Virtuoso Optoelectronics Ltd Management Discussions

1. Industry structure and developments Overview

The fiscal year 2024-25 was a period of solid performance for our sector, demonstrating resilience against a backdrop of heightened global uncertainties. Despite a moderation in Indias overall GDP growth to an estimated 6.4%, reflecting subdued private demand and delayed government investment, the domestic economy proved its fundamental strength. Favorable conditions, including stabilizing food prices that brought inflation under control and two policy rate reductions by the Reserve Bank of India, helped to support consumer sentiment and liquidity.

Our industry capitalized on these conditions, experiencing moderate growth in consumer durables. A significant trend driving this growth was the increasing preference for premium, energy-efficient, and technologically advanced products. This “premiumization” was fueled by a growing urban population and rising disposable incomes. A particularly strong summer season also provided a major boost, driving demand for cooling products like air conditioners and air coolers. We see this as a clear signal of evolving consumer aspirations and a shift toward higher-value goods.

The governments proactive policies were instrumental in our success this year. The Production Linked Incentive (PLI) scheme for ACs and LED lights attracted significant investment and was a cornerstone of our efforts to boost domestic manufacturing and reduce import reliance. We coimnend the governments swift action in processing claims and reopening application windows, which has reinforced our confidence in the “Atmanirbhar Bharat” vision. This initiative has already led to a notable increase in domestic component manufacturing, strengthening our local value chain and preparing us for future growth.

The governments continued focus on capital expenditure in infrastructure, energy security, and urban development provides a promising outlook for sustained demand. We are strategically positioned to capitalize on these trends by expanding our manufacturing capabilities and enhancing our product portfolio to meet the demand for innovative, high-quality, and energy-efficient products.

Company Overview

Virtuoso Optoelectronics has steadily evolved into one of Indias leading manufacturing partners for consumer durables and electronics. Starting with Air Conditioners as its core strength, the Company today also manufactures coimnercial refrigeration products, water heaters, lights, and remotes.

In line with its vision of becoming a multi-category manufacturing powerhouse, the past year marked a significant phase of diversification and expansion.

Virtuoso entered new product categories such as washing machines, compressors, and freezers, while also strengthening its capabilities in Electronics Manufacturing Services (EMS). These moves underline the Companys strategy to deepen its presence across consumer durables and build an integrated manufacturing ecosystem for OEMs.

To support this transformation. Virtuoso has made strategic investments of about Rs. 140 Cr. in capacity expansion, advanced automation, and product development. Looking ahead, we are confident in our ability to navigate potential external headwinds, such as geopolitical tensions and trade tariffs.

Opportunities:

1. Infrastructure Expansion:

The planned investments in new manufacturing facilities present a significant opportunity to scale up production and diversify into new areas like electronics and motor components.

2. Government Policy Tailwinds:

The "Atmanirbhar Bharat" campaign and other government policies aimed at promoting self-reliance and local manufacturing can be a major growth driver.

3. Shift to ODM Model:

By further developing its ODM capabilities, the company can move towards higher-margin business, reduce its reliance on customer-provided designs, and enhance its competitive advantage.

4. Market Growth in Consumer Durables:

The growing consumer durables market in India provides a favourable environment for the company to expand its product portfolio and market share.

Threats

1. Intense Competition:

The company faces stiff competition from both domestic and international players in the electronics manufacturing and consumer durables sectors.

2. Economic Downturn:

A slowdown in the consumer durables market due to a general economic downturn could impact sales and profitability.

3. Supply Chain Disruptions:

As a manufacturer, the company is vulnerable to supply chain disruptions and fluctuations in raw material prices.

4. Technological Obsolescence:

The fast-evolving nature of the electronics and consumer goods industries means the company must continuously invest in R&D to avoid technological obsolescence.

Industry Outlook - EMS & Consumer Durables

The EMS industry has emerged as one of the fastest-growing sectors in India, driven by domestic demand, global outsourcing trends, and supportive policy measures such as the Production Linked Incentive (PLI) scheme. With India positioned as a cost-competitive, skill-rich hub, OEMs are increasingly seeking strong manufacturing partners who can deliver both scale and innovation. Virtuosos timely expansion in EMS strengthens its ability to serve this rising demand.

On the consumer durables front, the Indian AC market alone is projected to grow at ·16·17% CAGR till 2029, led by urbanization, climate change, and rising disposable incomes. The washing machine and freezer markets are also on an upward trajectory, especially in Tier 2 & Tier 3 cities, where appliance penetration is increasing rapidly. Demand for energy-efficient, eco-friendly, and smart appliances is reshaping consumer expectations, offering significant opportunities for manufacturers aligned with these trends.

Technology & Innovation

Virtuoso continues to focus on sustainability, efficiency, and smart technology integration. R&D initiatives are centred around:

• Variable-speed compressors, natural refrigerants, and eco-friendly designs.

• IoT-enabled appliances, predictive maintenance, and connected solutions.

• Advanced automation and digitization to enhance quality, speed, and cost-effectiveness.

This teclmology-first approach ensures Virtuoso remains aligned with both regulatory requirements and consumer preferences.

Business Performance Highlights

• Diversification into compressors, washing machines, and freezers, broadening market opportunities.

• Strengthened EMS capabilities, positioning Virtuoso as a comprehensive partner for OEMs.

• Strategic investments of [Investment Amount Placeholder] in capacity, automation, and product development.

• Expansion of customer base with stronger relationships across leading consumer durable brands.

• Ongoing operational excellence and cost optimization measures.

Risks & Challenges

The Company remains cautious of risks such as commodity price volatility, global supply chain disruptions, and competitive pressures. Regulatory changes in energy standards and dependence on a few large customers are monitored closely, with proactive risk-mitigation measures in place.

Medium- & Long-Term Strategy

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

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

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

2. Financial Performance Analysis:

Following are the financial highlights of the Company for the year ended March 31, 2025, on a standalone basis:

A good demand for the Companys offerings across all business segments coupled with an early onset of suimner in some parts of the country helped Virtuoso Optoelectronics Limited to register a robust revenue growth. The Company delivered record revenue and profits inFY24-25 of Rs. 1413.04 lakhs.

Financial performance analysis is provided below:

Income:

The year coimnenced 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 Companys products. Virtuoso Optoelectronics Limited ended the year on a strong note with the total Income for the year ended March 31, 2025, growing by 39.53% to ? 1413.04 lakhs as compared to ? 1012.73 lakhs in the previous year.

Cost Of Sales, Work Bills and Services:

The cost of sales, work bills and services during the year was Rs. 60519.39 crores compared to Rs 45860.76 crores in the previous year. This cost increased to 31.96% of the Revenue from Operations compared to 56.54 % in the previous year in line with the growth in scale.

Employee Remuneration and Benefits:

Employee cost for the year at Rs. 2008.81 lakhs increased by 61.31% compared to Rs. 1244.95 lakhs in the previous year, in line with the increase in scale and roll back of compensation cuts undertaken in the previous year. Employee cost was 2.86% of the total income compared to 2.34% in the previous year.

OPERATING AND GENERAL EXPENSES:

Operating and general expenses increased to Rs. 2068.89 lakhs fromRs.4112.57 lakhs in the previous year. As a percentage of total Income, the operating and general expenses for the year were at 8.80% as compared to7.73 % in the previous year.

Financial Expenses:

Financial cost for the year was at Rs 2537.47 lakhs compared to Rs. 2004.93 lakhs in the previous year. The financial cost for the year decreased to 3.61 % of the total income compared to 3.77% in the previous year due to lower average gross borrowings and a decrease in cost of financing.

Depreciation:

Depreciation charge for the year decreased to Rs. 806.83 lakhs as compared to Rs. 1826.91 lakhs in the previous year.

Profit Before Tax:

Profit before tax and exceptional items for FY24 increased by 75.03% to Rs2503.31 lakhs compared to Rs 1430.29 lakhs in FY24. Profit before tax and exceptional items improved to 3.56% of the total income compared to 2.69% in the previous year.

Key Financial Ratios:

Sr. No.	Key Financial Ratios	FY25	FY24	Times /Change%
1	Debtors Turnover Ratio (times)	27.29	19.25	41.21
2	Inventory Turnover Ratio (times)	3.21	2.90	10.48
3	Current Ratio (times)	1.31	1.23	6.43
4	Debt Equity Ratio (times)	0.61	0.94	-35.37
5	Operating Profit Margin (%)	3.56	2.69	33.33
6	Net Profit Margin (%)	2.03	2.30	(11.99)
7	Return on Net Worth (%)	5.75	13.52	(57.46)
8	Return on Capital Employed (%)	17.19	25.66	(32.99)
9	Trade Payables Turnover Ratio (in times)	5.27	5.00	5.41
10	Return on Investment (%)	6.27	4.67	34.15
11	Net Capital Turnover Ratio (in times)	7.07	20.97	(66.28)

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

During the year, operating profit margin has improved by 33.33% due to enhanced backward integration and better working capital management. In addition to this new product categories have helped in enhancing profit margin. Regarding debt equity ratio, the infusion of equity of Rs. 109 cr. has improved this ratio. The return on capital employed has shown a decline of 32.99% owing to expansion and investment in new product categories that are yet to begin coimnercial operations.

Internal Control Systems and Their Adequacy

The Company has established an internal control system, coimnensurate 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.

3. Risks And Concerns:

Risks

The primary operating risks which could impact the Company relate to slowdown in the manufacturing, enviromnent 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 intensity 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 identification, assessment and mitigation with strong internal controls, at both the business-groups and 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 circmnstances. These are opportunities related to the Companys products, projects and service businesses for varied sectors.

Human Resources

The Company remains coimnitted to the resilience and well-being of its people, in the face of the adversities brought about by the changed enviromnent due to the Pandemic. Virtuoso Optoelectronics Limited focused on creating a safe, conducive enviromnent for change management and business continuity in this turbulent period of external circmnstances. Employee well-being was a continual objective, implemented in a holistic manner, including the physical, mental and emotional ambit.

A Growth mindset is a continued, priority agenda for the Company and its people, and weaved into its luring and people development strategy. Based on the Voice of its Employees (VoE), the Company continued in its endeavor towards embarking on enhanced employee-friendly initiatives and practices. Hybrid work culture, flexibility of work schedules, work-life balance and avenues to de-stress assumed center stage. Re-skilling of its human capital with the aid of contemporary technology platforms gained momentum and has been well received, based on employee feedback. The talent management direction was aligned towards exploring cross-functional opportunities, fulfilling job rotations matching employee skill sets and career development avenues for high potential staff. In instances where internal talent was insufficient for certain crucial profiles at senior levels, it was developed inorganically by sourcing the subject matter experts from the industry.

4. CORPORATE OUTLOOK

The Company ended the year on a strong note with healthy growth across all segments. Virtuoso Optoelectronics Limited is witnessing strong demand for air conditioners in H2FY24. Virtuoso Optoelectronics Limited is growing faster than the market. With the increase in corporate capex and revival of demand from traditional customer segments, prospects for growth in the Electronic Manufacturing Projects and Coimnercial Air Conditioning business are also encouraging.

The Companys cost optimization initiatives and prudent working capital management has been helping Virtuoso Optoelectronics Limited to sustain grow th, profitability, and a strong balance sheet.