Virtuoso Optoelectronics
Virtuoso Optoelectronics is coming out with an initial public offering (IPO) of 5400000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 56 per equity share.
The issue will open on September 02, 2022 and will close on September 07, 2022.
The shares will be listed on SME Platform of BSE.
The share is priced 5.60 times higher to its face value of Rs 10.
Book running lead manager to the issue is Fedex Securities.
Compliance Officer for the issue is Renuka Kulkarni.
Profile of the company
The company manufactures consumer durable goods and assemble a wide array of products and provide end-to-end product solutions. It serves under both original equipment manufacturers (OEM) and original design manufacturer (ODM) business models. Under the OEM model, it manufactures and supply products basis designs developed by its customers, who then further distribute these products under their own brands. Under the ODM model, in addition to manufacturing, it conceptualize and design the products which are then marketed to its customers' prospective customers under their brands. It has developed ODM capabilities with respect to lighting products and small appliances.
The company’s current product portfolio of consumer goods includes (I) Split Air Conditioners; (ii) Water Heaters; (iii) LED Lighting products; and (iv) other miscellaneous products such as injection molding components for air conditioners. It offers innovative solutions to its customers, which include leading international and national consumer brands. Its comprehensive solution suite includes global sourcing, fabrication of components and parts, captive manufacturing and assembly, quality testing, packaging and logistics support, which enables it to partner with leading consumer goods brands in India. Its key customers include leading brands in Air Conditioning & Water Heater segments.
The company has two manufacturing facilities which are strategically located in and around Nashik (Maharashtra). Its modern and state-of-art manufacturing facilities are equipped with high quality machinery, assembly lines that enable it to meet the quality requirements of its customers in a timely manner. In line with its focus to provide end to-end product solutions and to develop better control on its supply chain and improve its margins, it has backward integrated its major manufacturing processes. It has developed in-house capabilities in SMT lines, injection molding, sheet metal components and testing labs. It has equipped its facilities to improve its cost efficiency, reduce dependency on third party suppliers and provide better control on production time and quality of critical components used in the manufacturing of products.
Proceed is being used for:
Industry overview
The consumer durables market is split into two key segments i.e Consumer Electronics and Consumer Appliances. Appliance and consumer electronics (ACE) industry is expected to grow at 9% CAGR during 2017-22 to reach Rs 3.15 trillion ($48.37 billion) in 2022 from Rs 2.05 trillion ($31.48 billion) in 2017. India’s Smartphone shipments witnessed YoY growth of 11% in 2021 with 169 million units shipped. India is expected to have 829 million smartphone users by 2022. Appliances and consumer electronics industry is expected to double to Rs. 1.48 lakh crore ($21.18 billion) by 2025. As of 2021, the refrigerator, washing machines and air conditioner market in India were estimated around $3.82 billion, $8.43 billion and $3.84 billion, respectively. Import contributed to 20% of domestic market for washing machines and refrigerators and around 30% for air conditioners in FY20. The market size of air conditioners is expected to grow to 165 lakh units by 2025 from 65 lakh units in 2019, while refrigerator’s market size is expected to grow to 275
Demand for consumer durables in India has been growing on the back of rising incomes. This trend is set to continue even as other factors like rising rural incomes, increasing urbanisation, a growing middle class and changing lifestyles aid demand growth in the sector. Significant increase in discretionary income and easy financing schemes have led to shortened product replacement cycles and evolving lifestyles where consumer durables like ACs and LCD TVs, are perceived as utility items rather than luxury possessions. Growth in demand from rural and semi-urban markets is likely to outpace demand from urban markets. The National Policy on Electronics 2019 is targeting production of one billion mobile handsets valued at $190 billion by 2025, out of which 600 million handsets valued at $100 billion are likely to be exported. The PLI scheme, which has been approved for 16 electronics firms, including 10 manufacturers of mobile handsets, would further improve India's role in the global mobile market and complement the goal of making the country global mobile production hub for manufacturers.
Pros and strengths
Integrated manufacturing facility: The company’s aim is to continuously earn customer's trust and confidence through personal attention, and hence the output of the product as per customer requirement is the foremost thing which shall be considered and attended through technology mode. The company provides quality products to its customers, which is facilitated in its fully integrated and self-reliant manufacturing facility. It is devoted to quality assurance. The quality checks ensure that no defective products reached the customer and ensure reduced process rejection. Its quality products have earned it a goodwill from its customers, which has resulted in customer retention and order repetition also new addition to the customer base. Further, the company is ISO 9001:2015 certified company and also holding certificate under BIS and UL Standards for safety. It has developed internal procedure of checking the products at each stage of production right from receipt of raw material to dispatch of its products. The company focuses on consistently delivering qualitative products, thereby building customer loyalty for its product.
Economies of scale: The company’s multiple manufacturing locations allow it optimal utilisation of facilities and enable it to distribute manufacturing across them. This helps it to ease the pressure of seasonality and simultaneous demand schedules of multiple customers. The flexibility of its assembly lines provides it with a major competitive advantage as it is able to handle changes in market demands in an efficient manner. Its scale provides it with greater resources to support its fixed costs, such as R&D expenses, and permits the use of shared services to eliminate duplicative business functions and administrative expenses. This also helps it to compete with imports from countries such as China as it is able to make more efficient deliveries to its customers.
R&D and product design capabilities: The company places strong emphasis on research and development to enhance its product range and improve its manufacturing processes, which has been a key pillar of its growth. It has developed strong product design capabilities, which allow it to provide customised solutions to its customers and service them more effectively and in a timely manner. Leveraging on the experience and knowledge derived from manufacturing its products, it has have set-up a dedicated R&D centre focusing on the research and development of electronics hardware designing, system architecture, mechanical design, component engineering and optics design and provide design enhancement and verification to its customers. As at June 30, 2022, its R&D team consisted of 8 employees including electrical engineers.
Risks and concerns
Do not have firm commitment agreements with customers: The company does not have firm commitment, long-term supply agreements with all its customers and instead rely on purchase orders to govern the volume and other terms of its sales of products. Many of the purchase orders it receive from its customers specify a price per unit and delivery schedule, and the quantities to be delivered are determined closer to the date of delivery. However, such orders may be amended or cancelled prior to finalisation, and should such an amendment or cancellation take place, it may adversely impact its production schedules and inventories. Further, where it has contracts with customers, such contracts do not bind its customers to provide it with a specific volume of business and can be terminated by its customers with or without cause, with little or no advance notice and without compensation. Consequently, there is no commitment on the part of the customer to continue to place new work orders with it and as a result, its sales from period to period may fluctuate significantly as a result of changes in its customers' vendor preferences and it may be unable to procure repeat orders from its customers.
Depend on third parties for supply of raw materials: The company is dependent on third party suppliers for its raw materials. Discontinuation of production by these suppliers or a failure of these suppliers to adhere to the delivery schedule or the required quality could hamper its production schedule and therefore affect its business and results of operations. This dependence may also adversely affect the availability of key materials at reasonable prices thus affecting its margins and may have an adverse effect on its business, results of operations and financial condition. There can be no assurance that strong demand, capacity limitations or other problems experienced by its suppliers will not result in occasional shortages or delays in their supply of raw materials.
Face competition: The market for consumer electronic goods manufacturers is highly competitive, and it expects competition to intensify and increase from a number of sources. The industry is composed of numerous companies that provide a range of manufacturing services for OEMs, from printed circuit board assembly, to design, prototyping, final system assembly, configuration, order fulfilment, repair and aftermarket services. The market consists of contract manufacturers and Original Design Manufacturers (ODMs). Contract manufacturers manufacture products that have been designed by the OEMs; ODMs also design their own products, primarily commodities, and in many instances are in direct competition with the OEMs. Its overall competitive position depends upon a number of factors, including its manufacturing technologies and capacity, the quality of its manufacturing processes and products, its ability to deliver on-time and cost effectiveness.
Outlook
Incorporated in 2015, Virtuoso Optoelectronics manufactures consumer durable goods, assembles a wide array of products and provide end-to-end product solutions. The company's current product portfolio of consumer goods includes Split Air Conditioners; Water Heaters; LED Lighting products; and other miscellaneous products such as injection moulding components for air conditioners. The company serves under both original equipment manufacturer (OEM) and original design manufacturer (ODM) business models. Under the OEM model, the company manufacture and supplies products basis designs developed by the customers, who then further distribute these products under their brands. Under the ODM model, in addition to manufacturing, the company conceptualize and design the products which are then marketed to the customers' prospective customers under their brands. It has a centralized R&D center in Nashik (Maharashtra), focusing on the research and development on all aspects of OEM and ODM models including concept sketching, design refinement, generating optional features and testing. On the concern side, the company’s failure to obtain new business or to retain or increase its existing market share could adversely affect its financial results. In addition, the company may incur significant expense in preparing to meet anticipated customer requirements that it may not be able to recover or pass on to its customers.
The company is coming out with a maiden IPO of 5400000 equity shares of Rs 10 each at a fixed price of Rs 56 per share to mobilize around Rs 30.24 crore. On performance front, the company’s total revenue increased by 73.38% to Rs 20028.20 lakh for the financial year march 31, 2022 from Rs 11551.30 lakh for the financial year march 31, 2021. Profit after Tax (PAT) was increased from Rs 208.33 lakh for the financial year March 31, 2021 to Rs 394.02 lakh for the financial year March 31, 2022. The profit after tax increased by 89.13% as compared to Financial 2021 on account of increase in revenue from operations. Meanwhile, the company plans to continue to focus on customers with whom it has long-standing relationships in order to develop and supply more sophisticated, higher margin products. It intends to continue to be the most cost-efficient player in each of the product verticals it will enter. This cost leadership will be achieved through initiatives like having large manufacturing capacities, backward integration and being a sizeable player in the industry in that particular vertical.
