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Growth rebounds margins to follow from 2HFY25; reiterate BUY

Result Synopsis

Orient Electric (ORIENTEL) revenue growth of 20% was driven by strong growth in Fans which registered industry leading growth of 29%. Lighting on the other hand saw muted growth of 9.1% as it was marred by price erosion resulting in value erosion. Volumes in lighting continues to remain healthy. Gross margins continue its journey of improvement with gross margins at 30.8% highest in past 12 quarters. EBITDA margin is lower as company there was an additional cost of Rs190mn for EPR provisions and company continues to invest in building capabilities. ORIENTAL has already undertaken price increase in Q1 to cover for EPR compliance costs. Much awaited Hyderabad started its commercial operation from May after delay of 4-5monts. ORIENTEL has started to manufacture TPW and pedestal fans to start will and ceiling fans will be shipped from last week of May. The Company has seen strong growth in its DTM states (+46% in Q4 and +65% for FY24) and company is planning to add 3-4 more states in FY25 where sales have been low. Company is targeting to grow at double the pace of the industry (more than 18% CAGR) in the medium term as investments are being made to achieve strong growth. On the appointment of MD & CEO company is close to finalizing candidate for the job and announcement will be made soon. On the margin front company is confident of margin returning to its normalized levels from 2HFY25 and commissioning of TPW line will open new opportunities for exports. Given the investments that company is undertaking for strong growth in domestic markets and new exports opportunity we expect company to deliver industry leading growth with margins normalizing from 2HFY25. We continue to remain positive on the stock and reiterate our BUY rating with revised PT of Rs280 valuing 35x on FY26 We are anticipating revenue CAGR of 17%, and EBITDA and PAT CAGR of 51% each respectively for FY24-26E. We believe ORIENTEL can outperform peers and could lead to further market share gains. We believe if strategy executed well could result in strong growth in medium term.

Result Highlights

* Quarter Summary -Revenue growth of 20% is driven by strong growth in the ECD segment which grew by 24.3%, while lighting and switchgear growth at 9.1% was muted on back of price erosion in B2C lighting.

* ECD Segment – Fans have demonstrated strong growth of 29% led my market share gains and DTM initiatives. Appliances on the other hand have been muted.

* Margins – Gross margin saw expansion of 244bps, while EBITDA margin saw contraction of 314bps as EPR compliance costs and investments in building capabilities have dented margins

* Hyderabad plant update – Hyderabad plant has started commercial production from the May after delay of 4-5 months. This plant will double Fans capacity for the company. Ceiling fans will start to ship from this plant by end of May.

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