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Growth momentum set to return from Q1 after recent weakness; maintain BUY

Result Synopsis

Orient Electric (ORIENTEL) delivered a disappointing performance with revenue declining 6% yoy led by decline in ECD segment; while other peers have reported strong growth in ECD. Company has decided to prioritize margin protection viz‐a‐viz the revenue growth strategy adopted by other peers. Company has been able to protect its gross margins as it has taken lead in passing on increased commodity prices to the customers. Also, traditional channel filling ahead of summer fell sort of expectation resulting in revenue decline. Now with improvement in sentiment and robust demand for summer products, the company is confident of strong industry‐leading revenue growth from Q1 itself and improving margins on back of price increases. New product launches, increased distribution penetration, revamping old practice of master distribution in favor of direct dealership to improve coverage and thrust on e‐commerce channel will enable company in achieving its growth objectives.  

We now expect FY22‐24E revenue CAGR of 13%, with margins also expected to gradually normalize going forward, we estimate FY22‐24E EBITDA and PAT CAGR of 19% and 20% respectively. Change in distribution practice can result in minor disruption in short term before company the company starts realizing benefits in the longer term. Considering short term disruption, we have trimmed our FY 23/24 EPS estimates. However, considering solid long‐term growth potential and sharp correction in stock price, we maintain our BUY rating with TP of Rs389.

Result Highlights

*Quarter Summary  ‐  Orient Electric (ORIENTEL) delivered a disappointing performance with revenue decline of 6% yoy. ECD segment registered revenue decline of 11.1%; while lighting and switchgears saw revenue growth of 14.8%.

*ECD registered revenue decline – Lower than anticipated stock filling by the channel partners due to negative sentiments ahead of summer season has resulted in revenue decline.

*Margins – Gross margin contracted just 14bps yoy basis despite significant increase in raw material prices as company has taken lead in passing on increased costs. Company is prioritizing margins in lieu of growth.   

*Working capital and operating cashflow  ‐  Working capital at end of FY22 increased by 17 days from an eroded base of FY21, due to a higher inventory at the year‐end caused by the delay in stocking up for the season by channel partners.

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