IGI Logo

OEL recorded revenue growth of 136% YoY to INR 4223mn, albeit on a lower base, with revenue from ECD division rising 213% to INR 3241mn and that of Lighting division rising 31% to INR 982mn. The summer season got impacted significantly due to 2nd COVID wave led lockdowns which in turn impacted revenues of companies engaged in summer products industries. For ECD division of Orient Electric, the business volumes remained below the pre-Covid levels, though it grew against last year's eroded base. Except for Coolers, the trade inventory was maintained at optimum levels by the company to service the market as demand picked up. Continuous cost increases of metals, plastics, and electronic components, outpacing every price increase, posed a challenge for sales realisations and margins protection. Over the last 12 months, the company has taken 15-20% price increase across products to pass on input cost inflation. Gross margins dropped 140 bps YoY to 27.3% primarily led by commodity-led steep cost increases, wherein ECD segment is the most affected. Besides, share of business for ECD business increased from 58% last year to 77% this year in Q1. However, EBITDAM expanded 1600bps to 5.3% despite drop in gross margins. Advertising spend witnessed significant increase YoY & was in the vicinity of 3% of revenue (Company's normal advertising spend as % of revenue over the last couple of years). PAT swung to INR 50mn from a loss of INR 273mn in corresponding quarter a year ago.

Revenue rose 136% YoY to INR 4223mn, albeit on a lower base The current quarter being reported did not experience a compete lockdown unlike last year. Though there were time bound restrictions imposed by all states during the quarter however, business was able to continue amidst limitations and challenges. Hence, the quarter reported a growth over an eroded base last year but was lower than prior year pre-pandemic levels. OEL recorded revenue growth of 136% YoY to INR 4223mn, albeit on a lower base, with revenue from ECD division rising 213% to INR 3241mn and that of Lighting division rising 31% to INR 982mn. Fans business clocked >200% growth over last year driven by growth across all segments and channels. With Cooler business yet again impacted by in-season lockdowns for the second consecutive year, Appliances business managed to garner ~ 90% growth over last year. E-Commerce continued to be the fastest growing channel for ECD with ~ 125% growth over last year. Lighting & Switchgear segment grew at a 30% YoY. Consumer business was the key growth driver growing ~ 50% during the quarter driven by consumer luminaires. The Professional Luminaires and B2B business saw an uptick in the enquiry.

Drop in Gross Margins by 140bps to 27.3% led by commodity-led steep cost increases

Gross margins dropped 140 bps YoY to 27.3% primarily led by commodity-led steep cost increases, wherein ECD segment is the most affected. Besides, share of business for ECD business increased from 58% last year to 77% this year in Q1. However, EBITDAM expanded 1600bps to 5.3% despite drop in gross margins. Advertising spend witnessed significant increase YoY & was in the vicinity of 3% of revenue (Company's normal advertising spend as % of revenue over the last couple of years). PAT swung to INR 50mn from a loss of INR 273mn in corresponding quarter a year ago. On a YoY basis, ECD division witnessed swing in EBIT margin to 7% from a negative 6.8%. However, on a QoQ basis margins dropped 730bps. Similarly, Lighting & Switchgear segment margins rose to 10.5%, up 410bps on a YoY basis. However, on a QoQ basis, margins dropped 390bps.

Working Capital: Working Capital has reduced from Jun'20 by Rs. 28 cr. and by 81 days. However, during the quarter, the Working Capital increased by Rs. 178 cr. and by 42 days. Readiness for the season and preparedness to service pent-up demand led to strategic build up of inventory during the quarter. No special collection or other schemes were promoted this quarter and hence the receivables remained at marginally higher levels.

Outlook & Valuation

Gross margins are likely to witness normalcy during the year as the company gradually undertakes price increases to pass on steep increases in input costs. We fine tune our earnings estimates to adjust for weak Q1 on account of lockdowns. During FY21-23, Revenue & PAT are estimated to compound annually at 21% & 34% respectively. We maintain BUY on the stock with revised target price of INR 405 (40x FY23E EPS). Relatively younger product profile of businesses other than fans & focus on innovative & premiumised product categories should enable it to outperform peers in terms of growth as well as profitability over longer term.

Key Risks :

* Volatility in raw material prices

* Further lockdowns in case of 3rd wave of COVID cases

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  www.aretesecurities.com
SEBI Registration number is INM000012740

Above views are of the author and not of the website kindly read disclaimer