I am watching it since last 6 months. due to Mr.Kacholias entry.
Obviously promotors are strong enough to get Mr.Asish on board, so here biggest strenth is young promotor.
But when u look at what he is doing is purely “Chana Mamra bechna”. now entire ride is based on subsidy amount. without subsidy his game will collapse.
at the same time it is highly capital intensive, so compared to reward its highly risk oriented model.
Companies like Tata power and M&M available at half of its Enterprise value and people are targeting Mr.KAcholias new invention “VOEPL” how puthetik. i am saying this because its trading at 50 PE and 480 cr Mcap.
Company started in 2015 as an EMS company that manufactures drivers and circuit boards for LED lights. Soon they forward integrated into making LED lights. Started IDU assembling unit in 2019 for Voltas and after this they started backward integrated in manufacturing of the components. They added ODU and water dispensers in 2023.
Virtuoso is promoted by Mr Sukrit Bharati. His education background is Masters in Science - Engineering Technology from BITS Pilani Diploma / Certification courses in Management subjects from Harvard Business School and NMIMS, Mumbai.
Products:
LED - it produces various products like LED downlights, panels, lamps, and street lights. Current capacity is 40mn units with a capacity utilisation of 70%. It is undertaking an expansion to 60mn units. This business has 12% EBITDA margins. Panasonic is the anchor customer for Virtuoso. It has recently added Great White and Gold Medal as customers. Lighting is roughly 20% of the sales.
IDU - it produces IDU for Voltas. IDU has a capacity of 8 lac units with 75-80% capacity utilisation. Here the margins are around 9% with 75% backward integration. Company has backward integrated into plastic injection molding, heat exchangers, sheet metal, copper tubing, cross flow fans, wire harness and remotes. Further the company plans to integrate BLDC motors and brass components. Currently Virtuoso accounts for around 20% of Voltas’ sales of IDUs.
ODUs - It has a capacity of 4 lac units of ODU and plans to scale it unto 6 lac units this year. ODU has a lower margin of 6%. This is because it has a lower value addition as it is only 50% backward integrated. It is currently operating at 50% utilisation and expects to ramp up the sales this year. It accounts for roughly 10% of Voltas’ sales of ODUs.
Water Dispenser and Toys - Virtuoso started selling water dispensers as the capacity is fungible with ODUs. It will manufacture them during lean season to better utilise ODU capacity. Currently sales are very small however it expects to reach 100cr sales in a couple years. Virtuoso is also qualified as a tier 2 supplier to Hasbro for manufacturing Toys. Both toys and water dispenser put together have 10cr sales.
Commercial Refrigeration - Virtuoso is putting up a new plant to manufacture commercial refrigerators with a Capex of 80crs. It expects asset turns of 5-6 times with a margin of around 12% at peak utilisation. It is planning to onboard 2 anchor customers for this plant. It should commence production in 2nd half of this year with a capacity of 1.5 lac units. It aims to make this segment 30-35% of its sales.
Why it looks interesting:
Aggressive growth plans - company intends to grow 35-40% for the next few years. It has already done Capex to take its turnover to 1100cr. Growth will come from market growth of products, increase in backward integration and addition of new products.
Superior margins compared to peers - It has better margins than peers as a result of better capacity utilisation in plants and lower overhead costs despite having lower scale. Virtuoso takes land on long term lease to keep overhead costs low.
Focus on working with quality customers - Virtuoso believes in working with quality anchor customers as it leads to predictable sales and growth. Voltas and Panasonic are its anchor customers. This has allowed it to scale the business quickly.
Focus on backward integration - company has backward integrated into the various manufacturing process required for its products like plastic injection molding, heat exchangers, sheet metal, copper tubing, powder coating, cross flow fans, wire harness and remotes. This has helped it to increase its sales, improve margins and quality. It continues to use its R&D to further improve its backward integration into BLDC motors and brass components.
PLI - Virtuoso will receive benefits for localisation of manufacturing in India. It is awarded PLI of 50 crs for backward integration of AC components. Further VOEPL is eligible for incentives under Electronics Policy of Maharashtra which it has applied for.
White goods as a sector is under penetrated in India and this gives a long runway for growth. This year has been extremely hot leading to good sales of ACs and Refrigerators in India. Many manufacturers have had production issues as demand was higher than expectations and few of the parts are imported with significant lead times. This gives good visibility for growth in the near term.
Risks
commodity prices - prices are revised quarterly for them. Thus sharp rise in commodity prices can lead to temporary reduction in margins
under-utilised capacity or slow ramp up after finishing refrigeration capex can lead to losses for this unit
Customer concentration risk
ability to raise equity and debt to support business growth
Domestic AC industry volume expected to triple from FY24-FY30 Volumes stood at ~10mn units in FY24 Volumes to scale to 13mn units in FY25e post a strong summer Expected to scale to 30-35mn units by 2030 implying +17% CAGR over next 7 years
Category under-penetration of AC at ~8% Hot weather in India are key tailwinds for AC industry growth.
^ interesting noticeable data around the Domestic AC industry
Yup, Virtuoso is sitting on cusp, this might become a multibagger from here, entered around 400 levels for long term. I like deep freezer and water dispenser segment more.
Lightning products have higher margins compared to appliances.
Preferential allotment shares will be listed by next September due to conflicting guidelines of the BSE.
Reciprocatory compressors have an annual domestic demand of 2 crore units. The company is setting up 28 lakh capacity at peak utilization, having a 7-8% EBITDA margin.
The domestic AC market has shifted to rotary compressors, while reciprocatory compressors are primarily used in refrigeration and commercial applications.
Voltas has booked 70% of AC capacity.
The company is developing a controller board for EV chargers with an EBITDA margin of 13-15%. It might contribute 3-5% in sales.
Aspirational guidance for FY26 is 1000-1200 crore.
FY25 guidance is 700-750 crore, with a hope of achieving a slight increase.
Voltas plans to relocate some of its capacity to in-house manufacturing beyond FY27. If capacity is not booked further, management will explore alternative vendors.
Considering sales growth of 40% & 2.5% NPM, expected Mcap is 3k cr(3X from current). PE is considered as current PE of 60, as EMS sector is getting higher PE.
Final Results:
Year
Sales (₹ Cr)
Net Profit (₹ Cr)
Market Cap (₹ Cr)
Mar 2024
531
13.3
798
Mar 2025
743
18.6
1,116
Mar 2026
1,040
26.0
1,560
Mar 2027
1,456
36.4
2,184
Mar 2028
2,038
51.0
3,060
If we do change the PE, then revised Mcap is as below
inal Results:
Year
Sales (₹ Cr)
Net Profit (₹ Cr)
P/E Ratio
Market Cap (₹ Cr)
Mar 2024
531
13.3
60
798
Mar 2025
743
18.6
60
1,116
Mar 2026
1,040
26.0
50
1,300
Mar 2027
1,456
36.4
40
1,456
Mar 2028
2,038
51.0
30
1,530
Factors to keep looking:- QOQ & YOY Sales growth%, Margin expend/contract. Cost reduce/increase, Interest cos changes etc
Change in mix is also happening with refrigeration etc coming into picture.
Growth engine along with valuations in the EMS space- VOEPL seems like the second best after PGEL.
Smallish base helps a retail investor to generate alpha Vs ur Amber which has a huge mcap
Seasonality helped AC players this time around as summers got extended.
EMS space and especially AC space should do well in india as the weather is supporting of these companies and income rise has also happened in some pockets which again helped AC players
Hey Mukesh,
The company has shifted its depreciation method from WDV to SLM. Additionally, PLI benefits are expected to rise exponentially in the coming years. The company also engages in bill discounting, which explains the higher interest cost compared to the 9% rate on their debt and should be reduced over time. These factors should contribute to an expansion in the NPM from the current 2.5% to 4.5% by FY27.
Volumes stood at ~10mn units in FY24
Volumes to scale to 13mn units in FY25e post a strong summer
Expected to scale to 30-35mn units by 2030 implying +17% CAGR over next 7 years
Hot weather in India are key tailwinds for AC industry growth.
