Orient Electric Limited (ORIENTELEC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Orient Electric Limited Q2 and FY '27 Earnings Conference Call hosted by DAM Capital Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tanay Shah from DAM Capital Advisors. Thank you, and over to you, Tanay.

Thank you, Danish. Good afternoon, and welcome to the Orient Electric Q2 FY '27 Earnings Call. Today, we have with us Mr. Ravindra Singh Negi, Managing Director and CEO; Mr. Arvind Vats, CFO; and Mr. Sambhav Jain, Head of Investor Relations. So is there any further delay, I will hand over the call to the management for opening remarks, post which we will begin the Q&A session. Thank you, and over to you, sir.

Thank you, Tanay. Good evening, ladies and gentlemen. Welcome to Orient Electric's conference call to discuss the results for the quarter ended 30th September 2026. Thank you for joining us today. I trust you've had an opportunity to review our financial results and earnings presentation. Let me begin by briefly touching upon the broader operating environment before taking you through our performance for the quarter and the key developments across our businesses. During the quarter, we continue to face persistent commodity inflation, particularly in copper and aluminum. Crude linking movements added further pressure on raw material costs and in turn on our gross margins. At the same time, global and geopolitical uncertainties continue to affect supply chain visibility and business planning. To mitigate these pressures, we've taken price increase of 3% to 6% across various categories in quarter 2 and another increase of approximately 3% in October in some of the categories and complemented them with improved product mix and productivity initiatives. While input cost inflation has yet not been fully offset, we remain disciplined in our approach, balancing pricing with market competitiveness and sourcing efficiency. Against this backdrop, Orient Electric delivered broad-based growth with revenues increasing 25.2% year-on-year during the quarter. Our One Orient and Three Fold strategy continue to anchor our growth agenda as we build lighting, wires, switches and switchgear, alongside our established core fans and appliances businesses. Premiumization and innovation along with portfolio diversification remains key priorities, enabling us to leverage our existing ecosystem more effectively while keeping consumer needs and disciplined execution at the center of our strategy. Let me start with our Lighting and Switchgear business, which delivered a strong performance during the quarter, with revenues growing 25.7% year-on-year to INR 329 crores. Within lighting, consumer lighting delivered double-digit growth, supported by continued traction in premium products. High-value rooms remained consistent at 66% of the room mix, reflecting our continued focus on premiumization and a richer product portfolio. Professional Lighting also delivered high single-digit growth, supported by a strong inquiry pipeline and our continued focus on new product development. We also are encouraged by the momentum across our other categories. Wires more than doubled year-on-year, while switchgear and switches delivered high double-digit growth. Our electrician engagement programs, along with distribution synergies across categories are helping us deepen channel reach and capitalize cross-selling opportunities. We continue to focus on quality, dependable service and a relevant product portfolio to further strengthen retailer confidence. Moving now to our core strength of electrical consumer durables business. ECD revenue stood at INR 550 crores, representing a year-on-year growth of 24.9%. Fans delivered a high double-digit growth, o the industry and resulting in market share gains. The performance was broad-based with both our direct-to-market led and master distributor-led markets delivering double-digit growth. Within fans, BLDC continued to see strong traction, growing approximately 26%, supported by both premium and innovation-led launches. Premium products accounted for approximately 40% of the fan mix. Our focus on innovation and premiumization continues to yield encouraging results with new products contributing more than 30% of the fans revenue during the quarter. Energy-efficient products, differentiated design and consumer-relevant innovation remains central to our product strategy. Appliances also delivered double-digit growth, led by water heaters and garment care segments. As we move into the festive season and the second half of the year, our focus remains on ensuring the right product assortment and availability across channels while maintaining a measured approach to the broader demand environment. On the distribution front, we continue to scale our direct-to-market model with further expansion across Madhya Pradesh, Chhattisgarh and Jharkhand, strengthening our go-to-market execution. We also took over the service for Punjab and Nagpur region. Our digital channel also maintained healthy momentum with e-commerce growing by high double digit, strengthening our presence across marketplaces. Quick commerce now contribute approximately 15% of our digital revenue and grew by almost 100% year-on-year, reflecting the evolving consumer buying landscape. On the brand front, we continue to strengthen visibility across airports, outdoor and digital media with a focus on engaging premium audiences and reinforcing our technology-led positioning. We are also strengthening the consumer experience with a deeper -- even deeper through Project Samvad, our customer service enhancement initiative, which is helping us sharpen consumer insights and enable faster resolution through AI-led capabilities. Turning to the financial performance. Overall, the revenue grew 25.2% year-on-year to INR 879 crores during the quarter. Gross margin stood at 29%, impacted by continued input cost pressures during the quarter. Despite this, EBITDA grew 49.7% year-on-year to INR 57 crores, with EBITDA margin expanding by 106 basis points to 6.5%, supported by operating leverage and continued cost optimization. For H1, we have grown by 24.3% with a revenue of INR 1,829 crores. Gross margin stood at 29.4% for H1, while EBITDA grew by 46.9% year-on-year. EBITDA margin stood at 6.7% for H1, which expanded by 104 basis points, supported by operating leverage across. Our cost optimization program, Project Sanchay, continued to deliver results, generating savings of approximately INR 13 crores during the quarter and approximately INR 23 crores for H1 through focused cost initiatives. PAT more than doubled to INR 27 crores during the quarter and INR 59 crores for H1, again, close to 100% growth. We closed the quarter with working capital of 34 days. Cash discipline remains a key priority as we balance investments in our portfolio and a continued expansion of our distribution footprint. Over the longer term, trending towards a double-digit EBITDA margin remains our aspiration, supported by mix improvement, productivity and sustained cost optimization. Looking ahead, our focus remains on premiumization, innovation, expanding distribution and strengthening consumer engagement while maintaining disciplined investments across the businesses. As we move through the festive season and the second half, we remain confident in our outlook given the brand preference, market share gains and our refreshed consumer-centric innovative portfolio of products across all 3 stages of the wall. On behalf of the entire Orient Electric family, I would like to wish all of you and your loved ones a very happy Diwali and a joyous festive season ahead. Thank you. We'll now open for question.

[Operator Instructions] Our first question comes from the line of Aniruddha Joshi with ICICI Securities.

Sir, 2 questions from my side. I guess we have taken price hikes in October. So has that led to any inventory upstocking in September month and -- or September quarter per se? Or is there any one-off performance in the growth, which would have led either inventory upstocking or any low base or something like that? So that is question number one. And question number two, do you -- how do you see the BLDC fans business shaping up? Because now, I guess, with another rating change and again, next rating change in Jan 29, there will be far more focus on BLDC fans. So how is BLDC fans as a percent of our total sales? And what will be the plans on driving BLDC sales also? Yes, that's it from my side.

Thank you, Aniruddha. I'll take your questions both. First is on the price hike. And if you look at right from April onwards, there have been very consistent price hikes that we've taken. None of these price hikes, typically, when you would -- if I were to go back a couple of years back, each price hike would have a primary upstocking that will happen. So today, the trade is also kind of now, I would say, literally tired of price hikes, but it is not leading to any abnormal primary upstocking that happens. It's been consistent with the demand and the pull that we've been able to see. And one of the big things that we've seen across most of our categories is that response to our new products. For fans, we spoke about 30% revenue coming from the new products. all of our products and we do a very close tracking of commercialization of these products across categories. I would say the success rate is 90% plus for us. And that is what is giving us market share gains and helping us gain volume value. On the base and everything, while industry had a lower base, we still had a slightly better growth versus industry last year Q2 also. If anything, from a season upstocking, last year, the Diwali was slightly up. Last year, September had a little bit of upstocking. This year, if anything, it's split between September and October. So there is no abnormal one-off that we see. On your second question on the BLDC growth, -- we've been seeing consistent growth for the last 8 quarters in BLDC. This quarter, we had 26% growth on BLDC. Almost 30% of our ceiling fan now comes on the BLDC portfolio. And it has happened over a period of understanding closely what a consumer wants from a tech perspective, from a design perspective, solving for those, converting those insights into new products and ensuring that the core of the BLDC, which is the TCB, the quality is much, much better than what a consumer experiences across the industry and peers. So we are very confident on our portfolio, our quality and the tech as well as the design language that the consumers are getting. So BLDC will continue to grow. While we are 30% of the ceiling fan, industry, by and large, if we take some of the larger BLDC out would be in the range of about 17%, 18% of the ceiling fan. So we continue to drive this in a big way. Just that answer, Aniruddha.

Yes, sir. This is very helpful. And congrats once again to the team for solid performance.

[Operator Instructions] Our next question comes from the line of Balasubramanian with Arihant Capital.

Sir, NPD contributed 30 percentage of the fans revenue. I think you rightly mentioned you have 90% plus success rate and the focus is on tech and design. Just want to understand what is the R&D spend as a percentage of ACT revenue, especially in the fans? How do you measure like in the ROE side on innovation-led launches versus the cannibalization risk to existing SKUs?

Thank you, Bala, for the question. And so as we said, there are multiple things that we're doing on the R&D side. And it all starts from first changing the core DNA of the organization to be a very consumer-centric, understanding the insights, understanding the consumer needs and solving for that. And for that, we are strengthening some of our projects and programs like Project Samvad, which gives us deeper insights into the consumers. We not only go to the consumers, we also go to the influencers and specifiers like architects and interior designers, pick what is the trend happening and then we convert that into our product. The way we measure our success of products is what is the reach that particular segment or a particular price that if we launch a product, what is the reach that supposed to happen and what are the repeats that we get, and then we [Technical Difficulty] from a third party [Technical Difficulty] coming into our overall market share and those are the products that we [Technical Difficulty] define success there. In terms of R&D, [Technical Difficulty].

Sir, my next question, I think we have launched Shield [Technical Difficulty] addressed or further launches expected maybe this year or next year?

So thanks for picking this up. We've just launched [Technical Difficulty,], which is a 6K. That was a segment which was not being addressed by us. And largely from a B2C side, that's a good segment that's growing faster than the industry. So we've covered that gap. We're doing a phased launches of geography-wise. And as we move forward, we will continue to add to it. From a NCV perspective, that's largely covering the segments. So we've got 10,000, 6,000, and we have a technology advantage where we had a technology tie-up with ETI of Slovenia, and we have a Eurotech range, which is the upper end range. So from a range perspective, we've covered it. From a geographical go-to-market, it's a phased rollout, which is happening. Delhi has happened, UP West has happened and now you see UP and rest of the places getting covered in the next few months. But we're getting a very good response to it.

Our next question comes from the line of Madhur Rathi with Counter Cyclical Investments.

Sir, firstly, I wanted to understand regarding our operating margins versus some of our competitors like [ Crompton Greaves ] and [ Surya Roshni ] who do high single digit to low double digits. So where does Orient sit because we've constantly mentioned that we would like to take it to double digits. So when can we expect to achieve that?

So obviously, if you look at it, yes, that's the aspiration, and that's what we've always give a guidance saying that double digit is something that we are working towards. If you look at from an improvement perspective, we've improved in the last 2 years. I would say, if you were to look at only from last year, it's about 104 basis point improvement. If I take a year before, that's about 130 basis points improvement. And typically, for us and for a large part of the industry, quarter 2 is a little low from a seasonality perspective. You look at our results in quarterly trending, you'll see H2 being much better, Q3, Q4 being much better in terms of EBITDA percentages. Our effort is to had the inflation or this unprecedented inflation not been there, I would have had a very different confident time line to give you on the double-digit margin. But I see at some point in the next 4 to 6 quarters, at least in H2 onwards, you will see us trending far closer to that. In terms of our percentage improvement in terms of our absolute EBITDA, absolute PAT growth percentage, we would be far better than most of our peers in that sense.

Sure. But sir, what I'm trying to understand, so this is always a 4 to 6 quarters down the line story. What I understand is that we are not able to achieve this. And sir, similarly, our working capital days have increased from closer to like 16, 17 days in FY '24 to 34 days during this quarter. So is it that whatever revenue growth is coming, we are giving higher credit terms or terms of trade are getting deteriorated for us versus some of our competitors who operate in a negative working capital scenario. So I'm not able to understand this. Our revenue growth is coming at.

No, Madhur, I think that's a wrong inference to take. Look at what we've done in the last 3 years, we've moved from an MD to a DTM structure, okay? MD, the days of outstanding AR would be very different from when you go to direct to market. Now that when you're comparing with peers, there are larger things that you need to look at. Look at inventory days, we are in line with the industry number of inventory days. Look at payables. There are large players who are giving payables at 100 days plus, we are far better there. So from our philosophy perspective, we pay our partners and suppliers well in time. From an overall perspective of days of inventory, we're absolutely in line. There is one part which is where we've gone and got into newer segments and gone DTM. That's where our days of sales outstanding or AR has moved up, which is where we put some of the programs of channel financing and all, which is work in progress. You should see improvement there. We've moved our working capital 30, 34 days. In the next 4 to 6 quarters, it should come back to about 20 days, given the point that we are doing in terms of our channel financing and all things.

Got it. Sir, just one final question from my end. Sir, the cost improvement from Project Sanchay, how much further cost improvement can we expect during H2 of this year?

So last year, we did a full year of about -- close to about INR 70 crores. So a large part of my accruals start to come in, in the H2, and you will see currently, we are at about INR 23 crores. We should cross the last year number in terms of our -- because my spend base goes much on the H2 and my accruals start flowing in much better than the H2.

Sir also...

[Operator Instructions] Our next question comes from the line of Naushad Chaudhary with Aditya Birla Sun Life Insurance.

Two questions. Firstly, on the growth side. I hope I'm audible.

Yes, you are.

On the growth side, if I remember it correctly, we have taken roughly 10% to 15% price hike across category. And earlier our aspiration was to have 15% kind of CAGR in 3 to 5 years band. But with this price hike and the growth which we have experienced in last 2 quarters, should the expectation for FY '27 move in similar line of what we have done in last 2 quarters. And then thereafter, there should be a 15% kind of expectation?

Naushad, so I think if we were to split our growth and obviously, the numbers don't give you that split of volume value. For the last 2 quarters, we've been and we look at each category, I think we've had a double-digit growth at an overall volume level also. So it's not just the price growth which is doing. And yes, you're right, we had given a guidance of a 15% plus CAGR. Currently, we are at about -- for the H1 at about 24.3%. As we move forward, we really can't predict the inflation and all, but our entire effort is to make sure that the volume-led growth starts to creep in more as a percentage of our revenue growth. So currently, looking at everything, my guidance would be that we would be more than 15% of CAGR. How much more? We don't give a future this thing. But yes, definitely, we can look at a slightly more aggressive number than what we had given earlier.

And on the gross margin, last quarter, we indicated with the price hike, which is getting absorbed, we should quickly come back to 30% or 31%, 32% kind of gross margin in immediate quarters. So should there be an expectation in coming quarters, assuming last quarter would be a half absorption. So next quarter onwards, should we expect that range?

Naushad, when we gave a guidance last quarter, we thought we were flattening out of the inflation. And we have taken price increases with planned price increases for Q2 also. Unfortunately, as we speak, there is no predictability on the inflation. The controllable factors with us are how fast and how well we can be competitive and yet pass on the prices to whatever extent possible. And that's what we've been passing on, except for our emerging categories in all the other categories, we've been ahead of the curve, ahead of our peers in passing on the pricing and being very disciplined in ensuring that those prices are absolutely newly passed on. Our gross margins have come down, and that's largely led by inflation. Our efforts in terms of execution discipline, passing on, even if it means slightly ahead of the industry averages, that will continue to happen. We are hoping that the inflation will slow down, if not stop, and that rate of inflation-led pricing that we passed will catch up on the gross margin. My guidance in the longer run stays at about 32%, and that's what we are working. What we can mitigate through pricing, we are maximizing that is what I can assure everybody on the call.

Our next question comes from the line of Tanay Shah with DAM Capital Advisors.