Virtuoso Optoelectronics Limited (543597) Earnings Call Transcript & Summary

Ladies and gentlemen, on behalf of Kaptify Consulting Investor Relations team, I welcome you all to Q1 FY '27 post Earnings Conference Call of Virtuoso Optoelectronics Limited. Today on the call from the management, we have with us Mr. Sukrit Bharati, Managing Director; Mr. Sajid Shaikh, Chief Financial Officer. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, this is a reminder that this call is being recorded. I would now request the management to detail us about the business performance highlights for the period ended June 2026, the growth perspective and the vision for the upcoming years, post which we will open the floor for Q&A. Over to the management team.

Thank you, Rajiv. Can we start running through the presentation, please?

Is this visible?

It is visible but I think you're on the wrong screen.

So good morning, everyone, and welcome to the post earnings call for Q1 FY '27. This is a screen that highlights the performance of the company on a consolidated level for this quarter. So on a consolidated level, I think the company has been able to achieve INR 376.6 crores worth of revenue, which is when compared to last year, that is Q1 FY '26 is almost an 85% jump. And despite of the fact that Q4 of FY '26 was also a very healthy and strong performance, I think over that number as well, it's at 19% -- 18.7% to be precise, kind of a jump on the revenue number. The EBITDA margins have stayed at very similar levels when you compare it with the Q4 of FY '26, 9.3-odd percent. EBIT and EBITDA are similar in terms of the way they have behaved. What has happened down below is that at a PAT level, we have had a very significant jump when you compare with Q1 of FY '26, it's almost 103% jump that is there. So from a INR 64-odd crores -- INR 6.4 crores rather Q1 FY '26 number, we have moved to INR 9 crore number this year. And in comparison to last year also there a significant jump. Can you move forward, please? So going forward the year '26, '27, we are trying to consolidate and make sure that the assets that we have deployed so far and which are in the process of getting deployed, we start sweating them and the utilization levels that are intended to be achieved are in excess of 75% on an aggregate level. We are moving forward with our mantra of trying to deepen the backward integration that will happen in H1 of FY '27, which is on EMS side. CFF, plastics in any case, we have already done. We want to move forward with that. We are moving up the value chain because of the fact that we have become an ODM. The focus on R&D is there. And so the high potential categories like AC is something that we are looking to because we have a very strong order book size for the forthcoming season, and we should be able to achieve our numbers primarily through on the backing of this strong and heavy order book. Compressor production, I think we have already stated earlier. It has already begun. This has happened in December, towards the end of December last year, and we are currently running at 50% -- more than 50% utilization. Happy to say that we are almost 3 months ahead of whatever was the schedule for this. Commercial refrigeration, obviously, in addition to the hard top and glass top range, we have also entered into the medicinal refrigerator. And hopefully, very soon, we are getting into the visi cooler side of it as well. Can we move forward? Rajiv, one more slide down, please. So these are the capacities that we have spoken about. EMS, the current capacity is 4 lakh cph. We are moving to 12 lakh cph in 2 phases. The first phase of it, 8 lakh cph, hopefully should be up and running by the mid or end of September. The commercial production for this phase also is expected to be live, I think, towards end of Q3. ACs, we have stated earlier that we have a capacity of 1 million moving to 1.8 million. This should happen over the next 12 to 15 months, again, in 2 phases from 1 million to 1.3 million and then from 1.3 million to 1.8 million. In deep freezers, the existing capacity is 1.5 lakh units. We are moving to 2.5 lakh units, which should be live hopefully by Q3 -- mid of Q3 or end of Q3 this year. And the second phase is more likely to happen in the next financial year, which is the movement from 2.5 lakh to 4 lakh units. Compressors, we have a capacity -- current capacity of 2.8 million, moving to 6 million. This probably should be happening by December or January, forthcoming December or January. I think commercial production on that also should start towards Q4 of this year. We can move forward. I think most of it is already dealt with. So we can stay here for some time. So this is how it appears. I think the revenue share that is expected in this FY '27. AC will remain at around 60%, 55% to 60% of the overall revenue. EMS will stay at about 10% in terms of the overall contribution. Commercial refrigeration will be at par at about 10%. The component, washing machine and other businesses should contribute about 5% of the overall revenue. And compressor will move up to about 15% of the overall revenue. Can we move forward, please? Yes, next slide, please. Yes, we can stay here. So this slide captures the performance of the company over the last 6 years as we can see that and this is up to FY '26, of course. There's been a 49% growth over the last 6 years as far as top line is concerned, about 47% CAGR on the absolute EBITDA. PBT, the growth has been 56% and PAT, the growth has been 52%. So there has been a consistent year-on-year growth over the last 6 years, and we hope and continue to take this into the next 3 to 5 years as well. Sukrit, would you like to speak a little on the industry over here?

Thank you so much, and a very good morning or afternoon to everybody. And once again, thank you for taking your time. So overall, we had a good quarter. There was, of course, pressure on margins and because of raw material issues, which has persisted. We hope that now the pricing is a little more stable and over the next couple of quarters, I mean, we hope that the price increase that we are requesting our customers and also the market will effectively even out or average out. So that is as far as the industry is concerned, this has happened across the refrigeration industry and the air conditioning industry. Also in compressors because compressor supply chain has right now heavy dependence on imports and which is indirectly dependent on the dollar. However, the number and growth in Q1 has been as per our plan. And with that, we continue to maintain the guidance for this year. We hope that we can do that or better for the coming year. Again, to quickly summarize segment-wise, the current situation. So EMS, we are increasing capacity. We may not see top line numbers this year, but we will see increase in backward integration coming from that increase in EMS business for the current financial year. We hope to add more EMS business, but that will hopefully start showing numbers in the next FY. AC business, like mentioned earlier, we have good visibility of an order book. The idea is to increase capacity to meet customer requirements and to make sure that we satisfy the customers that we work with is the plan for this year. Third is, of course, the compressor vertical. Compressor vertical, we are increasing capacity. And we've also acquired a 22-acre parcel of land for further consolidation of compressor business in the future at one location. So we will continue to expand capacity and then effectively move it to the new location over the next 1, 2, 3 years as things allow so that, that operation can be up and running. Component business is also doing well. Both Chennai and Sanand are picking up numbers. We hope to keep building on that as a segment. So commercial refrigeration, also as briefed earlier, we are happy to share that we've onboarded another marquee customer. And even though Q1 was slightly slower for commercial refrigeration due to increase in pricing, I think the market did not absorb the prices immediately and a lot of buying decisions were deferred. But volumes continue, and we hope that across the year, we'll be able to maintain or achieve the numbers that we had planned for commercial refrigeration. So overall, a good year. And I think now we can open the floor for questions.

[Operator Instructions] We will take the first question from [indiscernible]

Congratulations on a wonderful set of numbers. Sukrit, the question is on the compressor business, and I understand you spoke about we are doing a 22-acre parcel of land where we'll be setting up and consolidating our compressor business. Just inquisitive, are we still looking at the reciprocatory compressors? Or are we also thinking about the AC compressors given we just saw notification from one of the start-ups bagging a project for AC compressors from Voltas. And given Voltas has been such a big client for us. So just wanted to understand your school of thought there.

So far, what we have confirmed is only refrigeration compressor. AC compressor, we have currently not finalized any plan. In case we do, we will definitely reach out. But so far, we are restricting ourselves to -- or we have only started activity on the commercial and the refrigeration compressor side.

Sure. The second question is more of a macro question, right, in terms of you highlighted a potential 35% to 40% CAGR for the revenue. And we understand '21 to '25, we have seen a 43% CAGR. So what are the key underlying assumptions for this 35% to 40% growth and the guidance is for the next 3 to 5 years, right? So if you can just highlight some of the underlying assumptions for this aggressive growth for the next 3 years.

So I think if you see the business, there are some verticals that we are in are -- I mean, especially if you see AC vertical and now the compressor vertical are effectively high-growth verticals, whereas the other verticals, components, EMS and refrigeration, they are slightly better EBITDA verticals as compared to AC or commercial refrigeration. So our idea is that we need to have a good diversification in terms of bottom line as well as top line, and we need to have a diverse set of product categories. So that is the basic construct. Now coming to the high-growth segments of AC and compressor. Compressor, as you know that we are one of the first movers in this segment as an unrelated brand. I mean, the companies which don't have a capital requirement. So that first-mover advantage we want to use. And we see good traction. We are at a phase where we have already started ramping up with most customers where we are at the production phase, and we've already started supplying production lot to these customers. So there also, we see good order book visibility. That is point number one. So compressor, as the government has currently restricted imports to 40% and hopefully, this will reduce in the next year or two, we hope that, that increase in market availability, we will be able to address that available market. So that is point number one for compressors. AC, as you know, that industry, of course, is growing, which is one large driver. But even if the industry grows at 10%, 12%, 15%, whatever the number is. But we also believe that if we are able to make a good product and if we are able to add value to our customers in terms of price, in terms of features, in terms of service, I think there is sufficient demand in the market for us to give us -- for us to get growth of 35%, 40% for the next 3 years. So we are -- in AC also, we are building our product offering. We are trying to see how we can optimize our designs and give a good solution, which is both economically viable and also robust in quality to our customers. So that is the basic construct of the entire growth strategy.

And one last question. I've been tracking the company for the last couple of years now, but I mean, if there is a company that you would like to benchmark Virtuoso, I mean, as the business model is evolving, any company that you would like to replicate or is inspired by any thoughts around that?

I mean, I think we learned from a lot of companies in the market, but I think every company has its own journey probably. So let's see, we keep learning from multiple companies, but no specific one company.

Just wanted to appreciate the growth trajectory that you all have shown in the couple of years. I think the management is walking the talk and appreciate the execution and the pace at which it has happened. So really appreciate that.

Thank you so much.

[Operator Instructions] We'll take the next question from Shreyansh Jain.

Congratulations for a good set of numbers. So a couple of questions, sir. First, in previous con call, you mentioned that since we have recently launched ODM model of AC, so we were not able to get benefits in terms of margins. So my question is where do we see AC margins going forward with increasing mix of ODM?

Right now, because of the raw material pressure, I think the entire supply chain, including our customers and the distribution channel is slightly stretched for margins. I think this pressure will continue for maybe 6 months or 12 months till the global situation sort of stabilizes, post which we believe margin should increase. So this year, of course, we are still committed and we believe that we will achieve the EBITDA that we had hoped for. But the improvement in margin probably will come from next year and maybe not this year, looking at the overall raw material situation and still the uncertainty in terms of dollar fluctuation or RM fluctuation because of the fluid war situation or the shipment situations. But I still think that most of it is passed. So now the variation should be less, but margin improvement probably would happen from the next year.

So what would be the difference between an OEM and ODM model margin?

I mean, not significant, but maybe 1.5%,

Okay. In PPT, we have mentioned that we expect 15% contribution from compressor from 8% in previous year. Since compressor being a low-margin product currently, are we confident to meet our guidance of 9% to 10% margins for full year?

Yes, we are.

We'll take the next question from [indiscernible]. We move on to the next participant. We will take the next question from Kunal Tokas.

This is [ Hemant ]. Congrats on a very good set of numbers. The growth in Q1 has been tremendous. So are we some sort of revising the guidance for the entire year? I think the guidance was 35% to 40%, but we have grown much better than that. So are we some sort of revising the guidance? Or do you think that the numbers in the next 3 quarters will be not that much like in Q1?

We believe -- see, Q1 and Q4 are the weakest quarters for us. And so Q1 has done well. So we have a slight head start. Depending on how Q3 effectively goes, we'll be able to see if we can upward revise the guidance. So we will be in a better position to update you about that at the end of Q3.

So as of now, sir, we are sticking to our guidance of 35% to 40% in FY '27, right, with 9% EBITDA margins.

Correct.

We'll take the next question from Kunal Tokas.

The first question is about AC. So we are scaling up to 1.8 million AC this year and my question was [indiscernible] what kind of utilization range do we expect? And this expectation is based on order commitment from existing customers or do you expect to onboard new customers to fill in the expanding capacity?

Combination of both. But in FY '28 or FY '28 season or let's say, '27, '28 season, we expect to utilize between 50% and [ 50-odd ] percent capacity of the increased capacity. This capacity will also be completely live before the next season. This season, we will be somewhere in between. But before the next season, the entire capacity is what we plan to make live. And we hope that 50-odd percent we'll be able to utilize. This, as you asked, is a combination of both existing customer projections and also additional onboarding of new customers.

Second question is about compressors. I believe in one other con calls, you had mentioned that entire compressor project including both the scaling up as well as backward integration will be up to value of around INR 500 crores in total. So while we ask INR 150 crores [indiscernible] what are your plans for funding the remaining project?

So right now, the first phase we are covering with the investment that we have already done as part of equity raised or the ongoing equity issue. But the second part has been done by the debt of INR 150 crores that we have raised as OCD. But -- so this will cover us for the first phase, which is up to mid of next year. Once all the phases, the increase in capacity, the backward integration of shell manufacturing and also the motor assembly, once that is localized, then we will look at the next phase that we are yet to decide if we do it by debt or equity. We will take that decision over the next 12 months.

We'll take the next question from [ Jay Chauhan ].

I just wanted to understand what is the rationale behind having VCPL not run the same business under the listed company only?

So the idea is that we should be able to focus each business separately. And in some places, let's say, VCPL is also a vendor to VOEPL and also vendor to other companies making the same product. So it needs to have a separate team over a long period of time, which can make sure that customers get their due. And we have transparency as far as the overall business is concerned. We have transparency as far as dealing with customers is concerned. We cannot give partial treatment even to our own effectively manufacturing requirements because that is a product -- it is a critical product, which is -- which we need to make sure that we service our customers properly.

Got it, sir. So out of the total production, how much is internally consumed and how much is sold externally? And is it the right assumption that the Sanand plant is completely for external sales and not for backward integration?

So some part of Sanand, maybe 5%, 7% of Sanand comes to Nashik, meaning that some plastic extrusion sheets we require for refrigeration business, which VOEPL is buying from VPPL Sanand. But apart -- and also some small backward integration in Nashik also is coming from VOEPL. So if you see maybe currently, maybe about 15% of VPPL business comes from VOEPL. Remaining 85% goes to outside customers. Similar is the case in compressors. So compressor captive requirement will be about 2%, 3% of the overall sales and the remaining will be for other customers.

And sir, what is the margin profile of compressor and its trajectory going forward?

So right now, we are looking at about 5%, 6% EBITDA, maybe 6%, 7% EBITDA or 6 plus/minus 1% EBITDA in compressors. But once we backward integrate and once the inventory, which the other manufacturers are keeping gets consumed, maybe we'll be able to improve the EBITDA slightly by 1% or 2%. But I think that we should expect primarily in the next financial year.

We'll take the next question from [ Siddharth Jain ]. We will move to the next participant. Akshay [indiscernible].

My question is on CapEx, ongoing capacity expansion in compressor refrigeration. Could you share the total planned CapEx for the next 2 years? And how much of this has already been incurred in quarter 1?

You are referring to commercial refrigeration, is it?

Yes.

So commercial refrigeration Q1, we have not done any significant CapEx. This financial year, we are looking to do about INR 20 crores, INR 25 crores CapEx in commercial refrigeration. And next year, we look at a similar number to achieve the 400,000 capacity that we have planned.

Okay. And what is the planned CapEx for the next 2 years?

Next year, like I mentioned, is about INR 20 crores, INR 25 crores, again, post which we will see how the utilization is and then we will take a call because the current manufacturing unit that we have created will sort of max out at a number of 400,000, post which we will require a larger CapEx to create a separate facility if we want to increase numbers. But so far, we have not planned for it. Once we sweat this asset well, then we will look at another expansion.

Okay. And one more question, like once the plant reaches a meaningful utilization, how much additional revenue and ROCE do you expect?

So it runs at full utilization. Of course, at a 400,000 capacity, we can look at a number of INR 600 crores coming from commercial refrigeration. But being a seasonal product, I think maybe a 60% to 70% capacity utilization is a more realistic number. So even if you consider 60% it's INR 240 crores. So you're looking at an average INR 15,000 cost, you're looking at INR 360 crore revenue coming from that vertical at a good optimized utilization level.

Sir, as you mentioned like refrigeration CapEx will be INR 20 crores to INR 25 crores. I want the total CapEx.

So total CapEx this year, we are looking at about between INR 80 crores and INR 100 crores in VOEPL.

We'll take the next question from [indiscernible].

Just want to confirm regarding the EBITDA margin like after completion of -- like our manufacturing and expecting the moderation in raw material prices, how we are thinking about the EBITDA margin for FY '27? Will it be like same as before FY '26?

So like we mentioned earlier on the call, 9% to 10% is the guidance that we gave, and we continue to be on that guidance.

We'll take the next question from [ Vignesh Iyer ]

So my question is on the working capital days. Can you tell the net working capital days at the end of quarter 1?

I don't have that figure off hand. Sajid, if you have that figure, maybe you can share.

Yes, it's around 85 days.

Okay. And so this means the marginal increase that we see around INR 1.5 crores in interest is primarily due to working capital increase in this quarter? Or is it because of the -- I want to just understand how much has come from the working capital for the higher interest cost in this quarter?

I think primarily...Sorry, please go ahead.

Higher interest cost primarily is because of the -- at a consol level, it's primarily because of the OCDs that we have taken.

Okay. And what is the cost of borrowing for those?

It's in the mid-teens.

Sorry?

It's in the mid-teens.

We'll take the next question from [ Parikshit ].

So the first question is on the PLI benefits. While we got the PLI benefits, they're going away in 2027. Have we worked out internally how are we going to pass it to the end consumer? And also, I mean, in general, earlier PLI incentives help the contract manufacturers to grow the business fast. But now with the incentives going away, how do you think contract manufacturers will work with the market share from other brands and manufacturing?

Right. So 2 parts of the question. PLI, this year, we are covered under PLI. So I think we have 12 months. We've started discussion, but I think we will conclude it over the next 12 months with our customers. The effective impact of PLI is about 1%, I mean, on the overall EBITDA of the company. So I mean, in the AC business specifically. But anyhow, so we are in discussion with our customers. And over the next 12 months, we'll find a win-win solution with them, point number one. Point number two, as far as expansion is concerned, I believe PLI was an incentive for both brands to have their own capacity and for OEM ODMs to increase capacity. So overall capacity increase has happened. If it is a deterrent to increase capacity, lack of PLI, if it is a deterrent, then it is a deterrent for both. So I don't believe it is going to sway the relationship or the equation in a specific direction. I think both -- on the contrary, I believe there can be slightly more inclination towards outsourced because there is no direct benefit to brands or at least I'm wishful that there might be slightly more inclination. But I think actually what happens, time will -- we'll see in time.

Understood. This is helpful. My next question in terms of new products, have we considered any new products over the near to the medium term? Also, ex of one anchor customer in the washing machine space, have we added any new customers in this bracket?

So we are -- of course, we are not adding a new category as of now in this financial year. But within the categories, we are definitely adding products or in AC, we are adding different sizes. In commercial refrigeration, we are adding more models. And like mentioned earlier, we are also looking at adding visi cooler as a segment. So we are adding more categories or segments within the same category or product segments in the same category, but we are not adding any new category for this current financial year. That is point number one. As far as washing machine, this year, we are looking at working majorly with our anchor customer. Once we scale up the product and once we have more variety and larger capacity, we will look at additional customers.

We'll take the next question from [ Aman Soni ].

I have 3 questions. One is what can be the peak revenue with the existing infrastructure that we can touch and how fast this ramp up can happen?

Sorry, I did not catch your question.

With the existing infrastructure, what can be the peak revenue that we can touch?

See, we are currently increasing capacity. But if you -- so slightly difficult. But with an increased capacity, let's say, for AC at a 60% utilization, we are looking at a peak revenue of close to INR 2,000 crores. For compressor, we are looking at 80% utilization, we are looking at a peak revenue of INR 750-odd crores. For the other products, including commercial refrigeration and EMS, we are looking at a peak revenue of INR 400 crores to INR 500 crores. So with the ongoing expansion that we are doing, which we conclude till -- in the next 12 months, we are looking at a peak revenue of about INR 3,500 crores to INR 4,000 crores.

Got it. And how do you see like last year and the ongoing year also, there were some headwinds, right, in the [indiscernible] demand. From the long-term perspective, what we see is, obviously, the penetration is still low, right? So how fast do you believe you will be able to ramp up these capacities over the years?

See, I think it is -- I mean it is more a matter of once we utilize about 50%, 60% or 70% of any capacity for a seasonal product, we look at increasing capacity. For a nonseasonal product, if we are hitting 70%, 80% utilization, then we look at increasing capacity of that further. So maybe you have one bad year or half a bad year in between. But overall, as our capacities get more and more utilized, we will look at increasing capacities further. So that is going to be the normal thought process unless there is another dynamic that we don't know as of today.

And sir, secondly, this PLI 2.0, it is more focused towards the component ecosystem. So do you have any plan in mind to take advantage of this?

We do. But once the scheme guidelines are out and once our plans are more consolidated, we'll come back to you.

Okay. And just last thing, what will be the net margins target for this particular year?