YES Securities report on Orient Electric
Orient Electric (ORIENTEL) delivered mix bag performance with revenue growing 3% above estimates while operating margins seeing sequential decline of 456bps; while other peers have reported strong growth with higher operating margins. Company has been able to protect its gross margins as it has taken lead in passing on increased commodity prices to the customers. Also, there has been inventory de‐stocking in channel on anticipation of price decrease owing to lower commodity prices. There could be some near‐term uncertainty as orient is moving towards new distribution system, which could take time to stabilize. We expect margins to be lower as there would be additional expenses incurred in revamping distribution system.
We now expect FY22‐24E revenue CAGR of 13%, with margins also expected to gradually normalize going forward, we estimate FY22‐24E EBITDA and PAT CAGR of 19% and 20% respectively. Change in distribution practice can result in disruption in short term before company the company starts realizing benefits in the longer term. Considering short term disruption, we have cut ourtarget multiple to 40x vs 45x earlier However, considering solid long‐term growth potential and sharp correction in stock price, we maintain our BUY rating with TP of Rs341.
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