Broker Call: Orient Electric (Buy)

Goal: ₹375

WPC: ₹263

Q2-FY23 revenue declined 14% YoY to ₹510 crore and missed our estimate. The shortfall was largely caused by dealer destocking of fans due to the BEE rating transition, a change in Orient Electric’s (OEL) distribution strategy and weak exports caused by geopolitical issues. OEL reported a net loss of ₹30 lakh against our profit estimate of ₹21 crore. Without the impact of exceptional items on revenues and costs, the PAT would have been in line with our expectations.

OEL generated 60% of its revenue from fans in FY22. The ongoing fan BEE transition, due to take effect on January 1, 2023, has resulted in channel destocking, which has hurt sales principals of OEL.

Initially, the volume of fans would be affected by the GTM strategy, but then would help gain market share.

OEL entered the cable business and initial response from distribution partners was good. It follows an asset-light model for this business and has embraced outsourcing. OEL does not want to aggressively expand into this segment, but is looking to improve its product offerings and explore cross-selling.

We reduced our FY23/FY24/FY25 EPS estimates by 27%/13%/5% to account for Q2-FY23 performance.

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