Orient Electric Ltd. share price target

Orient Electric’s lighting category retained industry-leading growth, while its ECD was hit by late winter. Margins expanded on cost savings, premiumization and operating leverage.

Decent 16% revenue surge with 210bps gross margin boost from smart cost cuts and strategic price hikes

Healthy 20% topline growth with gross margin expansion of 250bps in Q4; EBITDA lower on EPR provisioning

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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.

Orient faced multiple extraordinary events such as regulatory changes in fans, steep inflation and distribution restructuring in FY23. It led to 340bps EBITDA margin contraction and 40% PAT decline in FY23 YoY. We believe most of these issues are behind now and the company is likely to report strong performance across segments in FY24-25.

Growth in lighting & switchgears (+12% YoY) offset by decline in ECD business (-20%) as fans business underperformed in Q4

As per our channel checks, trade inventory of fans was ~6 weeks at beginning of Q4FY23 compared to normal inventory of 1-2 weeks. As trade needs to reduce investments in non-star rates fans before Q2FY24, the primary sales of fans declined.

Orient had commenced transition to direct to market (DTM) distribution to reduce dependence on wholesale and super distribution in FY22. We note there are visible benefits of this strategy with 60% revenue growth YoY in states where shift to DTM is complete.

Topline boosted by better ECD performance; profitability turns positive with sequential margin expansion

Orient is facing multiple transitory issues such as (1) introduction of BEE norms in fans, (2) steep volatility in raw material prices and (3) restructuring of distribution network.

Orient reported revenue decline of 14.1% YoY in Q2FY23 due to decline in the fan
segment. Temporary destocking of fans by the channel due to change in BEE norms impacted segmental sales.

Q1 gross margin maintained but EBITDA margin drained by higher A&P spend (+108% YoY) and logistics & warranty expense (+87% YoY)

Targeting key growth drivers such as greater reach in South India, channel diversification and innovation-led product development

ECD weakness hurt Q4 topline growth; aggressive price hikes helped to sustain gross margin despite RM cost pressure

Underlying demand remains steady, channel restocking likely in 4QFY22 Revenue rose 10% YoY to INR6.8b and was ~5% below our estimate. Twoyear CAGR stood strong at 17%. Adjusted PAT fell 27% YoY to INR381m and was 16% below our estimate, driven by higher than expected ad spends...

Revenue grew 37% YoY and came in 19% above our estimate. While the surge in commodity prices led to a 480bp YoY deterioration in gross margin, strong volume growth, led by operating leverage, cushioned the impact at the EBITDA margin level v/s our expectation. EBITDA grew 7% YoY and was 31% ahead of our expectation. Adjusted PAT grew by 7% and came in 46% ahead of our expectation. Working capital stood elevated owing to higher inventory in anticipation of global supply chain shortages and possibility of a third COVID wave. The...

Revenue came in 6% above our estimate in 1QFY22. Commodity cost inflation impacted the ECD segment the most. However, OEL's cost saving program Sanchay' arrested the decline in gross margin. EBITDA margin stood 110bp below our estimate of 6.4% due to commodity cost inflation pressures and negative operating leverage. Adjusted profit stood at INR50m v/s our estimate of INR79m. Working capital stood elevated owing to higher inventory and marginal increase in receivables. While working capital days is expected to...

Revenue came in 6% above our estimate in 1QFY22. Commodity cost inflation impacted the ECD segment the most. However, OEL's cost saving program Sanchay' arrested the decline in gross margin. EBITDA margin stood 110bp below our estimate of 6.4% due to commodity cost inflation pressures and negative operating leverage. Adjusted profit stood at INR50m v/s our estimate of INR79m. Working capital stood elevated owing to higher inventory and marginal increase in receivables. While working capital days is expected to...

Orient Electric (OEL) reported a robust set of earnings in Q2FY21 as revenue/operating profit/net profit changed