Perfect Infraengineers Ltd Management Discussions

INDUSTRY OVERVIEW

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. The Corporate identification number of our Company is L29190MH1996PLC099583.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 organisations such as, multinational corporation, corporate houses, etc. we serve 850 customers in our MEP vertical and 35 customers under our renting business.

Further, 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 ("HTS") panels and related proprietary products. Since 2017, we believe that we have successfully introduced innovative HTS panels in India and have since sold 350 units representing 4000 tonnages in the domestic and export market among 60 diversified sectoral customers. Our key domestic customers include government and semi-government organisations, public sector undertakings, local municipalities, private and public companies

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 and is also a certified ISO 9001:2015, till 13th January 2024. Since, our diversification into manufacturing and assembly of HTS panels we have ceased to manufacture electrical panels. As on date of this Draft Letter of Offer, we have an installed capacity to manufacture and assemble 4,000 units per annum on double shift each of 8 hours per day.

We sell our HTS panels in India through a network of 20 resellers/distributors/dealers and also a network of 10 empanelled system integrators who are on-boarded with us which ensures that the end customers are accessing genuine products, uncomplicated purchase process and seamless technical guidance. These system integrators are trained and certified by our Company before they engage with our customers.

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

Particulars	Fiscal 2023	Fiscal 2022	Fiscal 2021
Hybrid Thermal Solar
	612.77	300.94	14.07
panels
EPI services	107.63	128.50	115.52

OUR PRODUCT

The collaboration paves the way to introduce ‘Perfect SunTrac Hybrid Thermal System with smart solar panel in India for a revolutionary, cleaner & greener way of installing and operating HVAC systems. The technology will increase HVAC system efficiency and reduce operating expenses by replacing a percentage of mechanical energy required to power a compressor, thereby saving electricity, with modulated solar thermal energy. The SunTrac technology converts suns energy to heat, the ultimate renewable source, as against a photovoltaic electric panel system.

With the collaboration, ‘Perfect will be the only manufacturing unit of SunTrac outside U.S.A.

‘Perfect was able to enhance its product range and services to existing as well as new HVAC clients. The production for the Hybrid Thermal System is successful and in full swing.

The successful implementation/installation of these hi-tech products is likely to alter the landscape of HVAC systems in India. The initial period of the agreement is 6 years renewable on completion of the said period.

SOL Thermal System Details

Groundbreaking technology has changed the way solar thermal energy is harvested and implanted. The Patented computer-controlled parabolic concentrator produces more energy than any other panel of the same size. This technology has solved two major issues with solar thermal panels; degradation and stagnation.

Perfect Provides ready to install complete systems with solar collector with pre-installed smart controls. The Smart Panel has provided the solutions by controlling the heat that the solar thermal panels generate. The patented panel design utilizes RiteTemp technology which modulates the temperature of the liquid or gas as it exits the panel. The solar option is equally innovative offering up to 40% energy savings with as little as a 4*8 Panel. SOL Thermal system is able to deliver a COP of more than 6.

The product was later tested by Intertek, which is a UK based company that specializes in testing, inspecting and certifying products. It provides Total Quality Assurance to industries worldwide. Intertek has certified that our new product saves up to 40% energy.

The Company has joined hands with various dealers and has subsequently obtained few strategic businesses for sale of our new product. The Company is registered in GRIHA (Green Rating for Integrated Habitat Assessment) in two categories i.e. Solar Thermal Panel and Hybrid Thermal System.

Solar Thermal Panel It is a Supplying, Installation, Testing & Commissioning of Hybrid Climate solar smart Panel Systems consisting of tracking parabolic concentrative solar reflectors, Painted Aluminum enclosure, 24V Power Systems, removable safety glass cover, selectable Refrigerant type temperature control with temperature sensors, computer controller and motor assembly.

Hybrid Thermal System- It includes:

a) Indoor units as per the site requirement.

b) Modified VRV outdoor units.

c) Solar Thermal Panel; when all these units are interconnected as per the design, it will be termed as Hybrid Thermal System.

Company has successfully obtained ISO certification for the solar thermal system.

With this successful completion of product development and its testing, the company is confident of giving substantial growth in next year performance.

RISK & CONCERNS

Effect of Lockdown imposed due toCoVID-19 Pandemic: In view of the lockdown measures imposed by the Central and State Governments due to CoVID-19 pandemic, the operations of the Company came to a halt for a long time and were shut down during the lockdown period. Due to unpredictable situation evolving on account of pandemic, it is difficult to estimate the definite impact of CoVID-19 on the operations of the Company. The disruption caused by Covid-19 and the resultant lockdown has impacted the sales performance and cash flows. The revenues and profitability of the Company were adversely impacted.

Slower Economy: This year has resulted in demand moderation of HVAC systems and has given growth of 20 % this summer, however, increased cost of living has led to a greater emphasis on energy savings. The global economic recovery has been sluggish especially in the US and Europe regions. This coupled with reduced incomes and higher energy bills have impacted the growth.

Increased Government focus on energy conservation: Current Government is keen on pushing energy conservation agenda, via promoting energy-efficient appliance. LED lights, energy- efficient Fans, efficient air-conditioners, etc. High emphasis is observed on measuring and reporting of energy consumption at an increasingly granular level. Private industries are also very keen to monitor energy utilization, is also due to the fact that the energy consumption level in the HVAC appliances is comparatively higher. This has remarkably increased awareness for efficient air conditioners.

Cost reduction via preventive maintenance and remote diagnostics: HVAC systems are among the largest consumers of energy, indicating that these systems can be the source of good savings if the overall performance is increased and the faults are detected on time. Cost savings can be achieved. Most of the air conditioners manufacturers are pressing hard for inverter ac sales.

Push towards Green Energy: Cost of electricity is on the rise internationally especially in UAE where electricity was highly subsidized by Government. Due to withdrawal of this subsidy, cost has increased drastically.This has made an overall sentiment for the need of more and more energy-efficient machines. Environmental factors like ozone depletion and global warming and available innovative renewable energy options have resulted in an increased push for solar products.

Consumer demand: The pandemic has certainly impacted the overall consumption trend and consumer spending. Discretionary spending has been hit hard as the entire country is sitting at home. Consumers cant go out and spend like they used to. Even after the lifting of lockdown, consumer will be in a reactive mood, pushing sales of selective categories. For individuals, a healthy, safe and comfortable environment will become the top-most priority. Spending will go up in these areas boosting demand for air conditioners as well.

Labour shortage: Labour shortage is going to be a big challenge for manufacturing as a majority of migrant labours have returned to their hometowns amid the lockdown enforced in the country. Availability of service technicians has been a challenge.

Seasonality business: The Companys AC and AC components businesses are highly dependent on summer. Its demand goes down during monsoon and winter. Changes in weather conditions like unusually heavy monsoons or cooler summers can impact the Companys margins.

Companys 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.

We have entered into an exclusive licensing agreement with Suntrac Solar Manufacturing LLC dated 20th

June 2017 to manufacture and sell in India the hybrid thermal solar ("HTS") panels and related proprietary products. Our agreement with Suntrac Solar Manufacturing LLC is valid for a period of 7 years since 20th June 2017 extendable every 3 years. We believe that over the years, we have successfully established the market for HTS in India and have since sold 350 units representing 4000 tonnage in the domestic and export market. Our key domestic customers include government and semi-government organisations, public sector undertakings, local municipalities, private and public companies We have an extensive presence in the domestic market having pan-India presence in 10 states and 2 union territories through an extensive distributor network of 30 resellers/distributors/dealers and also a network of 15 empanelled system integrators who are on-boarded with us which ensures that the end customers are accessing genuine products, uncomplicated purchase process and seamless technical guidance. These system integrators are trained and certified by our Company before they engage with our customers. As our strategy we empanel and train dealers / distributors / reseller who are technically qualified for engineering services, have existing business connection with our target customers and have strong local presence

Large order book providing clear visibility on future growth

As of March 31, 2022, we had an Order Book (which includes our products made part of the tender specification which is awarded to EPC contractors / letters of intent/ purchase orders) of 1500 lakhs, of which 250 lakhs comprise projects/ operations which are already under execution and 1250 lakhs comprise projects which are yet to be executed. Through the Order Book, we aim to achieve higher customer diversification across type (by increasing sales to government and private sector, including OEMs) and geographies (through exports to African countries).

Experienced promoters, Management Expertise and Skilled Workforce

Our Promoters, Nimesh Mehta and Manisha Mehta is having 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 leads 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. For further details regarding the educational qualifications and experience of our Board of Directors and our Key Managerial Personnel please refer to chapter titled "Our Management" beginning on page [?] of this Draft Letter of Offer. 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.

Our Business Strategies

We intend to pursue the following principal strategies to leverage our competitive strengths and grow our business:

Strengthening our business through product innovation and expanding our product application

Our product, HTS panels finds its application in centralised chiller systems and ductable roof top air conditioners. HTS panels are disruptive technology in air conditioning which uses the thermal energy of the sun and reduces the compressors energy consumption. As a strategy we have over the years ventured into new and innovative products and shifted our focus from being a pure play EPI vendor to a technology-based manufacturer of HTS panels in India under the exclusive licensing agreement with Suntrac. Further, our arrangement with Suntrac enables us to experiment on related proprietary products that they develop. This arrangement gives us access to a range of new and innovative product.

Furthermore, we are constantly pursuing opportunities and product segments which leverage our existing technology platform and know-how. In particular, we currently find application for our products in chiller systems and ductable roof top air conditioners which we, intend to expand to newer applications like cold storage systems.

We also plan to enter into tie-ups and arrangement with original equipment manufacturers which we believe would help the end users through installation of energy efficient air conditioning and the OEMs by supplying a bundled product like hybrid VRF.

Strengthening up our business through working more on the trade channels and increasing the width of distribution

We see a big opportunity to grow further and faster, provided we can aid the awareness and trial generation effort through campaigns, complemented by our effort in the channels for availability of required quantity and quality. While we currently have 30 distributors/dealers/retailers spread across the country, we plan to increase the number of our service partners over the years. Our marketing and engagement plan addresses the key important drivers that would help us reach our consumers in a more effective manner. The investment here would be in improving in channel awareness, visibility, training, trade engagement and consumer engagement programs.

Focus on increasing operational and financial efficiency

We plan to continue focusing on operational and financial efficiency by investing in our design and development team and their engineering efforts. We also focus on recruiting, training and retaining a talented workforce and offer training and career opportunities. In addition, we continue to focus on our risk assessment matrix and stay updated with new technology. Through our market approach, we intend to continue building strong customer and stakeholder relationships and realize operational efficiencies.

We intend to establish a sustainable O&M business division, which will be aimed at providing forward integrated full life cycle services to our customers. Our commitment to the long-term performance of our products is exemplified by our approach of ensuring that we invest in good quality equipment at the outset, which also leads to a low cost per project over the life-cycle of each project. We will continue to enhance our O&M practices by moving from conventional reactive maintenance to predictive maintenance through the use of real-time analytics. This will enable us to monitor multiple sites on a real-time basis and analyze data to efficiently identify potential areas of concerns to take preventive measures before actual maintenance issues occur, as well as to track comparative performance across sites.

We also plan to apply the predictive maintenance in a variety of other operations, including our dust-detection systems (which we use to determine when our HTS panels need to be cleaned based on the actual dust accumulation and its impact) and solar concentrator monitoring systems (to calculate the delta heat in refrigerant gas). These technologies would help our HTS panels perform with lower downtime and achieve better energy savings.

Our business divisions

Our business comprises three primary divisions: (i) manufacture and assembly of HTS panels; and (ii) EPI and O&M services which serve as value added services to our EPI business

Manufacture and assembly of HTS panels

Our manufacturing facilities produce highly efficient HTS panels, utilising controller and technologies from Suntrac, USA. HTS panels are disruptive renewable technology in air conditioning. Our hybrid thermal panelsutilize the solar energy. The HTS panel harnesses heat and pressure from the sunlight and is applied to the refrigerant, which is returned from the panel outlet to the HVAC units condenser, thus resulting in reducing the compressors energy consumption. The key characteristic of the HTS panels is stated herein below: It does not generate electricity rather reduces the energy consumption of air conditioners.

It uses thermal heat from the sun and saves electricity consumption in air conditioners. It utilizes <10% of the space compared to Normal PV Panels.

Less HP is required for fresh installation reducing the capex cost for new installations. 100% made in India for Atmanirbhar Bharat

We supply our HTS panels through our distributors/dealer and retailers spread across the country. The installation process is carried out by our empanelled system integrators.

Our manufacturing and installation process of our HTS panels are detailed herein under:

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a well-defined and adequate internal control system commensurate to the sizeof its business and the nature of industry it operates in. The Internal Control system ensures safeguarding and protecting the assets of the Company. Internal Audit has been conducted by external Auditors at plant as well as at the branches of the Company within the detailed scope defined and approved by the Audit Committee. The Auditors has provided a comment that the control mechanism in respect of design of control requires improvement. The Company has taken note of the weakness and the management is working hard to get in place a system to ensure mechanism relating to design of control are improved.

HUMAN RESOURCE

The Company truly believes its team and people to be its greatest assets. The organization empowers and motivates its people. The Companys core focus is to provide growth and nurtureall its employees, encouraging them to perform their best. For this, employees training, and skill development is very important. Additionally, induction training, and regular on-the-job-related training is also provided to help employees improve their duties performance continually.

The Company remains focused on strengthening its people policies and internal processes where employees seek continual improvement, greater accountability, and responsibility, and excel in their key result areas. Collaboration, connectivity, and productivity-enhancing technology initiatives are the Companys key drivers behind building careers for its people. The Company has currently employed 50 employees and is trying to grow more along with the new product.

Financial Ratios

Financial Ratios	Formula	Ratio
Debtors Turnover	Sales/Trade receivables	0.71
Inventory turnover	COGS/Avg Inventory	0.40
Current Ratio	Current Assets /Current	3.45
	Liabilities
Debt Equity Ratio	Total Liabilities/ Total	0.48
	Shareholders Equity
Net Profit Margin	Net Profit/ Revenue	8.31
Return on Cap employed	PBIT/Cap employed	1.44

Marketing Strategy

The overall marketing strategy is divided into a few types depending on the type of customer and thekind 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 which looks 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

orderThe above path

requires:

- Physical presence at the site /customer location

- Existing relationship with customer

Hence, a private sale is generally done through Channel Partners

Perfect Infraengineers currently has 15+ channel partners active pan India who have successfully gotsales 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 hencea relationship expert is essential.

Perfect currently has 10+ relationship experts active pan India.

Direct involvement

Sales also happen directly when we already have an existing relationship in Private of Government organisation.

Other major marketing initiatives in progress:

We are in conversation with OEMs of Air conditioners to potentially work with them for salesof HTS Panel and launch worlds first Hybrid VRF We are in conversation with government financing organisations to start an OPEX model for the HTS Panel for Government and later with Private companies. We are in conversation with huge MNCs for companywide adoption of HTS Panel technology.