Virtuoso Optoelectronics Limited (543597) Earnings Call Transcript & Summary

Ladies and gentlemen, I welcome you all to the H1 FY '25 Post Earnings Conference Call of Virtuoso Optoelectronics Limited. Today on the call from the management team, we have with us Mr. Sukrit Bharati, Managing Director; and Mr. Sajid Shaikh, Chief Financial Officer. As a disclaimer, we'd like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to brief us about the business and performance highlights for the half year that went by, the plans and growth plans and vision for the coming year, post which we will open the floor for Q&A. Over to the management team.

Yes. Good morning, everyone. So this is Sajid here. I think the presentation has already been shared. I would just like you to -- I mean, I'd just like to take you all through the highlights. So as a company, the plan, the path that we had chosen for ourselves for this year, I think we are well on that path. We have been able to clock a number of INR 310 crores as far as top line is concerned in the first 6 months. Originally, as per our plan, we were supposed to hit a number of INR 280 crores to INR 300 crores. So we are well on course and a little above that number. The other developments are also on track. Deep freezer plant is already operational now. We are only waiting for the certification. So that process is going on, and we are hoping that all the certification should be in place by December -- mid-December to end December. And once we have that in place, commercial billing for that unit will also start. The ramping up of ODU is also underway. And I think by the end of this year, we should be able to hit the number of 5 lakh to 6 lakh in terms of the capacity for outdoor units. Apart from that, we are also venturing into compressor manufacturing. So that we hope to start by Q1 next year, but the investments have started. And so as already mentioned in the presentation, we are starting with a 2.5 lakh kind of -- 2.5 million kind of capacity to start with, which will, one, take care of our captive consumption. And at the same time, we'll also look out for customers within the country. So these are some of the highlights. And so the floor is open. We are open to answer any questions that you have.

[Operator Instructions] We'll take the first question from [ Mudit Goyal ]

Am I audible?

Yes, you are, very much.

Congrats for a good set of numbers. My first question is like I want to get addressed on the delay in the listing of the preferential shares that were allotted in the month of March. So as per regulatory norms, preferential shares should typically be listed within 20 days of allotment. However, despite that significant time having passed, these shares remains unlisted, which has led to our funds being tied up for an extended period of time. So could you please provide a clear explanation for this delay, like the current status of the listing process and the definitive time line for when we can expect these shares to be listed on the exchange?

All right. So I think this is a question which has come from almost all that -- all the people that have invested with us. And so just to put things straight on the record, we had scouted for investments. And once we got a confirmation from SEBI -- sorry, BSE in terms of getting their in-principle approval, that is the time that we had actually called for the money. So the money was called for. The shares were issued from our side as far as we are concerned, and we had filed for pass-through also. So all the compliances that need to be done from our side have been done. The only challenge that arose was when we applied for listing of the shares. That is the time that BSE came back to us and said that since our paid-up capital is going beyond the threshold of INR 25 crores, we will have to migrate necessarily to the main board. Now at this point in time, there were two conflicting or contradictory regulation that we kind of got squeezed between. One of them, as I said, is that we were crossing the threshold of INR 25 crores, so we could not stay on the SME board. The other is that because we had not completed the mandatory period of 3 years on the SME board, we could not migrate. And that is where this unforeseen kind of a delay has come into the picture. Now to handle this, we took suggestions. We had various advisers that were taken from law firms, et cetera, and other people that we thought that we'll be able to give -- I mean, they will be able to give the advice to us. And eventually, what we have done is on 24th of October, we have filed for a waiver under Regulation 300 that will give us a relaxation for this mandatory 3-year period. So we have asked SEBI to give us a waiver on that front so that we can migrate early. Now that application, if we get a positive response on that and we get a result in our favor, then we should be able to migrate to the main board, which will -- I mean, automatically ensure that the listing happens. That is one. Now in case that doesn't happen, the last, so to say, the last limit for this entire issue would be that next year, September 15, we are due to migrate organically. We will be completing the 3-year period for -- which is required, and hence, that will happen. But we are trying our level best to see that we should be able to kind of get it resolved earlier because we also appreciate the fact that investors have their monies locked in and the shares are not tradable as of yet.

Just to add to that point, see, there are two processes that run in parallel being a listed company. One is the process which happens as per Companies Act and one process which is run under the guidelines of SEBI by the stock markets. So in our case, like Sajid was mentioning, we are somewhere in between. So as far as Companies Act is concerned, all the compliances have been completed. As far as listing compliances are concerned, we took -- without approval from Exchange, we cannot go ahead with ROCE compliances. So we took permission, we went ahead with ROC compliances and then they realized that we are in a spot, which is in between their regulations. So the contradictory regulation that currently BSE has is that if your paid-up capital becomes more than INR 25 crores, you have to mandatory migrate to main board. The other regulation that they have is that -- which was earlier 2 years that you have to stay on the SME board for 2 years, now it's become 3 years. So we have completed 2 years, but they extended it to 3 years a few months back. So we are in that place where we have permission, but we have not completed 3 years and our paid-up capital is crossing INR 25 crores. So as far as shares are concerned, the shares have been issued in our books. And of course, they are not listed yet because of this spot. But procedurally, everything from our end has been completed. And the regulation of 20 days that you are mentioning is that within 20 days of allotment of shares, we need to file for listing approval with the stock market, which we did. The only problem is there is no deadline to how long will it take for them to actually list the shares. So there is no TAT defined on that side as far as the law is concerned. So procedurally, we have done everything we could up till date. Of course, we understand your challenges and we want to resolve it as early as possible because it is -- I think it is our responsibility. For that, we are pushing as much as we can. But like we mentioned, I mean, we are trying with SEBI to give us the exemption. And of course, we are continuously following up with BSE also, but it is the BSE saying that until unless SEBI gives them an approval, they cannot do it. So that is where we are currently seeing what we can do to resolve. We understand the challenges, but please understand this was beyond our control, and we will always keep trying to do whatever we can to resolve it at the earliest.

Understood, sir. And sir, like you mentioned, we have made an application to SEBI. So by when do we expect the result of this application from their end?

So, again, there is no -- I mean, so their normal TAT is that for every activity, they have 3 to 4 weeks. So the first 3 to 4 weeks, they call data from whatever we understand is they first call from data from BSE to understand what has happened in their end. Then they will call us for probably a physical meeting, if required. And then they will decide on what course. So normally, I mean, conservatively, I think it is about a 2-, 3-month process, but there is no defined time line for it.

And when we made this application? In the month of October, right?

24th of October.

In the month of October, correct, yes.

24th of October.

And if they -- we got a denial from their end, then there is no solution, it is like you mentioned, there will be the organic migration that will happen in September '25, right?

We can go to SAT, but yes, the other option is September.

Okay. You can go to SAT as well. But again, that will also take your 3 to 4 months, right?

Correct, correct. By the time September will anyways be there. So going to SAT will not really save a lot of time, but we will see based on how things progress.

Got it, sir. Secondly, sir, like if you see your margins, EBITDA margins specifically, I was looking at it in 2020, we were at the levels of 12%. And over the years, we -- the margins came down to 9% currently. So despite we are at 10x the level of sales that we were having in 2020, margins are getting depleted. So can you comment upon the reason for the same? Why the operating leverage did not kick in? And then how do you see the margins shaping up from here onwards?

So please understand that in 2019, we were only majorly in lighting products. And we have, of course, since then added a lot of appliance products to our portfolio. So lighting is a lower value product, but has higher margins. And in appliances, the EBITDA margins are, of course, lower because we are an OEM, ODM as far as that segment is concerned. So further, the product mix dictates the EBITDA margin. So for example, ODU has a lower EBITDA margin than IDU in AC, the indoor unit and outdoor unit because the value addition varies from product to product. The new categories that we are entering will have better EBITDA margins. So EBITDA margins that we believe we'll be in is between 8% to 10% is the range of most of our products blended EBITDA margin that we normally sit in. And we are, I think, on the upper end of that spectrum. So this is higher than what we had initially projected. So I think we are on the right track.

Got it. So that means you are saying 8% to 10% is what you are targeting for, right?

What -- yes, what effectively is possible in this segment?

Understood. And like in your opening remarks, you also mentioned about entering into compressors. And a few days back, I was reading an article over like some shortage of the ACs and the components is expected due to BIS refusal of our Chinese suppliers in the calendar year '25. So how do you see this as an opportunity for us?

So we were evaluating compressors for almost a year. Initially, the investments that we had envisaged were much higher, and we were trying to figure out how we can do it at an investment range, which is viable for us. And we've been able to figure out a solution, which is how we are getting into reciprocatory compressors at the first stage. And this can be -- this will be a large category for us going forward because like you mentioned, BIS for different Chinese manufacturers is expiring during this year and early next year -- sorry, during next year and early 2026. So, India, the compressors that we are -- the compressor category that we are getting into initially, India requires about 20 million, which is 2 crore compressors of this type. We are setting up a capacity to make 28 lakh which can make 28 lakh compressors per annum at peak capacity. So almost about 15% of the market. 15% to 20% of the market will be able to cater of this segment. And if we get good traction, of course, we can expand. But this is also a good opportunity that has come both because of the government push and because of the investment viability that we've been able to put together. So hopefully, this will add a lot of value in the coming years.

Understood, sir. And sir, one last question on Voltas. Like Voltas is taking back some of the capacity in-house manufacturing. So what kind of risk that we are exposed to because of the -- this action from Voltas?

Like we've been mentioning in most of our calls and discussions, so we believe that -- I mean, our projection for the next couple of years are clear. And so we see growth in AC segment coming steadily. Of course, how much growth will vary depending on demand and supply in the market. But we don't see a challenge in the next couple of years as far as the AC market is concerned.

So how much Voltas contribute right now in first half to our total revenues?

I don't have that number top of the hand, but almost 70%, 75%. 70%, I think, would be it.

So are we looking on adding on the new customers? Or what is the current scenario? Like Voltas is taking up the capacity. So obviously, after 2 years, it will be a big risk for us, right? 70% to 75% is a big number.

So we will -- right now, as you said, capacity is already booked by Voltas. -- once we have spare capacity and once we get a feeler -- we are also increasing our capacity. And if we feel that there is a gap that's getting created, we will, of course, look to add more customers. But as of now, our full capacity is booked by orders.

[Operator Instructions] So we'll take the next question from Amit Taneja.

Congratulations for good set of numbers, and I'm impressed with the presentation. And most of the things are explanatory, and my EBITDA question has already been answered. So my one question is connected to the strategy to penetrate international markets and competition from China. And is there any government incentive helping in expansion plans for exports?

There is -- I mean, there are small government incentives for export, but there is no -- I mean, there is no specific advantage as of now that at least we have or we are aware of that will help us in developing exports. But also, you need to understand that developing product for a new market is a long process. So we have already started that process last year. We have also started doing some exports. But to get the right product market fix will take some time. That is one. Second is the product variety also that we had till last year was relatively restrictive which is now opening up. So we have more avenues to reach out in export. So I think that is also looking positive in the coming years.

Any percentage terms, like what is the revenue in exports?

I mean as of last year, I think it was a very small percentage, hardly 1%, 1.5%. This year also, it will be a similar percentage. But -- so what we are first trying to do is trying to understand which is the right product and right market because if we misfire, then it is -- it becomes -- I mean it's like taking two steps or three steps back. So instead of that, we want to tread carefully. plus expansion in the local market is happening very aggressively. So we need to balance both. So export is a long-term strategy that we are working on, but domestic is the immediate opportunity.

We'll take the next question from Ron S in line from chat.

Congratulations on a great set of numbers. Sukrit, any update on washing machines? I think we were in the phase of finalizing a few marquee clients. Didn't see anything in the presentation.

So washing machine is on track, but we'll be able to confirm it only by -- in the fourth quarter presentation. It's still on cards, but we'll be able to give you a better picture by the fourth quarter.

Sure, sure. And going back to the compressor diversification that we are doing now. So a recent report mentions that 85% of the compressors are still imported for ACs and 70% to 75% of the compressors are still imported for our refrigerators.

Right.

So the refractory, reciprocatory compressors that we are getting in, so how large is the market? You mentioned INR 2 crores. These are specifically for the ACs or refrigerators or both that...

Domestic and commercial refrigerators. So in compressors, there are two prominent technologies as of now. One is the reciprocatory and one is rotary. So AC has migrated to rotary over the last few years. Reciprocatory is still very prominently used in refrigeration in domestic and commercial. So that is why we decided to first get into reciprocatory. Also reciprocatory, the investments are lower than rotary to set up the facility. And because it was a new venture for us, we wanted to take calculated risk and we wanted to maintain our ROI, ROCE. So we decided to then go ahead with reciprocatory. Further, because we have a captive requirement by next year of about 5 lakhs to 7 lakhs of reciprocatory compressors, we'll be able to cater to it even if the government does not extend BIS.

Okay. Okay. So which also means that we will be looking at clients beyond Voltas for this sector, right?

Of course, yes.

Okay. So have we made any inroads in that space, like any new additions to the clients for the compressors?

It's still a new development. We look at compressor commercialization in H1 next year. So if we have confirmed POs, of course, we'll not be able to share those details with you.

Sure, sure, sure. My next question, Sukrit, in the pecking order, if I recall, which had kind of alluded some time back, we are the #4th player after Amber, PG, and Epack in terms of production of ACs.

Right.

I understand by now, you would have started getting a sense for next year. So do you see this being upgraded? I mean, is there an aspiration to get into the #3 spot by next year?

So, aspirations, of course. But strategically, what we are trying to do is a couple of things. One is, like we've been doing, we are adding products to our portfolio because we don't want to just bank on one product for the entire growth to come from. So that is point number one. So growth is also expected from commercial refrigeration, now water dispensers, compressors. So we are looking at multiple segments that need to grow because if you want to have long-term sustained growth, you need to have multiple engines that keep firing. That is point number one. Because AC, even if you increase capacity and then you suddenly realize that the year or the summer was not favorable, then suddenly, there is a big vacuum. So that was strategy number one, so which we have implemented and we are going strong on. Coming to AC specifically, we are, of course, increasing our capacity every year. And next year also, we plan to increase our capacity for both IDU and ODU. Now with this capacity increase, we will, of course, look at existing customers and see if they want a bigger share. If not, if there is a capacity gap, then we will look at other options and also export. But the idea is that we want to organically keep growing AC. We don't want to make a big investment and then try to fill it up. We will take a more organic approach for the next 1 or 2 years in AC as far as growth is concerned.

Appreciate that. One last question. I think sometime back, you had mentioned about an aspirational conservative target of INR 1,000 crores by FY '26. So with this compressor business coming in, do we see a revision in the guidance?

We do, but we -- give us some time, we'll come back to you.

We'll take the question from chat. It's from Ayush Sabu. He's asking, could you please give us an insight into our expansion in remote manufacturing? What would be potential revenue contribution from it and margin profile?

So remotes also the EBITDA levels are similar as AC. It's not a very high EBITDA product, but it is a strong backward integration because remote also in India is limited to two or three players and a lot of remote is still being imported. So government has increased duty also on remote, and it is expected to come under QCO, which is under controlled quality objectives of the government. So import is going to become more and more challenging of that product. So having an in-house capability makes logical sense, one. And second is it is an expansion in the electronic -- EMS space for us. So it is growing our EMS segment further. So remote, we are going to manufacture for captive requirement and also we are going to start supplying to our existing customers. So that is what we are doing. As far as revenue is concerned, we are looking at a revenue of maybe INR 15 crores to INR 20 crores coming from remotes in the next year.

That was helpful. Also, is it possible to get the quarter-wise volumes for like revenue for each of our product verticals like for IDU, ODU and even the commercial operation going forward?

So I mean, as a percentage, we are looking at an AC -- I mean, if we are targeting a revenue of INR 1,000 crores, INR 1,200 crores maybe next year, next financial year, anywhere between INR 1,000 crores and INR 1,200 crores. So the revenue breakup that we are looking at is about 50% coming from ACs, about 30% -- sorry, about 25% coming from commercial refrigeration and water dispensers, about 15% coming from lighting and the remaining 10% will start coming from components, which includes compressors. And this number will further lean towards components because of compressors. So compressors percentage will go up to almost 20%, 25% in '27.

Okay. Got it. Very helpful. But is it possible like in our quarterly results and our quarterly updates to get a revenue breakup for these segments going forward?

We'll try to share that with you.

Okay. That will be really helpful for analyzing the volume sales.

Sure.

We'll take the next question from the line of [ Kunal Dokas ].

Am I audible?

Your voice is a little bit lower.

What about now?

Can you come closer to the mic. Yes, it's audible. Yes, it's audible now.

Okay. Okay. So just two quick questions. First is on the interest cost, that has stayed flat despite both short-term and long-term debt either decreasing or staying flat. So what was the reason for that? And what is the full year outlook?

So if you see debt has remained similar, and that is why interest cost is also similar over last year. There is not too much change in numbers. And interest cost, of course, I mean, so this year, with expansions coming in for long-term debt will keep varying. But I mean, the other offset that we had this year was there was some other income coming in from interest that we earned because of the preferential money that came in, which was sitting for some time till it got deployed. So that interest has also come in. So if you set off that interest, then the interest this year was much lower. But apart from that, interest cost will slightly increase over the next year, 1.5 years. But as a percentage, it will come down next year because the revenue growth will be higher than the increase in interest cost.

We'll take one question from chat from Nishant Joshi. He's asking, which market that is domestic or export, are you seeing for compressor as well as what expectation do the company have regarding its capacity utilization for compressor facility in FY '26? It would be great if you can share the margins on....

So compressor EBITDA margins are also 7%, 8% as a product category, point number one. Point number two, first year, we are not looking at very high capacity utilization. We are looking at maybe a 15%, 20% capacity utilization in the first year. And the second year onwards, I think that number should jump because the validation time for compressors is longer. So second year, we can look at a number of anywhere between 50% and 70%.

We'll take the next question from the line of Manan Mandani.

So my question was regarding the gross margin. So if I look at last 3 years, our gross margin in the first half has been lowest since last 3 years at 12.1%. This is excluding the other income. So could you provide me reasons for this? Is it because of the product mix change? Or is that something to do with the lower realization?

A couple of things. One is, of course, the ODU is increasing. So the product mix has an impact on it. So the ODU as a lower EBITDA product, and that is why gross margins are lower or lower gross margin product, point number one. Point number two, our expenses in terms of team have also gone up because we are -- I mean, the team addition at senior management level has also happened for us to be ready to be able to venture into these multiple categories. So that also till these products come in as a percentage was slightly higher this half, which will regularize by H1 next year. And third reason, of course, is the second quarter is a slower quarter for us because it is not a season for us, which also has an impact on overall percentage of expenditure. But these three factors effectively dictated the change in gross margin. But at the product level, there was no specific impact and the margins are intact.

Okay. So should we assume that the margin will improve from here onwards?

We should, yes. For this quarter, it will be better. For this half, it will be better.

Okay. And what was the utilization rate for IDUs and ODUs separately?

So during season, we were almost at 70%, 80% -- I mean, we were at peak capacity, I mean for both IDU and ODU because ODU ramp-up of capacity is happening continuously almost because we see a larger demand coming from ODUs. So -- but the second quarter, of course, everybody starts reducing inventory. So second quarter utilization was almost 30%. But first quarter, we were almost at full utilization, 80% plus.

Okay. And last question. In the PPT, you mentioned that there is some production going for the electronics and controllers, which will be used for EV chargers. Can you throw some light on that?

We have. So there's a company -- there's a customer that we have who's making EV chargers for which controller boards we are manufacturing from them, manufacturing for them. And so that is going on as they ramp up, our volumes will also ramp up.

Okay. And what margins are we getting for this product?

EBITDA margins are between 13% to 15%.

Okay. And revenue potential for this?

I mean it heavily depends on how the customer does. But I mean, not a very big percentage of the overall sales.

We'll take a question from the chat. That's from Vedant Bagri. He wanted to understand on the new plant in Chennai by Voltas and us. Also, what percent of value-add is being outsourced by Voltas? And what will be our share in the same?

Right. So, as of now, percentage-wise, of course, small. We plan to increase this, but we've set up a small facility in Chennai for components to sort of understand that market and get a foothold into that segment. So right now, the value addition per unit is about INR 150 to INR 200 that we are looking at from that facility. But if things go well, then that will increase over the next year or so.

We'll take the next question from the line of Balamuralikrishna.

So I think that in INR 50 crores of PLI benefits are there. Could you please give some breakup of that so when we can get that benefits yearly breakup?

So the first year benefit was INR 3 crores, which we have received. The second year benefit was INR 6 crores, which we are expecting this year. This year's benefit is INR 7.5 crores. And the next 2 years at INR 10 crores. But in PLI, we've also applied for enhancement of PLI sanction from INR 50 crores to INR 100 crores, and that application is in process.

Okay. And in the past presentation, I see that Cross Flow Flans we are going to expand by '25 and by 800,000 and the dispenser 250,000. But in the recent presentation, I see that by FY '26, Cross Flow Flans will be 600,000 and dispenser will be 200,000. So I think have you diminished our plans of expansion?

So we have -- so what we were doing earlier was dispenser capacity was earlier fungible with ODU. We have created a separate capacity for it now, which is exclusive to dispenser because we see a larger number coming from dispensers. That is point number one. Point number two, for Cross Flow Flans, we are matching our IDU capacity. So I think there is a gap. Cross Flow Flans is 800,000. I think there is a mistype. So whatever is the IDU capacity, we are matching that capacity for Cross Flow Flans. So IDU is going up to 800,000 next year. So we'll take Cross Flow Flans also to 800,000. We'll do 100% of our captive requirement.

Okay. And as of now, we have 800,000 IDU, sir?

We have 600,000. We are ramping up to 800,000 next year.

Okay. Understood. So -- and regarding the toy components and the EV charger components, so what would be the potential of these components -- revenue potential? So how much we are doing as of now?

So, toy components, we continue to do. Revenue I believe in our component business, the revenue -- within the component business, the revenue is 4%, 5% right now of toys and to 3%, 4% of the EV business. So there are still small segments. We are not expecting large numbers to come from there. But these are some segments that we want to be part of, and we are getting the opportunity, so we are doing it. But there is no specific expenditure that we are doing towards these segments as of now.

Okay. Understood. So regarding this customer base, so as of now, I think we have only two customers for AC business. I think we are fully occupied with them. So any further -- as we are doing capacity additions, so any further new customers we are acquiring and they are in pipeline and under discussion, if you throw some light on that?

Yes. So we are talking to two or three large customers for commercial ref. We are also in discussion with a large customer for water dispenser. We have also started supplying to Vijay Sales under Vise brand for dispensers and other products. So in lighting also, we've added more customers. So overall, we are adding -- wherever we have capacity, we have started adding customers so that we can fulfill their requirements also. But, yes, as we go forward, this product mix and customer mix both will keep getting better in terms of diversification.

Okay. So the revenue projections for this FY '26 is I understood that it is INR 1,000 crores to INR 1,200 crores. So FY '25, how much we can expect? And do you have any further projections for beyond FY '26 as you are ramping capacity? And any plan for the further capacity addition on the AC units ODU or IDU beyond FY '26?

So this year's projection of INR 700 crores to INR 750 crores stand. Hopefully, we'll be able to better it slightly. But this year's projection stand, and we are on track for that. Next year's projection of INR 1,000 crores to INR 1,200 crores is what we are saying as of now, but we'll be able to further clarify on it once these capacities come online and once we have customer commitments. So we'll probably be able to tell you better in -- after Q4 this year.

So any further capacity addition plans beyond this 800,000 IDU?

In AC, this is the plan. Of course, as we said right now, we have added capacity in commercial refrigeration, which is a completely new capacity. We are looking at compressors, which is a completely new capacity. So, yes, these are the major capacity additions happening. And we've added new manufacturing units. So now we have eight units, including the Chennai unit. So of course, there is expansion happening almost everywhere. But in large expansions, freezers and compressors are the two that we have.

So for -- as the new products are getting on board, so can we expect any 1% or 2% increment in the margins, maybe 11%, 12% we can expect in FY '25 or '26?

We are expecting improvement in margins, but -- like I said, we'll have to give it some time, let these products start maturing, we'll be able to give better guidelines then.

[Operator Instructions] We'll take next question from chat from participants asking what is the reason for moderate growth in top line during half year of H1 FY '25 versus our peers?

So the growth that we have, I mean, we had anticipated -- the growth that we have done is more than what we had projected, point number one. Point number two, like I mentioned, we were already at peak capacity in Q1. So there is not too much scope that we had to grow. If there was more capacity, probably in Q1, we would have grown more. But, I mean, like I mentioned before in the call, that is more of an opportunistic growth that happened, and it is not something that you can attribute to planning, which is why there was -- I mean, so our peers where there was more available capacity, growth, they got a bigger boost of the growth because of the season being extremely hot. But plan-wise, we have better our original plan. So I think we are on track. But capacity constraint is not something that we can solve overnight. It takes time.

We'll take the next question from the line of Sharan Nandi.

Most of my questions are answered. So still I have a couple of questions. So one is, do you have any exposure to U.S. market? And are you exporting any products to U.S.?

Right, sir. So we had taken UL registration for LED, and we had tied up for LED lighting in the U.S. market pre-COVID. But unfortunately, the company that we have tied up with did not do so well in COVID there, and we were not able to ramp it up. So apart from that, we have not sort of explored the U.S. market so much as far as appliances are concerned because their entire electrical system is on 110 volts and we are on 220 or 230 volts. So it requires a complete redesign of product and components. So we've not explored it so much yet, but we are open to it.

Why I asked that question is because Trump coming in and there are a lot of talks about tariff war. So if there was -- if there is an exposure already with your company, then wanted to check how that tariff war is going to affect.

Interestingly, only today, I was thinking that compressors, why can we not export from here rather than them going from the U.S., but I don't know the market enough to be able to comment on.

Sure. And sir, like apart from -- in the EMS business, apart from existing verticals related to AC and remote and other components, there are a lot of talks going on about semiconductor and electronic manufacturing in India in all major sectors like defense and marine and many other sectors, even IoT, right? So what are some of the new areas which you are exploring? And when are you thinking that those will come into picture or you'll start working on those?

Sir, opportunity-wise, of course, we are open to multiple opportunities in the EMS space. But to commit a time line is very difficult or which category exactly will click is very difficult to commit as of now. But whatever happens, any development, we'll keep you posted.

But currently, where are we? Like are we having discussion with some of the big players in those sectors or...

We are discussing, but nothing to -- I mean nothing I can tell you or nothing that we are sure will convert because we're still early discussions.

Okay. And can you throw some light on the BLDC motor, like is it for which product and how big is that market?

So we are not making the full motor. We are only making the controllers, components for BLDC motors. So BLDC components also that we are making is majorly for the AC market as of now. We are also looking to start the controller board, which are used in BLDC fans. That is also one segment that you are discussing about in EMS. So that is also something that is under development. But better numbers, we'll be able to give you in due course.

And one last question, sir. Since there is a talk going on about Voltas reducing your capacity, they're doing their own in-house. At that time, can there be a discussion about you making an AC for another vendor as well? Is it going to be possible?

Of course, of course. If there is -- if Voltas believes that they will not be able to book our capacity, then we will, of course, look at other customers.

And you can have Voltas with whatever capacity they approve and new customer in AC both as well together, right?

Correct. Correct. Correct.

We'll take the next question from chat from Sahil Jain. He's asking, as the company is growing at a fast pace, and we are very aggressive for further growth, which is a good sign. Are we looking forward to optimize our working capital days?

We are. But with the addition of new products, initially until they stabilize, it's difficult to -- so the problem that we have -- one problem that is there is our products are seasonal and the inventory goes up and comes down based on season requirements. That is one challenge. The second challenge is that with the addition of new products and categories, initially, the inventory level is higher until the production regularizes. So because we are in multiple phases of expansion, there are slight variations. But overall, if you see the inventory days are improving, and we want to continue doing that. So the trend will be a downward trend, which means that the number of days will keep reducing. But there will be small spikes here and there because of product.

We'll take the next question from the line of Siddharth Jain. Okay. I think we'll go to the next question. We'll take the question from Prashil Gandhi.

Just one question. You highlighted that Voltas had booked your factory. So is it for FY '25 or subsequent years as well?

Sorry?

You highlighted...

For the next couple of years from whatever our discussion with them is, over the next couple of years, we don't see a challenge.

So that would be till FY '26, '27, safe to assume that?

Yes, it is, correct.

We'll take the next question from chat. This is from Akash Goel. He's asking, would the AC expansion come in time for peak demand for coming summer?

AC expansion that we're doing now is more for the next season and not for the current season. Because the current season, we are -- by next month onwards, we will start peaking our capacity. So -- because the season for us starts effectively in November -- in November, December. And by -- I mean, so because the market manufacturing is 3 months in advance to sales. So for us, the season is already starting next month or this month.

And another question is, given the issue of listing of preference share, is there a challenge we see in warrants money coming in?

No, warrants will -- we will call for warrant money on schedule. There will be no change there.

All right, sir. We'll take the next question from Sid K.

My first question is regarding the full year guidance. Are we sticking to 700 plus?

Yes.

And what will be the margins? Can we assume more than 8%?

Yes.

Okay. And just one basic question. Like how does the industry actually work like because the capacity of indoor and outdoor, there's a mismatch, like 4 lakh and 6 lakhs, right, for us. But are these units sold together?

So they are. But initially, when we started, we started only with IDUs. And that time, our customer was making ODUs in their own factory. They were not making IDUs. IDUs were imported at that time. So over the years, of course, the capacity has balanced. And now the demand for sets is increasing, which is why our ODU capacity increase or ramp-up is faster. So we need to match and make the full sets.

Okay. So is it safe to assume that no vendor is actually picking up a single unit?

No customer. So the customers still are. It is not that they are not, but that will keep reducing over the next couple of years.

Okay. So like once we match the outdoor unit, it will be fine.

Correct. So I mean -- so the challenge that happens is every time the design of indoor unit and outdoor unit based on balancing and tooling varies. So there is always a possibility that for a large company, they might want to get IDU made of a specific design, ODU made of a specific configuration. If all that configuration is available in one place, which capability we are creating, then that is ideal. Till that capability is not there in a specific location, you can always mismatch.

Okay. So is it safe to say that this capability will be there in FY '26?

Yes. It's already there, and we are further tuning it. So we'll have -- it will be fully there in '26.

And this will help our margins as well?

So blended margin of -- I mean, so AC, like I said, IDU had better EBITDA. ODU had lower EBITDA. But blended margins will be similar. I don't see a major change going forward also.

Okay. And full year, what is the revenue we are expecting this year from refrigeration?

Refrigeration this year, I mean, we'll effectively get only 1 quarter of sales, but we are looking at anywhere between INR 50 crores and INR 80 crores to come in from ref.

INR 50 crores to INR 80 crores. Okay. And margins will be similar, like 9%, 10%.

Hopefully better, slightly better.

10 to 12 lakh.

Okay. And the PLI INR 6 crores also we are expecting in Q4? Correct, yes.

Correct, yes.

We'll take the next question from chat from Kunal. He's asking, Virtuoso is looking to manufacture deep freezers. Are you looking at making Visi Coolers as well? What can be the opportunity size that you can target?

So opportunity-wise, the deep freezer market or the commercial refrigeration market is effectively growing at 24%, 25% CAGR. So the growth rate there is very aggressive. And in India today, about freezer specific, if you -- about 17 lakh to 18 lakh freezers are sold every year or sold last year. And this number is growing by 25%. So average cost of a freezer would be about INR 12,000 ex factory. So that is the opportunity size. And for us, we have started with the capacity. And by next year, we'll have a capacity of 400,000 pieces. So even if we are at a 60%, 70% utilization, we are looking at a number of anywhere between INR 300 crores and INR 500 crores to come from freezers in the next couple of years. And the second part of the question, yes, we are looking at expanding into other segments of commercial refrigeration, including Visi Coolers, but we'll be able to share time lines with you in due course.

We'll take the next question from the line of Siddharth Jain.

Am I audible this time?

Yes.

So first, how much are we investing into this compressor business?

We are, as of now, investing about INR 35 crores to INR 40 crores in compressors. And based on that, we'll evaluate how it goes. And if things are well, then we'll look to invest more.

So this INR 35 crores to INR 40 crores will suffice for this 2.5 million capacity that we are coming up?

Correct. And not fully backward integrated, but yes, to at least start production.

Understood. And what can be the asset turns in this business?

So, 28 million effectively means INR 300 crores to INR 350 crores top line for us.

Okay. Understood. So also the -- somebody had asked about remote. So like you said that remote is more like a backward integration for us for the ACs. But do we plan to get into adjacencies also like other product remotes as well?

We -- yes, we are talking. But first, we want to start with AC, stabilize it, and then we'll probably add more customers. But we are looking at starting for BLDC fan remotes also.

Got it. Got it. Just one update. Are we -- like in the previous calls, we had mentioned that from the commercial rep, we'll be doing a revenue of around INR 30 crores to INR 50 crores this year, around INR 150 crores next year. So are we on track for that?

Yes, yes, we are.

Understood. And just one data point. How much was the bill discounting that we did in the first half?

I don't have that figure off hand. I'll have to get back to you.

Got it. Last thing from my side. We have changed the depreciation method from this year onwards. So if we would have continued with the older method, that is the WDV, what would have been the depreciation amount if you have the calculation? About INR 3 crores more than what it is today, roughly.

We'll take the follow-up question from Amit Taneja.

Actually, I missed the figures of the PLI at INR 3 crores was for the first year, INR 6 crores for the second year, and you were saying something I missed out. Can you please repeat?

INR 3 crores, INR 6 crores, INR 7.5 crores then INR 10 crores.

Okay. And how much is yet to be received?

So we've only received INR 3 crores so far.

We'll take the next follow-up question from Amit Mandani -- sorry, Manan Mandani.

Sir, you mentioned something about Vijay Sales, about water dispenser. Can you repeat that?

We've started supplying water dispensers in their -- in Vijay Sales brand Vise to them.

Okay. Any quantifiable number?

I mean we started shipping one, two containers every month to them. But still -- I mean, they are also establishing the market. We are also proving the product. So it is ongoing. The real numbers in dispensers are expected next year for which we, like I mentioned, created -- we've effectively created separate capacity now. So dispensers should scale accordingly.

Okay. And last question, say, hypothetically, 2 to 3 years down the line, given we have achieved the scale that we are targeting. And if #1 player or #2 player wants to acquire us and if there is a correct number for us, would we consider that?

As of now, I'm not considering it, but we'll see how things progress.

We'll take the next follow-up question from Balamuralikrishna.

Sir, could you please repeat the current capacity? I just want to see whether it's matched with the presentation. So IDU 800,000, what do you for...

IDU last year, we had 600,000. We are ramping up to 800,000. ODU, we had -- we ramped up to 400 in H Q1, and we are going to 600,000 and effectively 800,000 by end of next year is the plan ODU to match IDU. And yes, I mean those are the two main categories. Freezers, we have to go up to 400,000 next year.

So can we expect any additions by the end of this year from the current capacity?

In which capacity? Sorry? Hello?

Sorry. Yes. Can we expect any additions by the end of this year from the current capacity?

I don't understand. By addition, what do you mean? I mean what...

So I think as of now, we have IDU of 600,000 again. So for FY '26, we are targeting 800,000.

This year, like I mentioned earlier, this year, that capacity will not be put to use effectively. It will come into use only in the next season.

We'll take the next question from chat from Aysuh Sabu. He's asking what could be the potential revenue contribution from BLDC Pan remotes and any time line for...

BLDC fan remote is a very low-cost product. Even if you make 50 lakh remotes, you do a INR 25 crore top line. So top line-wise, it is a very small product.

We'll take the next follow-up question from Ron S.

Sir, did I hear it correct? You mentioned for the compressor, INR 35 crores to INR 40 crores investment, and we are looking at a turnover of INR 300 crores to INR 350 crores. So that equates to an asset turn of almost 8.

So I'll clarify that. That is correct. Numbers are correct. You heard correct. The only challenge is that in compressors, we are now -- we are right now not doing the full backward integration in-house. Once you do the full backward integration in-house, then this asset turn will come down to 3x or 2.5x. So the challenge with compressors is that -- so the earlier challenge that we were facing is that with an asset turn of 2.5x, we did not want to enter that category. But -- so now what we have done is we've broken it down into multiple phases. And if the phases start kicking and we are able to get good EBITDAs and especially with there being a vacuum, which we are anticipating, which can get created or which is getting created as of now. So if that vacuum helps us in covering our cost properly, then we can look at investing in backward integration and be a fully backward integrated compressor manufacturer.

Sure, sure. One last question. I was listening to the MD of Blue Star, and he was mentioning that the aspirational middle class, they are the 90% of them are the first-time buyers of ACs. Now is there a request from Voltas to kind of cater to this pool basically at a lower price point? Any such request that you have got for the next season?

There are. There are certain plans that I think -- I mean there are certain products probably which are under development where cost is being optimized. Of course, it is a regular process to keep optimizing product cost. But the idea is that AC should be price competitive. And if the entry barrier is lower, then more customers can -- I mean, jump onto the bandwagon. So that is the idea, and that is the road map for us also.

We'll take the next question from Bala from Orient Capital.

Sir, regarding like then [ EERA ] mentioned, the industry has moved from rotary compressors to -- sorry, reciprocating compressors to rotary compressors, but we are doing reciprocatory compressors. I just want to understand the price difference between those compressors and what is the energy level difference? And what kind of IRR we are expecting in those reciprocatory investment side?

So with the current investment and probably with the vacuum, we are looking at a 25% IRR in our investment. That is point number one. Point number two is that rotary compressors are almost 2.5x the price of reciprocatory compressors. And the complexity level in terms of accuracy -- tolerance accuracy is equally complicated. So rotary compressors is a larger investment also a 2.5, 3x investment also as far as the initial investment is concerned. So, COP-wise, COP for reciprocatory compressor, which is the coefficient of performance for reciprocating compressor is between 1.2 to 1.9 as of now in the fixed category. inverter is slightly higher. For rotary compressors, it's much higher. It is 3 plus. So AC being a product which is demanding higher efficiency move to rotary. Larger capacity air conditioners, which are being exported to Middle East, still use a lot of reciprocatory compressors. So -- but domestic split ACs have moved to rotary. But the entire refrigeration market and freezer market is on reciprocatory, and we don't see a significant change happening there in the next few years.

We'll take the next follow-up question from Siddharth Jain.

So one -- so if you could just give some more color on this compressor. First, because I believe our refrigeration that we plan to get into is largely for the clients who are for export oriented. So is that -- so the compressors also will be for the domestic clients or we'll be looking to target export clients only?

Freezer, of course, primary customer base is domestic. And some part is geared towards export. Compressor majorly domestic until less like we were discussing an opportunity for some country comes up because of sanctions or anything of that sort. But as of now, primarily domestic.

Understood. And where will this capacity be put up?

In Nashik itself.

Nashik itself.

We'll take the next follow-up question from Sharan Nandi.

Not a question. So I just would like to know the process for retail investors like me and many of us, how we can visit your factory in Nashik and meet management, especially Sukrit sir. So I'm a big fan of you and also I have been following you for many years. And because not like retailers won't get that opportunity to visit, right? So I just wanted to check what is the process and do we get an opportunity.

Sir, appreciate your words. I think Kaptify can coordinate a visit because they keep having investor visits where we'll tell them to reach out to you. And whenever the next visit is scheduled, if you can spare time, then you're most welcome to visit us.

Okay. And it will be done with a group of investors, is it?

Mostly, yes.

So this was the last question for the day. I now hand over the call back to Vinay sir. Over to you, sir.

Thanks. Thanks, Sukrit, Sajid, would you like to give any closing comments before we end the call?

All right. Thank you so much for everybody for taking the time and joining us. We hope to have your continued support, and we hope to continue delivering on the commitments that we are making. With the opportunity at hand in India as a country and the pace at which things are moving, we hope that we can build a robust and fast-growing company. And we are excited about the product categories that we are entering, and we see a lot of potential. Let's hope with support of all of you and our team and our customers, we are able to achieve those targets. Thank you so much for taking the time. Thank you.

Thank you. Thank you to all the participants for joining on the call, and thank you to the management team. And that brings us to the end of today's conference call. Thank you.