Reduce Orient Electric; target of Rs 230: HDFC Securities

HDFC Securities' research report on Orient Electric

Orient Electric reported an underwhelming Q4FY23 print. Revenue fell 13% YoY as ECD clocked a 20% fall (Havells ECD fell 14%). Lighting remained strong and was up +12%. Primary sales of fans remained subdued due to (1) focus of channel partners to clear off non-rated fans inventory; (2) soft consumer demand; and (3) erratic weather. With non-rated fans inventory having seen liquidation, we expect healthy primary fans volume growth in FY24. It shall be aided by a price increase of 4-6% due to a rating change. Lighting continued its good traction with broad-based growth across B2B and B2C portfolios. GM expanded by 50bps YoY to 28.3%, aided by better price realisation and product mix. However, EBITDA margins fell 370bps YoY to 7% due to negative oplev, brand investments, and capability-building initiatives.

Outlook

EBITDA dipped by 43% YoY. With consistent miss in delivery and expected slow recovery in the margin, we cut our FY24/FY25 earnings by 3/3% and value the stock on 28x Mar-25 EPS to arrive at a TP of INR 230. Maintain REDUCE.

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