IGI Logo

Better performance than peers with strong growth and limited margin impact; upgrade to BUY

Our view

2Q saw a strong bounce back with B2C business delivering excellent growth albeit on a low base. ECD saw strong growth of 38% led by led by premium and economy fans followed by small appliances. B2B business has seen increased traction; while tender business continues to languish. Gross margins were impacted by rising commodity prices; which is being managed by cost reduction initiatives and pricing actions.

Company has been focusing on market share gains rather than protecting margins as it believes margin will return to its normalized levels once commodity prices stabilizes. Seeing better performance than peers where company delivered industry‐leading growth with relatively lesser margin impact, solid execution and now increased focus on marketing, we believe the company is well set for consistent earnings delivery which justifies an upgrade to BUY from Add, in our view.

Result Highlights

* Quarter Summary ‐ Orient Electric (ORIENTEL) delivered revenue growth of 37% yoy with equal contribution from ECD and Lighting and switch gears. Commodity inflation has resulted in significant gross margin erosion, while some calibrated pricing action, favorable business mix and cost reduction initiatives have restricted EBITDA margin contraction.

* ECD drives growth ‐ ECD saw robust growth on back of strong performance as Small appliances and Geysers saw high double‐digit growth aided by pent‐up demand. Margins in ECD were most impacted by higher commodity prices.

* Market share & Channel performance – ORIENTEL has gained market share across product categories at the expenses of smaller and regional players. Company continues to gain traction across the channels with modern trade and e‐comm growing faster.  

* Working capital and operating cashflow ‐ Working capital has increased as compared to previous year as it has is strategically carried higher than normal inventory to tide over any supply chain bottle necks that could arise due to the impending third wave.

Valuation

We expect FY21‐24E growth trajectory of 15% revenue CAGR. With margins also expected to gradually normalize going forward, we estimate FY21‐24E EBITDA and PAT CAGR of 14% and 16% respectively. We maintain our positive stance on the stock and upgrade stock to BUY rating with TP of Rs 393 based on 45x FY24E earnings as we feel new investment in manufacturing facility for fans will further help company to gain market share.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

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