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Weak Performance owing to BEE norm: Orient Electric reported its Q4FY23 revenue at Rs 658 Cr with a decline of 12.7% over last year and 11% sequentially. Amongst segments, its ECD segment revenue came in at Rs 458 Cr down by 20.3% YoY due to low demand in its core ECD segment especially for fans category due high channel inventory owing to switch towards new energy efficiency norms. Its Lighting & Switchgear segment reported strong revenue growth which came in at Rs 200 Cr up by 11.8% YoY while it remained flat sequentially.

Low Volumes in Fans category impact overall margins: Orient reported its gross profit at Rs 186 Cr declining by 11.1% YoY and 11.8% QoQ with a gross margin of 28.3% which grew by 51bps YoY while it contracted by 28bps sequentially. The gross margin look to be stabilizing as we believe the input cost seems to have peaked and we may see some correction in the medium term which could aid in improvement gradually. EBITDA for the quarter stood at Rs 46 Cr, down by 42.5% YoY and 15.5% QoQ with an EBITDA margin of 7% which contracted by 366bps YoY and 38bps QoQ. The weak topline performance and lower volumes resulted in operating deleverage which impacted the EBITDA and margins while increase in employee cost and other expenses too suppressed the growth

Lighting & Switchgear a positive amidst bleak ECD performance: The Lighting & Switchgear segment has grown at a CAGR of 3.2% over Q4FY21-Q4FY23 which in turn has increased the contribution in the revenue from ~19% to ~30.4% in the same period. Subsequently, its EBIT has grown at a healthy CAGR of 7.1% over Q4FY21- Q4FY23, wherein it posted highest ever EBIT of Rs 39 Cr in Q4FY23. Going ahead, we believe healthy contribution from Lighting & Switchgear segment would aid in revenue growth for the company with enhanced focus on improving distribution reach through channels and digitalization.

Outlook & Valuations: Orient has diversified range of product categories in its ECD segment and Lighting & Switchgears segment with strong distribution network across India. Much like the consumer durables industry it has remained under pressure due to lackluster demand which impacted the topline and suppressed margins, however we believe it could be past the difficult phase and expect the company to benefit from pick-up in the demand from fans category. On the operational front, the company plans to increase its presence in geographies with differentiated products as well as increase its presence in e-com would aid in growth prospects of the company. We estimate Orient to register a Revenue/EBITDA/ PAT CAGR of 17%/43.7%/59.1% over FY23-25E. Hence, we maintain our Buy on the stock with a revised target price of Rs. 271 valuing the company at 30x FY25E EPS.

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