Orient Electric’s Q4 growth momentum strong, but near-term covid worries persist

In the past one year, shares of Orient Electric have increased by 67%, which is similar to the gains seen in the Nifty 500 index.Premium
In the past one year, shares of Orient Electric have increased by 67%, which is similar to the gains seen in the Nifty 500 index.
 2 min read . Updated: 14 May 2021, 01:12 PM IST Pallavi Pengonda

Shares of Orient Electric Ltd were marginally higher during trading hours on the National Stock Exchange on Friday, a day when the benchmark Nifty 50 index was slightly lower.

The company’s fourth quarter results are encouraging. For the March quarter (Q4FY21), revenues have increased as much as 42% year-on-year (y-o-y) to ₹802 crore. A favourable base did help to an extent. Both businesses, electrical consumer durables (ECD) and lightning & switchgear performed well, posting a revenue growth of over 40% y-o-y.

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The ECD business contributed about 80% of revenues and the remaining came from lightning & switchgear. Commenting on the ECD business, analysts from Anand Rathi Share and Stock Brokers Ltd said, “Revived sentiment, pent-up demand, market-share gains from smaller brands, e-commerce and advance buying anticipating price hikes were key factors in such a sharp rebound."

On the profitability front, however, earnings before interest and tax (Ebit) margin of the ECD business contracted by around 140 basis points (bps). One basis point is one-hundredth of a percentage point. Margin decline can be attributed to higher input costs. On the other hand, Ebit margin in the lightning & switchgear business expanded by almost 310 bps.

It is worth noting that the company now has net cash on its balance sheet. As analysts from Motilal Oswal Financial Services Ltd said, “With strong cash generation, Orient Electric has now almost entirely repaid around ₹100 crore worth of debt, leading to net cash of ₹240 crore (versus net debt of ₹90 crore in FY20)." They added in a report on 13 May, “Cash flow from operations stood at ₹430 crore (FY20: ₹130 crore) and free cash flow at ₹390 crore. (FY20: ₹80 crore)."

Commenting on Q4FY21 performance, Orient Electric said, “Whilst the momentum of previous quarters continued in Q4FY21 with pent up demand for home appliances across all retail channels, the pandemic started reappearing with the second wave towards the end of the quarter causing early fears of lockdowns."

From a near-term perspective, covid-19 restrictions are likely to weigh on demand, which would in turn adversely affect revenues of the company. Although analysts reckon, medium term prospects of Orient Electric are bright. “We see all our earlier key monitorables (portfolio/network and margin expansion, premiumisation, free cash flows) intact," said Anand Rathi analysts.

In the past one year, shares of Orient Electric have increased by 67%, which is similar to the gains seen in the Nifty 500 index.

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