There is a doubt whether a significant competitive moat will exist for Indian companies in this business once the PLI subsidy ends. Companies like DBG Group, which is Chinese-owned and operates in India, have demonstrated the ability to compete even without the PLI benefit due to their high yields and operational efficiency," an industry analyst told ET.
He added that DBG operates at lower margins (3-3.2%) compared to Indian players benefiting from PLI. Once the market returns to organic margins after the PLI scheme concludes, analysts expect Chinese players will gain market share.
Contract manufacturers, on their part, have been asking for an extension of the scheme.
"It is in the government's interest to extend the current scheme or introduce a 'PLI 2.0', though there is no certainty that this will happen," the CEO cited earlier said.
Government officials said the renewal of the mobile phone PLI is still under discussion.
"We are discussing with the industry what are their further requirements and how to support them," an official said. "The aim of the PLI scheme is to continue the drive towards self-reliance. This involves examining every item, every component which is used, including machines and materials, and all elements in the bill of materials to reduce dependence."
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