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Modest performance despite headwinds

* OEL’s revenue at Rs7.1bn (up 13.5% YoY), came 7.0% above cons. est. of Rs6.6bn. The revenue growth was majorly from ECD segment (up 15.6% YoY).

* Gross margin expanded by 280bps YoY to 30.7%, improvement aided by product mix changes with focus on Hero products, Project Sanchay and lower commodity prices.

* EBITDA came in at Rs440mn (up 15.3% YoY), ~9.3% below cons. est. of Rs485mn.

* EBITDA margin expanded by 10bps YoY to 6.2% & contracted 80bps QoQ, below cons. est. of 7.4%. EBITDA margin impacted as increase in gross margin was offset by higher employee and other expenses (other expenses as %sales increased to 14.9% - up 80bps YoY and Emp. expenses as %sales increased to 9.5% - up200 bps YoY) as company is continued investing in capability, brand-building and talent for long-term sustainable growth.

*PAT at Rs197mn (up ~4% YoY), was ~13% below cons. est. of Rs226mn.

* Working capital days have reduced to 13days as compared to 25days as on end of Jun-2022 with the liquidation of inventory. OEL aims to maintain a lean working capital cycle in the future.

ECD Segment

* ECD revenue grew 15.6% YoY (v/s Havells/Polycab – up 4.5%/3.1% YoY) to Rs5.15bn, driven by growth across segments. Fans grew by 16% YoY, volume growth (+10% YoY) led by reduction in the channel inventory and continued thrust of strategic initiatives. Premium fan segment contributed ~32% overall fan portfolio.

* Water Heaters/Small appliance grew by 23%/32% YoY - consumer demand revival in Tier2 & 3 cities observed; Demand for Air Coolers impacted due to unseasonal rains across North and West markets.

* Digital revenue recorded 58%YoY growth and Exports grew by 38%YoY despite geopolitical headwinds in key markets- Sudan, Sri Lanka and Ghana.

* The EBIT margin expanded by 120bps YoY (v/s Havells – contracted by 220bps YoY/Polycab reported losses) to 9.7%.

Lighting & Switchgear

* Lighting & Switchgear business grew by 8.1% YoY (v/s Havells (L&S) – up 2.4% YoY) to Rs1.9bn.

* Lighting & Switchgear EBIT margin expanded by 290 bps YoY (Havells – expanded by 20bps YoY) to 16.1%, led by better gross margin on account of cost saving initiatives.

* At CMP of Rs 229, the stock is trading at 36x/28x of FY24E/FY25E consensus earnings, considering more than 50% earnings CAGR over FY23-25E.

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