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Enhanced capabilities to result in double digit growth; reiterate BUY

Result Synopsis

Orient Electric (ORIENTEL) revenue grew 11% which has been higher than consensus, but lower than our expectations. The growth has been driven by ECD which grew 17.1%, which has been higher than peers. Fans has been the major contributor in the ECD growth growing by 25% on yoy basis. Lighting and switchgear growth has been flattish for the quarter as B2C consumer lighting has seen decline on technology change resulting in price erosion. Decline in B2C consumer lighting was off set by strong growth in B2B and professional lighting. Gross margins have seen improvement of 400bps on yoy basis, while EBITDA margin improvement of 137bps was modest as company continues to make investments which will give them sustainable long-term returns. Hyderabad plant has seen some delays as automated line could not be commissioned as there have been visa delays of Chinese officials. ORIENTEL has added Gujarat to direct distribution and expects maximum two more states to be added in direct distribution post that distribution revamp will be largely completed. ORIENTEL is now going with the strategy where there will be existence of direct distribution as well as master distributors where it wants to utilize the strength of both these distribution systems. Management is confident of robust double digit revenue growth in FY25 and expects to double digit EBITDA margin by next two to maximum three quarters. We continue to maintain our BUY rating with PT of Rs281.

We are anticipating revenue CAGR of 18%, and EBITDA and PAT CAGR of 45% and 50% respectively for FY23-25E. We believe ORIENTEL can outperform peers and could lead to market share gains. Considering potential of market share gains and increasing reach we continue to remain positive on the stock, we maintain BUY rating with PT of Rs281.

Result Highlights

* Quarter Summary -Revenue growth was aided by strong performance of ECD segment which grew 17.1% yoy. Lighting and Switchgear segment saw flattish growth of 1.4%.

* ECD Segment – Growth in ECD segment has been on back of strong growth in Fans which grew 25% with volume growth of ~20%. Water heaters and small appliances grew have been muted. Air-coolers were impacted due to failed summer.

* Margins – Gross margin saw expansion of 400bps, while EBITDA margin saw modest improvement of 137bps as company continues to invest in building capabilities for long term sustainable growth.

* Working Capital - Working Capital in the current quarter has increased to 26 days vs 22 days in Q2FY23. The increase is largely on account of inventory increase ahead of festive season.

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