Orient Electric Q1 Results Review - Soft, Inline; Hyderabad Plant To Aid Healthy Growth: Systematix

Systematix Report

Orient Electric Ltd. Q1 came soft and broadly inline. Revenue grew 7% YoY, led by switchgear and lighting, and summer product categories. Despite 249 basis points YoY expansion in gross margin (33.1%), Ebitda margin contracted 93 bps YoY to 5.3% due to higher employee costs and other expenses.

Tight working capital cycle (10 days) stayed. TPW fans (20-25% mix) growth was muted due to capacity limitations. Focus on digital channel drove market share gains in ceiling fans. Exports were restrained due to geopolitical challenges in key markets (Africa). It took 3% price hike in April and June in fans to combat commodity price rise and regulatory changes.

Business-to-consumer Lighting saw high teens volume growth; continued price erosion kept value growth low. Better product mix in Luminaries enhanced gross margins. B2C Lighting had consistent volume growth. DTM states revenue grew 23% YoY and contributed ~33% to total revenue.

Most states grew in high doubledigits; Orient Electric aims to reach 16 states from 10 currently. Hyderabad plant has capacity to double revenue.

We maintain earnings estimates and expect 12%/47% /59% compound annual growth rate in revenue/Ebitda/profit after tax over FY24-26E, after a muted 9%/0%/2% CAGR over FY19-24. Operational efficiency, cost savings (Rs 130 million; FY24: Rs 760 million) and end of McKinsey program could boost margins going forward.

Maintain 'Hold' with a revised target price of Rs 285 (32 times FY26E price to earning, earlier Rs 268 at 30 times). Healthy uptick in revenue and margin is key for further re-rating in scrip’s valuation

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