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    Orient Electric

    ORIENTELECGood
    Consumer Durables·25 Oct 2024
    Management Summary

    Orient Electric delivered encouraging Q2 FY25 results, with strong top-line growth driven by the ECD segment and strategic premiumization efforts. Gross margins improved significantly, reaching pre-COVID levels, supported by cost optimization initiatives. While the first half of the quarter was subdued, the latter half showed recovery, and the company remains optimistic about its strategic initiatives and future growth, aiming for higher operating margins in the coming year.

    Highlights

    8
    • Revenue for Q2 FY25 stood at ₹660 crores, marking a 16.5% YoY growth.

    • EBITDA margin was ₹36 crores, or 5.3% of revenue, expanding by 180 bps YoY.

    • PBT for the quarter was ₹14 crores, achieving over 200% YoY growth (adjusted for land sales).

    • Gross margin expanded by 240 bps YoY to 32.4% of revenue, returning to pre-COVID levels.

    • The ECD segment (Fans, Appliances) registered robust growth of 21% with revenue of ₹440 crores.

    • The Lighting and Switchgear segment grew by approximately 8% to ₹221 crores.

    • The 'Spark Sanchay Program' delivered ₹36 crores in cost savings for H1 FY25, aiming to surpass last year's ₹75 crores.

    • Premium portfolio in fans currently stands at 30% of revenue, with a target to increase to 40-45%.

    What Changed1

    vs Q3 FY25

    Risks discussed4 → 3 (-1)

    Key financials

    Single quarter

    05 metrics
    1. 01Revenue₹660 Cr+16.5%YoY
    2. 02EBITDA₹36 Cr
    3. 03EBITDA Margin5.3%
    4. 04PBT₹14 Cr+2%YoY
    5. 05Gross Margin32.4%

    Segment breakdown

    • Lighting and Switchgear₹221 Cr33.4%
    • ECD₹440 Cr66.6%
    Donut· Share of Revenue

    Guidance & targets

    8
    CategoryTargetPriority
    Profitability
    Gross Margin
    32.4%
    High
    Profitability
    EBITDA Margin
    towards 9%
    Medium
    Cost Savings
    Spark Sanchay Program Savings
    surpass Rs. 75 crores
    High
    Product Mix
    Premium Portfolio in Fans (as % of revenue)
    40% to 45%
    Medium
    Market Share
    B2B Share of Business in Lighting
    rise further
    Medium
    Regulatory Cost
    EPR Cost
    Rs. 20 to Rs. 21 crores
    High
    Capex
    Normative CAPEX
    Rs. 50 to Rs. 60 crores
    High
    Working Capital
    Working Capital Days
    lower levels
    Medium

    Risks & concerns

    5
    RiskSeverity

    Commodity price fluctuations and pricing pressures in Switchgears and House Wires.

    Switchgears and House wires experienced muted growth in the quarter due to commodity fluctuations and pricing pressures.Management acknowledged

    medium

    Pricing erosion in the Lighting segment due to intense competition from regional players.

    Pricing erosion is still prevalent in the market, largely due to regional players and smaller brands compromising on quality.Management acknowledged

    medium

    Potential impact of new government gazette on environmental compensation rate (EPR).

    A new government gazette on environmental compensation rate may have an impact, with associations making representations.Management acknowledged

    medium

    Areas of Evasion(2)

    • Specific breakdown of cost savings beyond general categories
    • Exact margin split between Lighting and Switchgear

    Q&A highlights

    3

    “So, for TPW, I can definitely say that it's a very competitive market. China pricing are very, very competitive. So, exports on TPW is not a higher margin business. While our efforts in Hyderabad would be to control the cost, but you are kind of capped on the pricing ability in the market when you go on TPW. Switchgear, vis-a-vis domestic, it's not that high a business, but still a reasonably okay margin that you make on exports.”

    Reveals the competitive landscape for exports and clarifies margin expectations for new export ventures, indicating that TPW exports are not a high-margin business.

    asked by Natasha Jain

    3 min read7 chapters

    Detailed Narrative

    01

    Q2 FY25 Performance Overview

    Orient Electric reported a strong Q2 FY25, with topline revenue reaching ₹660 crores, marking a 16.5% year-on-year growth. The quarter was characterized by a 'tale of two halves,' with initial subdued momentum followed by promising recovery in the latter half, driven by festive build-up. EBITDA margin stood at 5.3% of revenue, or ₹36 crores, demonstrating a significant expansion of 180 basis points year-on-year. Profit Before Tax (PBT) showed over 200% year-on-year growth, reaching ₹14 crores, after adjusting for the base effect of land sales.

    02

    Gross Margin Improvement and Cost Optimization

    The company successfully expanded its gross margin by a healthy 240 basis points year-on-year, reaching 32.4% of revenue, returning to pre-COVID levels. This improvement was attributed to a better product mix and continuous cost optimization through the 'Spark Sanchay Program.' This program delivered ₹36 crores in savings for the first half of FY25, with management committed to surpassing last year's total savings of ₹75 crores for the full year. The company expects gross margins to stabilize in this range.

    03

    Segmental Performance Highlights

    The Electrical Consumer Durables (ECD) segment, encompassing Fans and Appliances, was a key growth driver, registering a robust 21% growth with revenue of ₹440 crores. Within ECD, Appliances saw high double-digit growth, particularly in water heaters and coolers, which grew 5x and 6x respectively. The Lighting and Switchgear segment grew by approximately 8% to ₹221 crores, with Lighting itself achieving double-digit growth. Switchgears and House Wires experienced muted growth due to commodity fluctuations but grew sequentially.

    04

    Premiumization and Product Mix Strategy

    Orient Electric is actively pursuing a premiumization strategy across all categories. In Fans, the BLDC segment is a focus, now contributing 25% to total ceiling fan revenue, with a target to increase the premium portfolio to 40-45% of revenue. The Lighting segment's value-added portfolio now accounts for 60% of its overall ceiling business. The company is also expanding its B2B presence in Lighting, which currently represents about 20% of the segment's business and is 'set to rise further,' with new sub-categories like Tunnel and Stadium Lighting.

    05

    Distribution Expansion and Emerging Channels

    The transition of 10 MD (Master Distributor) states to DTM (Direct to Market) model for fans has been completed and is stable, with DTM states outperforming, growing by 35% for the quarter and contributing about 30% to Fans GT share. The company is also leveraging emerging channels, with digital and retail channels delivering high double-digit growth, backed by water heaters and small appliances. Orient Electric has started listing products on quick commerce platforms like Blinkit and Zepto.

    06

    Manufacturing Excellence and Capex Outlook

    The industry 4.0 greenfield plant in Hyderabad has been fully commissioned and is geared for stability, efficiency, and scale-up for the upcoming season in H2 FY25. The Faridabad plant has also undergone upgrades. For capital expenditure, the company has capitalized the Hyderabad project and anticipates a normal, normative CAPEX of ₹50-60 crores for the year, expecting to remain within this range.

    07

    Market Outlook and EPR Impact

    Management noted a mixed market, with 'green shoots' observed in both urban and rural areas during the latter half of Q2, particularly for new products like BLDC fans and premium offerings. The company acknowledged ongoing pricing erosion in the Lighting segment, primarily from regional players, but is countering this with value-added products. Regarding the Extended Producer Responsibility (EPR) cost, the company projects it to be around ₹20-21 crores for FY25 and has implemented a 1% price hike in Q1 to largely cover this impact, with another price increase in Q3 for BIS implementation and commodity costs.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.