IGI Logo

Earnings beat led by robust growth, healthy margins

Orient Electric (ORIENTEL) posted robust revenue growth of 37% YoY to Rs5.9bn, led equally by volume and value growth. Revenue was 13%/16% above our/consensus estimates. The growth was broad-based across fans, water heaters, appliances, and B2C lighting, leading to healthy rise in both ECD/lighting sales by 38%/35% YoY. On a high base, gross margin fell 480bps YoY to Rs28.5% due to commodity cost pressures. On a QoQ basis, gross margin was up 120bps due to price hikes, better product mix, and cost reduction initiatives. ORIENTEL undertook price hikes to mitigate the rising cost pressures, while Sanchay program led to cost savings of 1%. EBITDA was up 7% YoY to Rs619mn, leading to an operating margin of 10.4%, down 290bp YoY on a high base, but 150bps above our/consensus estimate of 8.9% each. PAT grew 7% YoY to Rs348mn, exceeding our/consensus estimates of Rs232mn/Rs223mn. The growth outlook remains healthy due to festive season demand and expectation of pick-up in B2B business. We maintain our BUY rating on the stock, with a revised target price of Rs422 (Rs415 earlier) based on 45x H1FY24E EPS.

ECD: Revenue growth healthy; higher impact of input cost inflation

ECD segment reported healthy 38% YoY growth to Rs4.2bn, primarily driven by healthy growth in premium, economy, and portable fans category. Water heaters and small appliances grew in high double digits. Exports grew 50% YoY due to low base. Steep surge in prices of metals and plastics led to 450bps YoY contraction in EBIT margin to 12.3%.

Lighting: B2C growth momentum healthy; margin profile superior

Lighting segment also reported healthy revenue growth of 35% YoY to Rs1.7bn. B2C growth was higher, led by healthy demand from homes and small offices/showrooms. B2B non-tenders segment was healthy due to demand pickup while B2B tenders segment (EESL) witnessed negative growth. Shortages and steep increase in prices of critical components impacted gross margins for the industry. However, segment EBIT margin expanded 120bps YoY to the highest ever quarterly level of 15.8% due to price hikes, better product mix, and higher realizations.

Key concall takeaways:

(1) Maintenance capex pegged for FY22 is Rs650mn (50% spent in H1FY22). Hyderabad greenfield plant work will start in Q4FY22 and commissioning is likely in Q4FY23 (capex outlay planned is Rs1.6bn). (2) Inventory levels are normal at trade level while ORIENTEL has strategically stacked up more inventory to mitigate supply constraints. (3) Channel financing is at 35%-40% of domestic receivables (amounting to Rs800mn-Rs1bn), and would go up to 50% by end-FY22. (4) Not seeing demand tapering or down-trading by consumers despite price hikes.

Maintain BUY, with a revised target price of Rs422

We expect ORIENTEL to post 17.2%/22.5% revenue/earnings CAGR over FY21-24E. Healthy growth prospects, margin expansion potential, strong return ratios, improving NWC, and strong OCF generation capabilities will support valuations. We maintain our BUY rating, with a revised TP of Rs422 (Rs415 earlier) based on 45x H1FY24E EPS.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

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