Orient Electric; target of Rs 350: Motilal Oswal

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Motilal Oswal's research report on Orient Electric

Orient Electric (OEL), since its demerger from Orient Paper & Industries in FY17, is fast emerging as a serious competitor in the Electrical Consumer Durables (ECD) space. It is the third largest player in the Fans segment and has been in operation for over 60 years. Recently, it diversified into related product categories like Lighting, Switchgears, Air Coolers, Water Heaters, etc. OEL’s 13.5% revenue CAGR over FY18-20 has outpaced Havells India (+7.6% CAGR) and Crompton Greaves Consumer Electricals (+5.9%). OEL enjoys a similar gross margin as its peers, but has one of the lowest EBITDA margin. This is on higher employee cost and advertising spends, suggesting that OEL is perhaps in the investment phase. There is a strong case for margin convergence, with leading players like Havells and Crompton in a steady state. Despite higher investments in people and branding-related spends, and hence potentially lower margin at present, OEL generates a RoE of over 22%, which is superior to many peers.

Outlook

We forecast revenue/EBITDA/PAT growth of 20%/18%/21% over FY21-23E. We initiate coverage on the stock with a Buy rating, assigning a TP of INR350 per share.

For all recommendations report, click here

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