Release Date: October 25, 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 16.5% year-on-year growth in revenue for Q2 FY25, reaching INR660 crores.
- The company's gross margin expanded by 240 basis points year-on-year to 32.4% of revenue, indicating successful cost optimization and premiumization efforts.
- The lighting and switchgear segment achieved an 8% growth, while the ECD segment registered a robust 21% growth.
- The Spark Sanchay program delivered INR36 crores in cost savings for the first half of the financial year, supporting margin improvements.
- The company's digital and retail channels delivered high-double-digit growth, driven by water heaters and small appliances.
Negative Points
- The first half of Q2 experienced a slow start due to subdued regional festivals and commodity price fluctuations impacting margins.
- Switchgear and house wires experienced muted growth due to commodity fluctuations and pricing pressure.
- The export market for TPW fans is highly competitive, with pricing pressures from Chinese competitors affecting margins.
- The company faces ongoing pricing erosion in the lighting segment due to competitive pressures from regional players.
- EBITDA margin for the quarter was 5.3%, which is lower than historical levels, indicating room for improvement in operating leverage.
Q & A Highlights
Q: Can you provide an update on the export orders for switchgears in Europe and the TPW export from your Hyderabad plant?
A: We have been exporting switchgears to Europe and recently sent new products to Ukraine, awaiting feedback. TPW exports constitute about 20% of our fan exports. The Hyderabad plant is stabilizing and will soon be used for exports.
Q: Is export a higher-margin business for Switchgears and TPW fans?
A: TPW exports face competitive pricing, especially from China, so margins are not higher. Switchgear exports offer reasonable margins but are not significantly higher than domestic sales.
Q: Can you elaborate on the INR36 crores cost savings in H1 '25 and if this will continue?
A: The Spark Sanchay program targets various efficiencies, including VAV exercises and process reengineering. We aim to surpass last year's INR75 crores savings, which will help improve margins.
Q: How do you see the overall market outlook, especially in rural areas and North and East regions?
A: The first half of Q2 was slow, but we saw improvement in the second half, both in urban and rural areas. The real test will be post-Diwali to see if the momentum sustains.
Q: When do you expect margins to return to historical levels?
A: There are no structural headwinds. Investments have been made, and we expect operating leverage to improve margins. While it may not reach 9% in the next two quarters, we aim to move towards that level next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
