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for Industry - Consumer Electronics
The management is confident of healthy revenue growth, led by increasing mobile segment demand, new product launches, and new customer additions across segments. We maintain our HOLD rating on the stock.
Takeaways from Q2FY24 results: (1) Weakness in consumer demand has continued in Q2FY24 and hurt volume growth. (2) The company has cut prices in order to protect volumes (DCF accretive). (3) Resilient performance in Elica. While correction in input prices is aiding gross margins, its benefit is partly offset by higher ad-spends (in our view).
Orient’s Q2FY24 indicates mixed trends as: (1) revenue growth was 11% but margins remained weak, (2) Electronic consumer durable registered strong growth while Lighting and Switchgear remained flat YoY, (3) fans segment is witnessing traction while other segments remained weak.
We remain enthused by Bluestar’s strong performance given (1) market share gains in RAC amidst steep competitive pressures and (2) margin expansion led by lower commodity prices and cost-saving initiatives. We believe there is strong earnings visibility over H2FY24-FY25 led by (1) Increase in utilisation at Sri city plant, (2) revival in industrial capex leading to higher growth of commercial air conditioning and commercial refrigeration, (3) strong order book (up 44% YoY), (4) margin tailwinds due to PLI benefits and freight cost reduction.
Takeaways from Q2FY24: (1) New businesses of Electronics, Railway sub-systems and Mobility are gaining traction (likely to post revenue growth of 25+% YoY in FY24). The focus on hearables ad wearables and joint venture with Nexxbase augurs well for strong growth in PCBA business. (2) Strategy to focus more on components instead of selling RAC is likely to result in higher growth in FY24-26. (3) EBITDA margin is likely to expand due to lower input prices and operating leverage.
Three observations from Q2FY24: (1) The RAC segment will likely go through a phase of low RoCE with strong increase in production capacity. While PLI benefits may provide relief in the interim, we model steep competition and excess capacity to hurt RoCE. (2) The B2B market is growing at healthy pace with revival in capex cycle but it is likely to result in lower margins considering excess provisioning in some of the international projects in near term.
