Orient Electric zooms 20% on strong Q2 operational showing; better margins

Gross margin of the company expanded by 210 bps annually to 32.4 per cent, driven by improved mix, cost optimisation and follow-through of price increases

Shares of Orient Electric were frozen in the 20 per cent upper circuit at Rs 252.35 on the BSE in Monday’s intra-day trade after the company reported a strong operational performance for the second quarter of the 2024-25 financial year (Q2FY25).  

 

The household appliances company posted earnings before interest, taxes, depreciation, and amortisation (Ebitda) growth of 72.5 per cent year-on-year (YoY) at Rs 35.7 crore. Ebitda margin improved 175 bps YoY and 9 bps quarter-on-quarter (QoQ) at 5.4 per cent, with investments in GTM, organisational capabilities and expansion of services infrastructure. The company's gross margin expanded by 210 bps YoY to 32.4 per cent, driven by improved mix, cost optimisation and follow-through of price increases.

 

The counter has seen huge trading volumes, with a combined 2.5 million equity shares changing hands and there were pending buy orders for 280,000 shares on the NSE and BSE at 11:10 AM. The stock price of the C K Birla Group-company had hit a 52-week high of Rs 297.15 on July 31, 2024.

 

In Q2FY25, Orient Electric has achieved 16.4 per cent annual revenue growth at Rs 660 crore, with encouraging performance in the lighting, appliances and fans segments on the back of digital thrust, festival lifting and higher realisations. Profit after tax (PAT) for the company, however, declined 43 per cent YoY to Rs 10.5 crore.

 

The company's appliances segment saw a significant double-digit growth, fuelled by strong performance in water heaters, coolers, and kitchen appliances, supported by strong festive buildup in e-commerce and quick-commerce channels.  Lighting achieved double-digit value growth and high teens volume growth despite ongoing price erosion in B2C, the company said.

 

The management believes that premiumisation trend will further enhance margins, although a return to the FY20-22 average level of around 9 per cent may take a few more quarters as the operating leverage kicks in.

 

Higher premiumisation, at 30 per cent currently, and strong growth in fans drove the growth. Fans contributed 40 per cent to total revenue, touching Rs 264 crore in Q2FY25. Rural demand for the company's products improved, particularly in the latter half of the quarter, due to festive sales.  The ‘Spark Sanchay’ cost-saving program delivered Rs 36 crore in H1FY25, offsetting some inflationary pressure on raw materials and logistics. The company initiated its first batch of switchgear exports to Europe and also started TPW (table, pedestal, wall) fan exports from its Hyderabad facility.

 

While the company’s strong Q2 results, with an improvement in margin led by lower other expenses drove profitability, it posted good growth across categories, analysts at InCred Equities said.

 

The company expanded its business to Himachal Pradesh and Jammu & Kashmir while keeping the focus on South India, which continues to maintain a higher share of its revenue.  Further, with a strategic focus on premiumisation, Orient Electric is optimistic about sustaining its operating leverage and margin improvement in the long run.  Direct-to-market (DTM) sales for the company achieved a 35 per cent growth in Q2FY25, the brokerage firm said, while assigning an ‘Add’ rating on the stock with a target price of Rs 314 per share.