Orient Electric Limited — Q3 FY25 earnings call

Call held 29 Jan 2025

Management summary

Orient Electric delivered a resilient Q3 FY25 performance, achieving strong revenue growth and significant margin expansion despite a subdued consumer demand environment. The company's strategic focus on premiumization, channel reorganization, and cost optimization initiatives drove positive outcomes across categories, particularly in Lighting and BLDC fans. Management expressed optimism for Q4 and the upcoming summer season, anticipating further gains from operating leverage and infrastructure spending.

Highlights

  • Revenue for Q3 FY25 stood at INR 817 crores, marking an 8.6% year-on-year growth and a 24% sequential quarter-on-quarter growth.

  • Revenue for the 9-month period reached INR 2,232 crores, a 10.2% year-on-year increase.

  • Gross margins improved by 184 basis points year-on-year and 213 basis points YTD, now sustaining in the 31% to 33% range.

  • Operating EBITDA margins for the quarter rose to 7.5%, up 98 basis points year-on-year.

  • Lighting and Switchgear segments grew by almost 12% year-on-year, outperforming the industry.

  • BLDC and IoT fans grew 60% in Q3, now contributing almost 20% of overall ceiling fans and growing at 25%.

  • Cost optimization initiatives under 'Spark Sanchay' delivered INR 52 crores in savings on a YTD basis, a 13% improvement year-on-year.

  • Employee cost as a percentage of revenue decreased to 9.2% in Q3, down from 10.2% in Q1 and 11.8% in Q2.

Key financials

3 periods

Q3 FY25

  • Revenue
    ₹817 Cr
    YoY +8.6% QoQ +24%
  • Gross Margin
    31%
  • Gross Margin Improvement
    184 bps
  • Operating EBITDA Margin
    7.5%
  • Operating EBITDA Margin Improvement
    98 bps
  • Employee Cost as % of Revenue
    9.2%

9M FY25

  • Revenue
    ₹2,232 Cr
    YoY +10.2%

YTD FY25

  • Gross Margin Improvement
    213 bps
  • Spark Sanchay Savings
    ₹52 Cr
    YoY +13%

What they filed

Q1 FY27: revenue up 23.5%, net profit up 72.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue660 817 862 769 703 +7%906 +11%948 +10%950 +24%
EBITDA36 61 67 46 38 +6%68 +11%77 +15%67 +46%
Net profit10 27 31 18 12 +20%26 −4%40 +29%31 +72%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Lighting and Switchgears
    12% Revenue Growth
  • ECD Segment
    7.3% Revenue Growth30% Revenue Growth
  • BLDC and IoT Fans
    60% Growth (Q3 FY25)20% Contribution to Ceiling Fans25% Growth (Overall BLDC/IoT)
  • Premium in Deco Category
    30% Contribution
  • B2B Lighting
    20% Revenue Share
  • B2C Lighting
    80% Revenue Share
  • Fans (Master Distributor)
    70% Revenue Share
  • Fans (Direct-to-Market)
    30% Revenue Share

Guidance & targets

Profitability

  • Gross Margin Range Profitability · ongoing · High confidence 31-33%
    So our gross margins have now come to a steady state of going to 31% to 33%, and that, I think, should be a comfort that all of you should have.

    — Ravindra Singh Negi, Managing Director & CEO

  • Gross Margin Improvement Profitability · future · Medium confidence 32-34%

    Previously 31-33% → 32-34%

    We definitely see 100 basis point improvement on that range also. We could look at 32% to 34%, and that will slow down.

    — Ravindra Singh Negi, Managing Director & CEO

  • Operating EBITDA Margin Profitability · next 4 quarters · Medium confidence high single digits
    It will take time. In 4 months -- 4 quarters, we should definitely see some high single digits operating EBITDA margins.

    — Ravindra Singh Negi, Managing Director & CEO

  • Switchgears and Wires Gross Margin Profitability · next 4 quarters · Medium confidence improvements or some bit of the range moving up
    So in next 4 quarters, we should see improvements or some bit of the range moving up.

    — Ravindra Singh Negi, Managing Director & CEO

Product Mix

  • Premium in Deco category Product Mix · future · Medium confidence closer to 45%

    From 30-31% today

    Our premium in Deco category is approximately 30%, 31% now, and our ambition is to take it to closer to 45%.

    — Ravindra Singh Negi, Managing Director & CEO

Revenue

  • Overall Revenue Growth Revenue · ongoing · Medium confidence faster than the industry
    Our current delivery has been saying how do we grow faster than the industry, and that's what we've been driving and saying, how to grow faster than the industry.

    — Ravindra Singh Negi, Managing Director & CEO

  • 3-year Revenue Plan Revenue · by April/May · High confidence to be shared
    As far as for 3-year plan, we will be sharing with all of you by April, May, what will come back.

    — Ravindra Singh Negi, Managing Director & CEO

Market context

  • Operating EBITDA Margin Profitability · future · Low confidence double digit
    We definitely see 100 basis point improvement on that range also... and then we look at inching closer towards double digit.

    — Ravindra Singh Negi, Managing Director & CEO

Risks & concerns

  • Subdued consumer demand and slower GDP growth

    medium

    Q3 was marked by slower GDP growth and subdued consumer demand across channels.

    Management acknowledged

  • Price erosion in B2C Lighting segment

    medium

    Ongoing headwinds of price erosion are seen very strongly in the market on the B2C side, especially in commoditized products.

    Management acknowledged

  • Competition and discounting from new entrants in lighting

    medium

    Management hopes that new entrants and existing players do not keep discounting as the industry moves forward.

    Management acknowledged

  • Delayed winters impacting appliance sales

    low

    Appliance business experienced a slowdown later in Q3 partly due to delayed winters, though good winter helped liquidate winter products.

    Management acknowledged

Areas of evasion (2)

  • Specific details on consultant payouts
  • Exact positions for BU heads still to be filled

Q&A highlights

3 direct
Direct-to-Market (DTM) vs. Master Distributor (MD) Model and Revenue Breakup Direct
Wherever the model seems to be working, we will continue with the model, whether it's a DTM or MD model... broadly right now, it's about 70:30. Master distributor is 70, and DTM is 30. And that's from a fans only perspective.

Clarifies the company's evolving distribution strategy, its impact on market share and growth, and provides a quantitative split of revenue contribution from different models in the fans segment.

Asked by Aniruddha Joshi

Employee Cost Control and Gross Margin Targets Direct
From a 10.2% in quarter 1 to 11.8% in quarter 2, it's at 9.2% and if you look at from an industry average, right now, anything if you look at any of the peers and all, they are all in the range of 9% to 9.5%... pre-COVID levels, we were at about 31% to 33%... in next 4 quarters, we should see improvements or some bit of the range moving up.

Addresses concerns about operational efficiency (employee costs) and provides historical context and future outlook for gross margin improvement, linking it to strategic initiatives like premiumization and new BU heads.

Asked by Bhargav

Long-term Operating Margin Trajectory and Revenue Growth Aspirations Direct
Yes, definitely, the ambition is to touch double digits... We'll now move to a 31% to 33% range. We definitely see 100 basis point improvement on that range also. We could look at 32% to 34%... In 4 months -- 4 quarters, we should definitely see some high single digits operating EBITDA margins... As far as for 3-year plan, we will be sharing with all of you by April, May, what will come back.

Provides a clear, albeit phased, roadmap for margin recovery towards double digits and commits to sharing a detailed long-term revenue plan, which is crucial for investor valuation models.

Asked by Madhur Rathi

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview

Orient Electric reported a robust Q3 FY25, with revenue reaching INR 817 crores, an 8.6% year-on-year increase and a significant 24% sequential growth. The 9-month revenue stood at INR 2,232 crores, growing 10.2% YoY. Despite a challenging consumer demand environment, the company demonstrated resilience, driven by strong festive season sales in October and a late winter onset boosting heating product demand in December.

Strategic Focus on Premiumization and Product Mix

The company's core strategy of premiumization is yielding positive results, helping navigate gross margin challenges. In lighting, premium value-add products like COB, high-value panels, rope lights, and floodlights now contribute almost 50% of the segment's revenue, an improvement of 400 basis points YoY. For fans, new BLDC and IoT launches drove 60% growth in Q3, now comprising 20% of the overall ceiling fan category and growing at 25%. The ambition is to increase the premium Deco category contribution from 30-31% to 45%.

Segmental Performance: Lighting & ECD

The Lighting and Switchgear segments continued their strong performance, achieving nearly 12% year-on-year growth, which management noted as superior to the industry, despite ongoing price erosion in the B2C market. The B2B lighting segment, contributing 20% of lighting revenue, also showed promising high double-digit growth, supported by infrastructure projects. The Electrical Consumer Durables (ECD) segment, including fans and appliances, grew 7.3% YoY and 30% QoQ, despite Q3 being a traditionally lean season for fans.

Profitability and Cost Optimization

Gross margins have stabilized in the 31% to 33% range, improving by 184 basis points YoY and 213 basis points YTD, attributed to premiumization, channel reorganization, and better product mix. Operating EBITDA margins for Q3 rose to 7.5%, a 98 basis point improvement YoY. The 'Spark Sanchay' cost optimization program delivered INR 52 crores in savings year-to-date, representing a 13% YoY improvement. Employee costs as a percentage of revenue also saw a positive trend, decreasing to 9.2% in Q3 from 10.2% in Q1.

Distribution Strategy and Market Share Gains

Orient Electric is actively expanding its direct-to-market (DTM) presence, now covering 11 states, with DTM contributing 30% of fan revenue compared to 70% from master distributors. DTM markets are reportedly growing faster, leading to market share gains in both Lighting and Fans. The company is also focusing on fast-growing e-commerce platforms like Blinkit and Zepto to enhance product discovery and market share in fans and heating appliances.

Outlook and Future Targets

Management is optimistic about the upcoming summer season and expects government spending in Q4 to boost sentiment, especially for cooling categories and B2B projects. They aim to achieve high single-digit operating EBITDA margins in the next 4 quarters, with an ambition to eventually reach double digits. A detailed 3-year revenue plan will be shared by April/May, with a continuous focus on growing faster than the industry.

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