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Add Orient Electric Ltd For Target Rs. 374

B2C business continues strong growth momentum with market share gains; maintain ADD  

Our view​​​​​​​

1Q saw a strong bounce back with B2C business delivering excellent growth albeit on a low base. ECD saw strong growth of 213% led by sales to its master distributors ahead of the summer season, significant increase in e‐commerce sales and rise in exports. B2B business continued to face headwinds. Gross margins were impacted by rising commodity prices; which was further accentuated by unfavourable business mix. North has done well for the company followed by West; South and East were impacted more which resulted in a slower than expected recovery.

ORIENTEL remains on a strong footing as B2C business is witnessing increased traction with well‐entrenched distribution network, continued product innovation and aggressive brand investments. We expect momentum to continue in B2C business along with a gradual recovery in tender and project business from 2HFY22 should augur well for future growth. Company is planning to increase the capacities and has already started the process of setting up a plant in South. We expect FY21‐24E Revenue/EBITDA/PAT CAGR of 14%/15%/14%, roll forward our valuation multiple to FY24E and arrive at PT of Rs374 valuing it at 45x FY24 EPS and maintain our ADD rating.

Result Highlights

* Quarter Summary – Orient Electric (ORIENTEL) delivered revenue growth of 136% yoy, 7% lower than estimates. Electrical consumer durables and Lighting and switch gears have registered growth of 213% and 31% respectively. Increased commodity prices and business mix change have resulted in 132bps yoy gross margin contraction.  

* ECD drives growth – ECD saw robust growth on back of strong performance of Fans which grew by more than 200% yoy followed by small appliances which clocked growth of more than 100%. Export gained significant traction delivering growth higher than Q1FY20.

* Market share & Channel performance – Orient’s market share in Fans stood at 18% with leadership position in super premium Fans. Orient is now ranked number 3 in air‐coolers and is in top 5 in water heaters.  

* Working capital and operating cashflow – Working capital has increased as compared to Mar’21 levels on back of readiness for the season and preparedness to service pent‐up demand. The company ramped up inventory intentionally and did not promote any special collection schemes, hence the receivables remained at marginally higher levels as market recoveries and rotation of business were affected during the Covid 2nd wave.

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