Virtuoso Optoelectronics Ltd Management Discussions

1. Industry structure and developments Overview

Indias consumer goods and electronics manufacturing sector continued to witness robust structural evolution during the financial year ended March 31, 2026. The government s sustained thrust on the Make in India initiative, the Production Linked Incentive (PLI) scheme for white goods and electronics, and deepening import substitution policies have collectively created a compelling environment for domestic manufacturers. Simultaneously, global supply chain realignment, driven by geopolitical shifts and the China Plus One strategy, continues to unlock new opportunities for Indian original equipment manufacturers (OEMs) and original design manufacturers (ODMs).

The air conditioner segment, a primary revenue driver for the industry, recorded industry volumes of approximately ~15 million units during the season, though the year was characterised by an uneven demand trajectory. An unusually muted summer in the first half, combined with elevated channel inventory from overstocking and a mandatory transition to revised Bureau of Energy Efficiency (BEE) star-rating norms, created temporary headwinds. Despite these near-term disruptions, underlying demand fundamentals remain strong, driven by rising per-capita incomes, improved affordability, increasing electrification, and India s aspirational consumption growth. Industry analysts broadly estimate the RAC market to sustain a long-term CAGR in the range of 10% to 15%.

The compressor manufacturing segment, critical for both room air conditioners and refrigeration appliances,

. Historically, undergoing approximately significant ~ 14 million of the estimated

~22 million refrigeration compressors consumed annually in India were imported, predominantly from China.

The Government of India s Quality Control Orders (QCOs) mandating BIS certificationfor compressors and the partial restriction on imports calibrated at 40% of the base year (FY 2024-25) import quantities have created substantial headroom for domestic manufacturers. This is a watershed development for the sector, as India now has limited indigenous manufacturing capacity in this category, placing established domestic producers in a highly advantageous position.

The Electronics Manufacturing Services (EMS) sector in India is also experiencing accelerated growth, supported by the Governments ECMS (Electronics Components Manufacturing Scheme) and allied policies. The demand for printed circuit boards (PCBs), controller boards for appliances, LED lighting, and associated sub-assemblies continues to expand as global brands seek to diversify their supply chains and Indian brands scale up their domestic manufacturing footprint. The refrigeration segment spanning commercial deep freezers and premium multi-door refrigerators is likewise witnessing growing demand from organised retail, cold-chain logistics, and the food services sector.

2. Company Overview

Virtuoso Optoelectronics Limited (VOEPL) is a Nashik-based, BSE & NSE listed manufacturing Company operating at the intersection of consumer electronics, appliance manufacturing, and component engineering.

The Company operates as a flagship entity with one wholly-owned subsidiaries and two subsidiary:

1. Virtuoso Compressors Private Limited (VCPL), engaged in the manufacture of reciprocating compressors for refrigeration applications;

2. Virtuoso Polymers Private Limited (VPPL), focused on precision polymer components with manufacturing units at Sanand (Gujarat) and Chennai (Tamil Nadu) and

3. YLP Solutions Private Limited manufacturing lighting and lighting components.

Virtuoso Optoelectronics Limited (the Company) is an integrated manufacturing platform operating across Electronics Manufacturing Services and consumer durable product categories. The Company has evolved from an electronics manufacturing business into a diversified OEM/ODM manufacturing enterprise with capabilities spanning air conditioners, commercial refrigeration products, compressors, washing machines, EMS solutions, controller boards, remotes, LED products, sheet metal components, plastic moulded parts, copper tubing, heat exchangers, wire harnesses, and other critical components.

The Company has established manufacturing facilities across multiple locations, including Nashik, Chennai, and Sanand, enabling it to serve a diversified customer base and strengthen its geographic presence. Through its subsidiaries and strategic investments, the Company has significantly expanded its manufacturing footprint and enhanced backward integration capabilities across the value chain.

The Company s strategic focus remains cantered on manufacturing excellence, customer diversification, localization, operational efficiency, and value-added product offerings. Its growing ODM capabilities, coupled with increasing in-house component manufacturing, position the Company favourably within Indias evolving manufacturing ecosystem.

Consistent multi-year growth across revenue, EBITDA, and profits highlights the Company s solid execution and the scale of the structural opportunities it targets. Reflecting this business maturity, the Company s planned migration from the SME platform to the Main Board of BSE and NSE which was underway at the close of the financial year has now been successfully completed.

4. Opportunities:

The Company operates in significant long -term growth potential, supported by favourable sector that offers industry trends, government initiatives, and evolving consumer preferences. Key opportunities available to the Company are as follows: a) Growing Demand for Consumer Goods

India continues to witness increasing penetration of consumer durable products such as air conditioners, refrigerators, washing machines, and other household appliances. Rising disposable incomes, urbanization, improving living standards, and greater awareness of energy-efficient products are driving demand across urban as well as semi-urban markets. This expanding consumer base provides substantial growth opportunities for the Company across its product portfolio.

b) Government Focus on Domestic Manufacturing and Import Substitution

The Government of India continues to promote domestic manufacturing through initiatives such as Make in India, Production Linked Incentive (PLI) schemes, Quality Control Orders (QCOs), and localization programs. These measures encourage import substitution and support the development of indigenous manufacturing capabilities. The Companys established manufacturing infrastructure, backward integration initiatives, and localized supply chain position it well to capitalize on these policy-driven opportunities.

c) Expansion of ODM (Original Design Manufacturing) Business

The Company s strategic shift from OEM to ODM significant qualitative in the AC segment marks upgrade. By developing its own designs, tooling, and product lineups, VOEPL is no longer solely dependent on customer-prescribed specifications, enabling it to attract a broader and more diversified

The ODM model is expected to structurally improve margins over the medium term as customer mix diversifies and design premiums are captured. d) Increased Localization of Components

The increasing emphasis on local sourcing of components within the air-conditioning, refrigeration, and opportunities for the Company. Through its backward consumer goods eco systems presents significant integration strategy and in-house manufacturing of key components, the Company can improve value addition, reduce dependence on imports, enhance supply chain efficiency, and strengthen its competitive position while supporting margin expansion.

e) Growth in Refrigeration Compressor Manufacturing

The Companys entry into refrigeration compressor manufacturing represents a strategic opportunity to participate in a critical component segment that has historically depended on imports. With increasing domestic demand, government support for localization, and growing industry requirements, compressor manufacturing is expected to emerge as an important growth driver while enhancing the Companys presence across the consumer goods value chain. f) Expansion in Commercial Refrigeration Business

Demand for commercial refrigeration products is growing across retail, food processing, hospitality, healthcare, and cold-chain industries. The Companys expanding capabilities in deep freezers and refrigeration products enable it to participate in these high-growth segments and diversify revenue streams.

g) Diversification into New Product Categories

The Companys expansion into washing machines, water dispensers, EMS solutions, and other adjacent product categories provides additional avenues for growth.Diversificationhelps reduce dependence on any single product segment, mitigates seasonality-related risks, and strengthens business resilience through a broader product portfolio. h) Growth in Electronics Manufacturing Services (EMS)

The Indian EMS sector is witnessing rapid growth due to increasing outsourcing by brands, localization requirements, and rising demand for electronic components and assemblies. The Companys investments in EMS capabilities, controller boards, remotes, and other electronic components position it to benefit from growing demand and increasing value addition opportunities. i) Customer Diversification and New Customer Acquisition

The Company continues to expand its customer base across domestic and multinational brands. Customer diversification reduces concentration risk, improves business stability, and creates opportunities for cross-selling multiple products and services. Growing relationships with leading brands also enhance credibility and support long-term sustainable growth.

. Threats:

The consumer goods and electronics manufacturing sector in which VOEPL operates is subject to a range of competitive, macroeconomic, and policy risks that could adversely affect the Companys performance. a) Raw Material Price Volatility

Copper and aluminium prices remain susceptible to global commodity cycles. Copper rose sharply to approximately USD 12,000 per tonne during FY26 against a normal average of USD 8,000 per tonne, inflating bill-of-materials costs for RAC unit. While the Company recovers significant portion through quarterly pass-through pricing, customers on fixed-season contracts create an unavoidable lag in cost recovery, compressing near-term margins. b) Policy and Regulatory Risk in the Compressor Segment

The Companys growth strategy, particularly in compressor manufacturing and localization initiatives, benefits from government policies promoting domestic manufacturing and import substitution. Any changes, delays, relaxation, or reversal of import restrictions, Quality Control Orders (QCOs), tariff structures, or localization requirements could slow the shift toward domestic sourcing and adversely impact capacity utilization, revenue growth, and investment returns.

c) Foreign Exchange and Supply Chain Risks

The Company remains exposed to foreign exchange fluctuations due to imports of certain raw materials, components, and equipment. Currency volatility can increase procurement costs and impact margins. In addition, global supply chain disruptions, logistics bottlenecks, geopolitical developments, or shortages of critical components may affect production schedules and operational efficiency.

d) Demand Seasonality and Capacity Utilization Risk

Demand for air conditioners and certain commercial refrigeration products is highly seasonal, with sales concentrated during specific periods of the year. This seasonality can result in lower capacity utilization during off-peak quarters, leading to fixed-cost absorption challenges and pressure on profitability. While diversification into compressors, refrigeration products, EMS solutions, and other categories helps mitigate this risk, seasonality remains an inherent characteristic of the industry. e) Dependence on Industry Demand and Economic Conditions

Demand for consumer goods is closely linked to broader economic conditions, including income growth, rates, and discretionary consumer confidence, spending patterns. Economic slowdowns, inflationary pressures, or weaker consumer sentiment could categories, impacting revenue growth and profitability.

6. Industry Outlook – EMS & Consumer goods

The outlook for the Indian EMS and consumer goods industry remains positive over the medium to long term. Increasing localization, rising domestic consumption, favourable government support, and growing manufacturing investments are expected to drive industry growth.

The EMS sector is likely to benefit from increasing outsourcing by brands seeking asset-light operating models and supply chain resilience. Simultaneously, the consumer goods industry is expected to witness healthy demand growth driven by increasing household penetration, rising income levels, urbanization, and replacement demand.

The air conditioning industry is anticipated to benefit from rising temperatures, expanding residential penetration, and greater affordability. Commercial refrigeration, compressors, EMS products, and related components are also expected to experience strong growth due to increasing domestic manufacturing activity and localization initiatives.

The Company believes that its diversified manufacturing platform, integrated operations, and expanding product portfolio position it favourably to capitalize on these industry opportunities.

7. Technology & Innovation

VOEPL has made deliberate and material investments in enhancing its technological capabilities during FY26.

The commissioning of a new, state-of-the-art tool room facility at its Nashik campus represents a significant upgrade in the Companys ability to design and produce moulds and tooling in-house. This capability is expected to meaningfully compress product development cycles, reduce dependence on external tooling vendors, and improve responsiveness to customer design requirements factors that are increasingly critical in the competitive ODM landscape.

The Companys transition from OEM to ODM in the AC segment required the development of proprietary design capabilities across industrial design, engineering, and thermal management. VOEPL has successfully launched its own ODM product range, which contribute major portion of its AC revenues in FY26. The ODM platform enables the Company to offer co-developed product solutions to customers, strengthening its strategic relevance and creating differentiation beyond pure cost competition.

In the compressor segment, VOEPLs subsidiary VCPL is currently engaged in assembly of reciprocating compressors. The Companys stated roadmap involves a phased transition toward deeper backward integration targeting approximately 60% value addition over a five-year horizon as domestic component ecosystems mature and volumes scale.

Across all business verticals, VOEPL continues to invest in process standardisation, quality management systems, and employee capability development to strengthen its manufacturing competitiveness.

Business Performance Highlights

During the year under review, the Company continued to strengthen its position as an integrated manufacturing platform across EMS and consumer durable categories. The Company expanded its manufacturing capabilities, enhanced backward integration, and increased its presence across multiple product verticals.

Key business developments included expansion of air conditioner manufacturing capacity, strengthening of EMS capabilities, growth in commercial refrigeration products, operationalization of compressor manufacturing facilities, and continued development of in-house component manufacturing capabilities. The Company also expanded its manufacturing footprint through facilities in Chennai and Sanand, supporting future growth requirements. across key product On a consolidated basis, the Company recorded net revenues of INR 82,360.46 lakhs for FY26, representing a growth of approximately 17.93% over the prior year. EBITDA improved from INR 6,053.52 lakhs (8.6% margin) in FY25 to Rs 8,588. 68 lakhs (10.4% margin) in FY26, reflecting the positive impact of a more diversified revenue mix, greater contribution from higher-margin non-AC segments, and operating leverage on the expanded asset base. Profit Before Tax (PBT) remained relatively stable year-on-year, influenced by higher depreciation and lease charges consequent to the Companys transition to Indian Accounting Standards (Ind AS) in FY26, which introduced right-of-use asset accounting. Profit After Tax (PAT) improved marginally from 1.76% of revenue from operations to 1.84%, with absolute PAT increasing from approximately INR 1,227.84 lakhs to INR 1,502.53 lakhs.

The Company s strategic focus on diversification resulted in increased contribution from non-air-conditioner product categories, thereby improving business resilience and reducing concentration risk. Continued investments in manufacturing infrastructure, customer acquisition, and product portfolio expansion are expected to support future growth and profitability.

Risks & Challenges

The Companys management regularly assesses and monitors risks that could impact its performance and strategic objectives. The Company s business is exposed to various operational, financial, regulatory, and market-related risks. Key risks include fluctuations in raw material prices, supply chain disruptions, customer concentration, foreign exchange volatility, changes in regulatory frameworks, technological obsolescence, and evolving customer requirements.

The Company also faces challenges associated with capacity utilization, talent acquisition and retention, execution of expansion projects, and maintaining operational efficiency in .environment a dynamic business To mitigate these risks, the Company follows a structured risk management framework focused on diversification, operational controls, supplier development, customer engagement, compliance monitoring, and continuous improvement initiatives.

Medium- & Long-Term Strategy

VOEPLs long-term growth is built on a clear expansion roadmap:

• Expanding product portfolio to become a multi-category consumer goods manufacturer.

• Scaling EMS business to capture opportunities in electronics and contract manufacturing.

• Investing in R&D and automation for future-ready products and processes.

• Exploring exports and new markets, reducing dependency on domestic cycles.

• Embedding sustainability at the core of operations to drive long-term value for its stakeholders.

The Companys journey over the past year highlights its strategic foresight and adaptability. By aligning expansion with strong industry tailwinds, VOEPL is positioning itself not just as a contract manufacturer, but as a trusted growth partner for leading companies in India and beyond. j) Financial Performance Analysis:

Following are the financial highlights of the Company for the year ended March 31, 2026, on a Consolidated basis: A good demand for the Companys offerings across all business segments coupled with an early onset of summer in some parts of the country helped Virtuoso Optoelectronics Limited to register a robust revenue growth. The Company delivered record revenue of Rs 82,599.36 and profits in FY 25-26 of Rs. 1516.74 lakhs.

Financial performance analysis is provided below:

Income (Consolidated basis):

The year commenced on a promising note with a general improvement in consumer sentiment witnessed in the first half of the previous financial year. During the peak selling season for the Company s products,

Virtuoso Optoelectronics Limited ended the year on a strong note with the total Income for the year ended

March 31, 2026, growing by 17.42% to 82,599.36 lakhs as compared to 70,345.41 lakhs in the previous year.

OPERATING AND GENERAL EXPENSES (Consolidated basis):

Operating and general expenses increased to Rs. 1,715.15 lakhs from Rs. 1,540.60 lakhs in the previous year. As a percentage of total Income, the operating and general expenses for the year were at 2.08% as compared to 2.19% in the previous year.

Financial Expenses (Consolidated basis):

Financial cost for the year was at Rs 3,346.57 lakhs compared to Rs.2,600.43 lakhs in the previous year. The financial cost for the year increased to 4.05% of the total income compared to 3.70% in the previous year due to increased average gross borrowings and policy driven change in cost of financing.

Depreciation (Consolidated basis):

Depreciation charge for the year decreased to Rs. 2,791.09 lakhs as compared to Rs. 1,132.53 lakhs in the previous year.

Profit Before Tax (Consolidated basis):

Profit before tax and exceptional items for FY26 increased by 5.62% to Rs 2,451.02 lakhs compared to Rs 2,320.56 lakhs in FY25. Profit before tax and exceptional items has decreased to 2.97% of the total income compared to 3.30% in the previous year.

Key Financial Ratios (Consolidated basis):

Sr. No. Key Financial Ratios	FY26	FY25	Times / Change%
1 Debtors Turnover Ratio (times)	15.55	26.94	-42.28
2 Inventory Turnover Ratio (times)	3.15	3.21	-1.82
3 Current Ratio (times)	1.19	1.32	-9.74
4 Debt Equity Ratio (times)	0.67	0.61	10.24
5 Operating Profit Margin (%)	7.04%	7.04%	-
6 Net Profit Margin (%)	1.82%	1.76%	3.77%
7 Return on Net Worth (%)	3.46%	4.36%	-16.33%
8 Return on Capital Employed (%)	8.22%	10.59%	-22.41%
9 Trade Payables Turnover Ratio (in times)	4.95	5.68	-12.85
10 Net Capital Turnover Ratio (in times)	12.02	9.43	27.48

DETAILS OF SIGNIFICANT CHANGES (>25% and <-25%)

During the year, The Net Capital Turnover Ratio increased due to higher Revenue from Operations and more efficient utilization of net working capital during the year. The decrease in ROCE was primarily attributable to an increase in capital employed following business expansion, while the corresponding growth in operating profit (EBIT) was comparatively lower. The decrease in the Debtors Turnover Ratio was primarily due to higher average trade receivables to support business growth

Internal Control Systems and Their Adequacy

The Company has established an internal control system, commensurate with the size, scale and complexity of its operations. In addition, the internal audit function reviews and reports updates on compliance with internal controls, the efficiency and effectiveness of operations to the Audit Committee. k) Risks And Concerns:

Risks

The primary operating risks which could impact the Company relate to slowdown in the manufacturing, environment and investment cycles, exposure to seasonality for some of its businesses, dependence on sale of room air conditioners, competition from Indian and global players, volatile exchange rates, interest rates, credit risks, import dependence, procurement concentration risks, volatile commodity prices risks, changes in tax and other legislations as well as risks arising out of higher input costs especially in the case of fixed price contracts, health and site safety, exposure to frauds, and changes in technology which impact the Companys product offerings. In addition, considering the current scenario, pandemic events and geopolitical scenarios also pose a business continuity risk, apart from a general slowdown in the global and local economy which tends to intensify risks faced by the Company. Virtuoso Optoelectronics lays great emphasis on Enterprise level Risk Management, and has put in place a robust system for risk mitigation with strong internal controls, at both the business-groups and identification, corporate level in line with the Enterprise Risk Management framework. Significant risks across the entity are reviewed periodically by the Board of Directors. Further, the mitigation action plans are integrated with the strategy and performance management processes, and also with the internal audit plans.

Concerns

A confluence of factors on the global and local fronts, such as geo-political equations between countries, the usage of tariff and non-tariff barriers to address trade imbalances, volatility in crude oil, commodity prices, and ocean freight, could impact consumer confidence. The Company will continue to closely monitor the macro and micro level trends in the global and Indian economy, and will take necessary steps to address these challenges.

Opportunity

The Companys proven ability to innovate and offer products/solutions in line with the evolving dynamics continues to provide the Company with opportunities to grow even under the current challenging circumstances. These are opportunities related to the Companys products, projects and service accountability, businesses ethical for varied sectors.

Human Resources

The Company accords high importance to build and sustain healthy industrial relations with an aim of achieving competitive productivity & cordial work environment. The industrial relations continue to remain harmonious. Close interaction and cordial relations with workers are maintained all the time. With a view to enhance the involvement and remain focused, the Functional Heads/Departmental Heads of each manufacturing locations are involved in Plant level Committees e.g. Safety Committee, POSH Committee, etc. Industrial relations throughout the year under review remained highly cordial and peaceful, ensuring a stable and productive operating environment At the end of March 31, 2026, your Company had 386 employees (excluding trainees and apprentices) as compared to 273 employees as on March 31, 2025.

CORPORATE OUTLOOK

Virtuoso Optoelectronics Limited enters FY27 in a position of materially enhanced strategic strength relative to where it stood three years ago. The Company has successfully navigated the challenges of FY26 which included demand disruptions from BEE norm transitions, elevated channel inventory, and commodity cost volatility while simultaneously executing on a transformative multi-segment capacity build-out. The resilience demonstrated in FY26, with the Company recovering strongly in H2 to close the year with INR 823 crores in revenues and a Q4 performance that surpassed all previous quarterly records, is reflective of the underlying quality of its business model and the depth of its competitive positioning.

From a strategic standpoint, the Company remains deeply committed to its founding philosophy of manufacturing excellence and backward integration. The current phase of capacity investment is designed to ensure that VOEPL has the scale, technology depth, and customer portfolio to sustain a strong growth in revenues over a three-to-five-year horizon a target that the Company s management is confident is achievable given the structural opportunities across each of its four primary business segments. The migration to the NSE and BSE Main Boards during FY27 will further enhance the Company s profile, investor access, and ability to mobilize growth capital efficiently.

The Company is cognizant of the execution complexity inherent in managing simultaneous multi-segment expansion across geographically dispersed facilities. Management has responded by strengthening its organizational structure, instituting a business unit head model for each major segment, and investing in senior leadership across finance, operations, and technology functions. These structural investments in human capital are expected to build the organizational bandwidth necessary to sustain the Companys growth trajectory without compromising quality, customer commitments, or financial discipline. In conclusion, Virtuoso Optoelectronics Limited stands at an inflection point. The convergence of India s secular consumer goods growth story, government policy support for domestic manufacturing, the Companys strategic positioning in nascent but high-potential segments such as compressor manufacturing, and its evolving ODM capability create a rare combination of near-term earnings visibility and long-term structural upside. The Board and Management are committed to delivering sustainable, profitable, and responsibly governed growth in the interests of all stakeholders.