Buy Orient Electric; target of Rs 215: SPA Securities

SPA Securities' report on Orient Electric

On the back of COVID impact, Revenue fell 12% YoY to INR 5,631mn with revenue from Lighting division dropping33% to INR 1,086mn and that of ECD division dropping 5% to INR 4,545mn. During Jan-Feb'20 the company had a reasonable midteens growth with reasonably good response from the market with signs of secondary sales picking up. Fans and aircoolers remained the focus of attention in the Electrical Consumer Durables (ECD) segment during the quarter and Consumer Luminaries (C-Lum) business continued to lead the way in Lighting segment.However, Pan-India lockdown impacted revenue for nearly 1/3rd of March month & revenue growth turned negative.EBITDA in absolute terms was affected by the significantly lower sales in Mar'20 which could not generate adequate margins to recover the cost which by the time lockdown started was virtually committed and fixed. Unfavourable sales mix primarily contributed to gross margin fall of 240bps to 30.5%. PAT stood at INR 357mn, down8%. Segmental profitability of Lighting division fell 480bps to 11.3% and that of ECD division rose 220bps to 15.8%.

Outlook

However, in the short term, we revise our earnings estimate (on the back of COVID impact) with Revenue & PAT to compound annually at 18% & 28% respectively during FY20-22. As revival of business growth is estimated to be more towards H2FY21 & FY22, we reduce earning multiple to 35x from 40x earlier & derive at target price of INR 215 & continue to maintain BUY on the stock.

Orient Electric 13062020