Release Date: May 10, 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 robust 20% revenue growth in Q4 FY24, with the Electric Consumer Durables (ECD) division growing by 24.3% and the lighting and switchgear segment by 9%.
- The fans business saw a significant 29% growth in Q4, indicating a strong market share recovery.
- The company has successfully executed several prestigious lighting projects, including the Srinagar smart city, Dwarka's Sudarshan Setu, and the Jagannath Puri Temple.
- Direct-to-market strategy in certain states resulted in a 46% growth in Q4 and 65% for the full year, validating the effectiveness of this approach.
- The new Hyderabad plant has been commissioned, which can more than double the company's current sales capacity, indicating potential for future growth.
Negative Points
- Despite strong top-line growth, EBITDA for Q4 was reported at INR 31 crores, which is below desired levels, partly due to a provision of INR 19 crores for EPR liability and stringent provisioning policy.
- The coolers segment underperformed, with the company struggling due to untimely rains and extended inventory issues.
- The lighting segment continues to face price deflation, particularly in LED lamps, impacting overall margins.
- The legacy distribution network showed disappointing performance with marginal or no growth, necessitating a shift to direct-to-market strategies.
- The company acknowledged that its new product development has not met market expectations recently, though efforts are being made to strengthen R&D.
Q & A Highlights
Highlights of Orient Electric Ltd (BOM:541301) Q4 FY24 Earnings Call
Q: Can you explain the EPR provision and its impact on pricing?
A: The EPR (Extended Producer Responsibility) provision has led to a price increase to cover the costs. For FY25, the estimated EPR liability is around INR 21-22 crores, which should be recoverable through the increased pricing.
Q: What are the expected savings from the completed McKinsey contract?
A: While the exact savings are confidential, the benefits from McKinsey's work, such as growth in e-commerce and large format retail, will continue to contribute positively. The final variable pay will be accounted for in Q1 FY25.
Q: What is the status of appointing a new CEO?
A: The search for a new CEO is nearing completion, and a public announcement will be made once the decision is finalized.
Q: What growth can be expected in the fan category given the hot summer in FY25?
A: The market for fans is expected to grow in single digits, but Orient Electric aims for a double-digit growth rate of 15-20% by gaining market share and leveraging new production capabilities from the Hyderabad facility.
Q: How is the lighting segment performing, and are prices stabilizing?
A: The price erosion in the lighting segment has slowed significantly and is expected to bottom out within the next two quarters. The company has managed to offset value loss through volume growth.
Q: What is the potential for exports with the new Hyderabad facility?
A: The new facility will help target Western markets, but certification processes are required for each market. Specific targets will be discussed in about two quarters.
Q: How has the Direct-to-Market (DTM) strategy impacted market share?
A: The DTM strategy has led to a 46% growth in states where it has been implemented, indicating significant market share gains. The overall contribution from DTM states is now about 30% of sales.
Q: What changes are being made to prevent management turnover?
A: The company is strengthening HR processes and maintaining a focus on organizational stability. Despite recent changes, the company has continued to grow and deliver results.
Q: How does Orient Electric plan to navigate competitive strategies in the fan market?
A: The company aims to be an aspirational product at every price point without engaging in price-cutting wars. The focus will be on quality, availability, and after-sales service, supported by strategic advertising and promotion.
Q: What is the long-term growth outlook for Orient Electric?
A: The company targets a growth rate close to double the industry average, focusing on market share gains and leveraging new investments in production, supply chain, and service improvements.
Q: How are the premium and regular fan segments performing?
A: Specific data on the split between premium and regular fans was not provided, but the company acknowledges that advertising and promotion spending has been below industry levels and plans to increase it in the current year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
