Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Orient Electric Ltd (BOM:541301, Financial) reported a 7% year-on-year revenue growth for Q1 FY25, reaching INR 755 crores.
- Gross margins expanded by 249 basis points year-on-year and 237 basis points quarter-on-quarter, standing at 33.1%, driven by a combination of price increases, mix, and cost savings.
- The company saw a high double-digit volume growth in consumer lighting despite industry-wide value contraction.
- The DTM strategy has shown positive results, with the Fans category growing by 23% in DTM states during Q1.
- Commercial production has started at the new greenfield Hyderabad plant, designed as an Industry 4.0 facility, which is expected to deliver superior products at competitive costs.
Negative Points
- EBITDA dropped by 8.9% year-on-year, with a sequential margin improvement but a 93 basis points drop year-on-year.
- Capacity limitations restricted the ability to meet peak demand for fans, resulting in a modest 5.8% growth in the ECD segment.
- The company faced inventory stock-outs in several pockets due to unanticipated demand for fans.
- The Lighting segment continued to face price erosion, impacting overall profitability.
- Exports degrew due to geopolitical issues, particularly in African markets, affecting overall performance.
Q & A Highlights
Highlights from Orient Electric Ltd (BOM:541301) Q1 FY25 Earnings Call
Q: What are your thoughts on the business plans over the next 12 months and any low-hanging fruits you plan to execute in the medium term?
A: (Ravindra Negi, CEO) In the last eight weeks, I've met with employees, channel partners, and distributors, and I'm convinced our fundamentals and product strategy are sound. We will focus on our DTM strategy, consumer-centric channels like e-commerce, growing the lighting business, cost initiatives, and investments in people. These strategies will unlock potential and improve performance in the coming times.
Q: Can you quantify the impact of capacity constraints on the ECD segment's growth?
A: (Ravindra Negi, CEO) If not for the TPW capacity constraints, we could have achieved a healthy teens growth. Our sell-out didn't get impacted, and third-party data indicates we have inched up in market share. The constraints limited our sell-in, but overall, we are competitively placed with a 14.5% growth from January to June.
Q: How will the Sanchay cost savings and the end of Mckinsey costs impact your financials?
A: (Ravindra Negi, CEO) Sanchay savings will reflect in gross margin improvements. We've also passed on price increases to consumers. Mckinsey costs will no longer impact expenses from the next quarter, which should further improve our financials.
Q: What is the current share of revenue from DTM states, and how have they performed?
A: (Ravindra Negi, CEO) DTM states contribute about one-third of our revenue. These states have grown by 23% in the Fans category. While transitioning to DTM, we may lose some market share initially, but we come back strongly. Overall, we have seen high-teen growth in fans from January to June.
Q: What are the key challenges and opportunities you see for Orient Electric?
A: (Ravindra Negi, CEO) The main task is to unlock the potential of our strategic initiatives. We have a strong brand and resilient organization. The focus will be on leveraging these opportunities and handling operational challenges as they come.
Q: How do you plan to achieve double-digit EBITDA margins, and what are the growth levers?
A: (Ravindra Negi, CEO) The first sign of improvement is seen in gross margins, which we aim to sustain. Better leverage of our cost structure and strategic investments will eventually reflect in improved EBITDA margins. The cautious and calibrated execution of our strategies will drive this growth.
Q: What is the export potential for TPW Fans from the Hyderabad plant?
A: (Ravindra Negi, CEO) The Hyderabad plant will cater to the south and western parts of India initially. With improved cost structures, we aim to create competitive products for exports as well. We expect to leverage these efficiencies in the next couple of quarters.
Q: How is Orient Electric positioned in terms of product innovation and R&D?
A: (Ravindra Negi, CEO) We focus on consumer-centricity, understanding their needs, and providing trusted brands with excellent after-sales service. Our investments in digital, distribution, and premiumization will help us stand out in a competitive market.
Q: What is the outlook for the Lighting and Switchgear segment?
A: (Ravindra Negi, CEO) We have seen consistent market share gains in the lighting segment over the last few quarters. Our teams are doing a great job, and we expect this trend to continue, contributing to our overall growth.
Q: What are the CapEx plans for this year and the coming year?
A: (Ravindra Negi, CEO) Our major CapEx was the Hyderabad plant. Moving forward, we will focus on leveraging this investment. Regular CapEx will be for NPDs, capacity improvements, and other expansions. No large CapEx is planned at the moment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
