Reduce Orient Electric; target of Rs 230 : HDFC Securities

HDFC Securities' research report on Orient Electric

Orient Electric’s Q1FY24 performance was a mixed bag as it positively surprised on revenue while continuing to disappoint on margins. Revenue grew 14% YoY, led by 16% growth in the ECD portfolio (Havells ECD grew 5%). ECD growth was broad-based across categories with fans registering 10/16% volume/value growth on improving primary sales. Weak performance in the previous quarters recouped to some extent, with ECD down by 5% during TTM. With the channel inventory of non-rated fans now nearly liquidated, we expect healthy primary fans volume growth in FY24. B2B lighting grew 40% YoY while soft B-C demand and price erosion (lower cost DOB technology) led to lighting growth moderating to 8% YoY. GM expanded by 290bps YoY to 30.7% on a better mix and stable RM basket. Higher employee/other expenses (43/20%) restricted EBITDAM expansion to 10bps at 6.2% (HSIE 7.4%). Orient will continue to invest in long-term strategic initiatives like (1) capability building; (2) branding; (3) distribution; and (4) talent, which shall keep margins under pressure in the near term.

Outlook

We cut our FY24-FY26 earnings by 1-4% and value the stock on 28x Jun-25 EPS to arrive at a TP of INR 230. Maintain REDUCE.

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