Perfect Infraengineers Ltd Management Discussions

INDUSTRY OVERVIEW

Our History

Our Company was originally incorporated in the name and style of Perfect Aircon Engineering Pvt. Ltd. in May 1996 and took over the business of Perfect Engineering, a Proprietary firm which was started in the year 1992 by Mr. Nimesh Mehta, one of our Promoters.

In the year 2015, our Company made an initial public offering of 25,08,000 Equity Shares of ? 10 each at par aggregating to ? 576.84 lakhs and listed its Equity Shares on SME Platform of NSE i.e., "EMERGE".

Our Company was listed on NSE with effect from November 20, 2015.

Initially, our Company started as its business of air conditioner repairing, sales & services which, we subsequently diversified as an engineering, procurement and installation ("EPI") contractor, providing

turnkey jobs of Heating Ventilation and Air Conditioning (HVAC) and also manufacturing of electrical panels. As an MEP contractor we primarily focus on supply, installation, testing and commissioning of HVAC units and also after sales services such as, under warranty service and annual maintenance contracts. We also generate our income from renting of air conditioners to various multinational corporation, corporate houses, etc. We have served 850 customers in our MEP vertical and 35 customers under our renting business.

The Pivot

Designing a truly green building today is impossible. Its because no product in the market is catering to

the single appliance that is consuming ~70% of the electricity load, the air-conditioner.

Commercial ACs are majorly two types - VRFs & Chillers. 50- 60% of the commercial building market is VRF. During AC sales, heavy competition forces every player to lower prices, resulting in no profit from the actual sale. The industry profits primarily from services & spare parts. In the VRF market, the top 3 players hold over 75% of the market share, leaving 8-9 competitors fighting for the rest with essentially identical products. There is barely any product differentiation in Indias commercial AC sector

We entered into an exclusive licensing agreement with SunTrac Solar Manufacturing LLC dated June 2017 to manufacture and sell in India the Hybrid Thermal Solar Panels ("HTS Panels") and related

proprietary products.

We commenced our manufacturing operations of electrical panels in 2014 from our manufacturing facility at Rabale, Navi-Mumbai. Our manufacturing facility is spread over 800 sq. meters. As on date, we have an installed capacity to manufacture and assemble 4,000 units per annum on double shift each of 8 hours per day.

The HTS Panel

It is not a PV panel - but a thermal panel that works on the thermal energy of the sun. It does not generate electricity. In any AC, the compressor consumes almost all the electricity. The compressors

job is to use electricity to add heat and pressure (energy) into the refrigerant gas. HTS Panel adds energy that the compressor was supposed to add using free solar energy. Thus, work done by the compressor reduces and the electricity consumption of the AC goes down by ~40%. HTS Panel integrates with any brand of VRF or Chiller (new or existing installation) and gives an ROI of ~3 years. Perfect is the only IP holder and manufacturer in South Asia.

Due to the green push in building design, designers now prioritize a term called COP when selecting air conditioners. COP, or Coefficient of Performance, is a simple ratio of output divided by input, with

output being the cooling and input being the electricity used. Old window units had a COP of around 2. Todays high-wall inverter units in homes achieve a COP of about 3 to 3.5. Commercial VRF systems have a COP of around 4, and the most efficient chillers today reach a COP of 5. When Perfects HTS panel is installed on an air conditioner of any brand, the COP increases to over 6, making it the most efficient AC available on the market.

Benefits of HTS Panel

• Monetary Savings: ~40% reduction on AC electricity bills

• Judicious use of roof top space: HTS panel is 11 times more space efficient than traditional electricity generating solar PV Panel

• Improved life of AC: Compressor of the AC works at lesser load as HTS panel takes up partial work of the compressor

• Impact on Indian DISCOMS: Power cuts caused by peak summer load (driven by AC usage) can be put to check by widespread adoption of HTS panel

• Attractive ROI: Make in India renewable rooftop product with attractive IGBC points for green building certification. Return on Investment of HTS panel is 3 to 4 years. Life of HTS panel is 15+ yrs with 5 yr warranty

Market size and opportunity

The HTS Panel is a Power Saving - Scalable - Roof Top - Renewable Energy - Market Ready product that has the ability to Change The Way India Cools.

There is no product in the market which matches the technical abilities and sophistication of the HTS Panel.

~6 lakh HP of VRF are sold in India every year with ~40 lakh HP of VRFs already installed.

This gives the HTS panel a market size of INR ~16,000 Crores and a yearly growth in that market of INR ~2,400 Crores.

With the successful installation of HTS Panels on a 180-ton Chiller, Perfect has expanded into the Chiller market.

This increases our available market to over INR 30,000 crores in India with little to no competition Current status in the market

Total installations stand at ~450 HTS panels (catering to 4000 tons of AC) at ~100 private and public sites across India with a failure/product recall rate of less than 0.1%.

30+ Proof of concept (Testing) sites, giving an average savings of ~35%. Below is the snapshot of our clientele:

• 5 State PWDs: Maharashtra, Gujarat, Rajasthan, Himachal Pradesh, Chhattisgarh

• 10+ PSUs: Including, NTPC, REC, Indian Oil, AIIMS, MGL, HITES, DMRC

• 20+ MNCs: Including, L & T, P & G, Adani, Honda, ICICI Bank, Mahindra, Hero, John Deere, Google The current marketing approach:

The HTS Panel started off with just a few installations in the first year.

Being such a groundbreaking technology industry leaders found it very hard to believe and hence adoption was slow. Over the years Perfect has been successful in creating an ever-growing demand for the HTS Panel.

The overall marketing strategy is divided into a few types depending on the type of customer and the kind of marketing required for them:

- Through Channel Partners

- Through liaisoners / relationship experts

- Direct involvement/sale

- Mix of the above

• Through Channel Partners:

Sales to private organisations (such as Mahindra, Nivea, Honda etc) follows a general path whichlooks like:

> Approaching clients / Enquiry from clients (Via mail or word of mouth marketing)

> Preliminary explanation on call/ VC

> Physical meeting with technical team - Convince them for a demonstration installation.

> Site visit and Site visit report

> Demonstration machine finalisation

> Installation of energy meter

> Energy readings for a few days/weeks

> Installation of HTS Panel

> Energy readings for a few days/weeks

> Calculation of savings - Making savings report

> Convincing client on ROI basis the savings they got.

> Receive demonstration installation payment.

> Push for repeat order

The above path requires:

- Physical presence at the site /customer location

- Relationship building with customer

Hence, a private sale is generally done through Channel Partners

Perfect Infraengineers currently has 20+ channel partners active pan India who have successfully got sales in companies such as Adani, Nivea, Honda, Hero, SC Bank, Mahindra, PnG etc

Its important to note that none of these clients required major effort from Perfect directly, except during installation.

• Through liaisoners / relationship experts:

Sales to Government organisations or PSUs usually require relationship experts but the end sale can come to Perfect directly which a consulting fee going to the expert.

The sale has the following steps in general:

> Get connected to the relationship expert via word of mouth.

> Finalise on the consultation fee during end sale

> Expert approaches clients

> Give technical support to expert

> Preliminary explanation on call/ VC

> Physical meeting with client

> Site visit and Site visit report

> Demonstration machine finalisation

> Installation of energy meter

> Energy readings for a few days/weeks

> Installation of HTS Panel

> Energy readings for a few days/weeks

> Calculation of savings - Making savings report

> Push for company/organisation wide adoption of technology

The most important requirement in the above sale is a pre-existing relationship with the client hence a relationship expert is essential.

Perfect currently has 10+ relationship experts active pan India The past years achievements

With over 450 successful installations of HTS panels pan India and 30+ case studies Perfect has come a long way since our partnership with SunTrac in 2018-19.

This past year Perfect has achieved a lot of milestones:

• We added prestigious clients like: Mahanagar Gas Limited, Capgemini, Optum, Google, DMRC, AIS glass, Elecon, Bosch, John Deere and many more

• Perfect successfully installed the HTS Panel on a 180 ton Chiller in Pune - Its the largest chiller installation with our technology in the world and opens up a massive market for us.

• Perfect has successfully entered the southern Indian states with Channel Partners made and their first installations completed in Chennai, Hyderabad and Bangalore.

• The HTS Panels have started showing up in private company tenders - a big achievement since these are generally organic sales and do not require much effort from Perfect or our CPs

Growth Drivers

With the entire world understanding the potential of renewable energy to go green Perfect is ideally placed in an industry with no similar renewable energy product to compete with.

We expect exponential growth in the coming years once herculean task of technology acceptance is through. We have started seeing signs of technology acceptance with much less push required to initiate with new clients.

• Rising Energy Costs: As electricity and fuel prices increase, businesses and consumers are seeking energy-efficient solutions. Renewable HVAC products, like our HTS Panel, offer substantial long-term savings.

• Environmental Regulations and Policies: India is implementing stricter carbon emission standards and offering incentives for green technologies, which drive demand for eco-friendly HVAC systems.

• Growing Demand for Energy Efficiency: With rising awareness of energy conservation, there is increasing demand for HVAC systems that consume less power. Renewable technologies, such as hybrid systems with solar integration, offer significant efficiency gains.

• Corporate Sustainability Goals: Companies are adopting sustainability initiatives and prioritizing green technologies in their operations, which increases the market for renewable HVAC solutions.

• Increased Consumer Awareness: End-users are becoming more knowledgeable about the environmental impact of traditional HVAC systems and are more inclined to invest in renewable alternatives to reduce their carbon footprint.

These factors collectively contribute to the growing adoption of renewable energy products in the HVAC industry.

Challenges and our solutions

Although our challenges have greatly reduced in the past few years, Perfect still faces a lot of pushback from the industry.

Context- Most large/valuable end clients have Annual Maintaince Contract with the OEMs. The AMCs are the real source of profit for any AC OEM as the New AC sales market has cutthroat competition in India and very low margins.

• Market Type: Retrofit in existing AC sites

As the OEMs (service division) do not have any financial incentive to support HTS Panel when they are retrofit, below are the hurdles they typically create:

- Create doubts on performance of combined system in the minds of the end clients

- There have been instances when the OEM service department have threatened the end client that they will not take up AMC for when the HTS Panel shall be installed

Steps taken by Perfect Infraengineers:

- Perfect takes full onus of the combined Hybrid VRF system (AC + HTS Panel) for any failure

- Perfect offers AMC to the client at the same or reduced price as the OEM service division

- Perfect offers HDFC Ergo insurance for the combined Hybrid VRF system (AC + HTS Panel) to the end client

• Market Type: New Installations of AC

Context- Perfect has started focusing their efforts on getting the HTS Panel and/or HVRF system (VRF AC + HTS Panel) specked into the tender as the most efficient AC in the Planet. Note that efficiency of any AC is defined by a universal metric called as Coefficient of Performance or COP. While the best VRFs have a COP/EER (Energy Efficiency Ratio) of 4-4.5, the HVRF system (VRF AC + HTS Panel) has a COP of 6+ at full load.

Reaction from OEMs- Typically, new AC installations in Pvt or Public projects are a part of a wider tender for the commercial building. As the HTS Panel has started appearing in tenders, Perfect essentially becomes a supplier of the HTS Panel to the winning bidder. The OEM of Air-Conditioners have the financial incentive of getting the sale done in this cutthroat AC market and hence they do not oppose the installation of this technology

Key managerial personnel changes

Mr. Parth Mehta, from the promotor family has joined Perfect in the June 2024:

Parth Mehta (Age: 27) : Qualification: MBA (2022)- Indian School of Business, Hyd; Engineer (2019)- VJTI, Mumbai

4+ years of experience in best of corporate across top tier strategy consulting firms (including latest stint in Boston Consulting Group - BCG and earlier in ZS Associates) and CEOs office role (Providence, a major American Healthcare Provider & Consulting firm)

Parth has joined as the Head of Strategy and leads the new marketing, strategic, and sales approach that Perfect constantly experiments in. Parth brings immense experience in strategy from his previous work and has been successful in initiating new business models in selling the HTS panels in India

Company Strengths

• We are an exclusive manufacturer and seller of HTS panel, a technology patented in the US by SunTrac Solar Manufacturing LLC and having strong presence in domestic markets.

• Large order book providing visibility on future growth: With the HTS panels mentioned in handful of large government tenders across the nation - we are confident of multiple large installations in the range of INR 2-5 Crores each in the future

• Ever-growing strength of our Channel Partners across India.

• Experienced promoters and management expertise

Our Promoters, Nimesh Mehta and Manisha Mehta have good experience of several years in the EPI, HVAC and HTS panel. As all the Promoters are having strong educational background, technical knowledge, leadership qualities and marketing skills, the Quality, Research Development, Marketing, Purchase and Imports Exports departments of the Company. With their diligence, the company has established a presence in the HTS industry in India. We believe that our management teams experience and their understanding of the heating ventilation air conditioning industry will enable us to continue to take advantage of both current and future market opportunities. It is also expected to help us in addressing and mitigating various risks inherent in our business.

The next generation of promotors, Mr. Krishna and Mr. Parth Mehta, have already joined the business. With strong education background and diverse experience both Krishna and Parth will fuel the exponential growth of Perfect

• Strengthening our business with expansion in product application: Our product, HTS panels finds its application in centralized chiller systems and ductable roof top air conditioners. As mentioned earlier Perfect has already successfully installed the HTS Panels in a large Chiller application in Pune - which is the largest of its kind in the world

• Strengthening our business with expansion geographies: Perfect has started expanding into the southern states of India which were previously untouched.

Financial Ratios

Financial Ratios	Formula	Ratio
Debtors Turnover	Sales/Trade receivables	0.23
Inventory turnover	COGS/Avg Inventory	0.18
Current Ratio	Current Assets /Current Liabilities	6.00
Debt Equity Ratio	Total Liabilities/ Total Shareholders Equity	0.24
Net Profit Margin	Net Profit/ Revenue	13.94
Return on Cap employed	PBIT/Cap employed	0.93

Our revenues (net of excise duty), on a consolidated basis, amongst the two major product lines can be broadly classified as under:

Particulars	Fiscal 2024	Fiscal 2023	Fiscal 2022
Hybrid Thermal Solar panels	502.70	612.77	300.94
EPI services	86.21	107.63	128.50