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Growth drivers in place; reiterate BUY

Result Synopsis

Orient Electric (ORIENTEL) revenue growth of 16.4% was 7.7% higher than our estimates. ECD has witnessed strong growth with ECD revenue growing 20.9% yoy, while lighting revenue grew 8.4% yoy despite pricing challenges on B2C consumer lighting side. ECD growth has been aided by Appliances and Fans segment on back of digital thrust and higher realizations. On the gross margin front various actions taken by the company is bearing fruits resulting in higher gross margin. Gross margin stood at 32.8% showing expansion of 210bps. EBITDA margin although has improved on yoy basis, it’s still lower than estimates as employee cost has shot up 33% owing to commissioning of Hyderabad plant, which is under stabilization phase. The company has also started to manufacture ceiling fans in the Hyderabad plant and ramp up is expected from 2HFY25. Company is targeting to grow faster than the industry in the medium term as investments are being made to achieve strong growth. On the margin front company expects margin to be in high single digit in 2HFY25 and expect full year FY26 margin to be ~9%. 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 improving from 2HFY25. We continue to remain positive on the stock and reiterate our BUY rating with PT of Rs293 valuing 33x on FY27. We believe stock has over corrected and at CMP it provides excellent entry point for medium to long term investment. We are anticipating revenue CAGR of 14%, and EBITDA and PAT CAGR of 37% and 38% respectively for FY24-27E. We have modelled EBITDA margins to be ~9% in FY27 which we believe can be achieved given the work the company has on the cost savings. ORIENTEL is expected to 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 16% was higher as ECD has registered strong revenue growth of 21%. Lighting and switchgear growth of 8.4% has been better on given the price erosion challenges in consumer lighting.

* ECD Segment – ECD segment has seen strong growth of 21% driven by improved product mix and higher volumes. Appliances have seen significant double-digit growth fueled by strong performance in water heaters, coolers, and Kitchen appliances. Fans has registered high teens growth.

*  Margins – Gross margin has seen expansion of 210bps, while EBITDA margin saw contraction of 175bps. Continued cost reduction initiatives and operating leverage would result in EBITDA margin expansion in medium term.

* Hyderabad plant update – Hyderabad plant has now started to manufacture ceiling fans apart from TPW fans. Ramp up in Hyderabad plant is expected in 2HFY25 ahead of the upcoming summer season.

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