Orient Electric Limited (ORIENTELEC) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Orient Electric Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [indiscernible] from Axis Capital. Thank you, and over to you, sir.

Yes. Thank you, Sruthi. Good evening, everyone. On behalf of Axis Capital Limited, I welcome you all to Orient Electric's Q1 FY '27 Earnings Conference Call. abase have with us Mr. Ravindra shingled, Managing Director and Chief Equicity Officer; Mr. Arvin Garth, Chief Financial Officer; and Mr. Samal Jain, Head of Investor Relations. Sir, thank you so much for giving us the opportunity to host the call and many congratulation on resetup numbers. Now I'd like to hand over the call to [indiscernible] for his opening remarks. Thanks, and over to you.

Thank you, Bhavani. Good evening, everyone, and a warm welcome to Orient Electric's Q1 FY '27 Earnings Conference Call. Thank you for joining us today. We hope you've had the opportunity to review our financial results and earnings presentation, which are available on the stock exchanges and on our company website. I will begin by outlining the operating context for the quarter, followed by our performance highlights. Quarter 1 unfolded against a constructive demand backdrop after a subdued summer last year, cooling let demand revived strongly this season. Picking up from mid-April and remaining robust through May with some moderations toward the end of the quarter, aided by heavy liquidity and steady discretionary spending. At the same time, operating environment stayed dynamic. -- persistent commodity inflation, particularly copper and uranium increase in minimum wages inflating labor cost and their availability alongside rising cream cost import delays in broader geopolitical uncertainty, kept the supply chains and input costs under pressure, driving broad-based cost increases across the sector. We manage these dynamics proactively while staying focused on disciplined execution. Despite the challenging environment, Orion Electric delivered a strong performance with a revenue growth of 23.5% year-on-year and continued excellent profitability. This was supported by broad-based momentum across the portfolio and a strong seasonal recovery in our core categories. This performance reflects the disciplined execution of our One Orient approach anchored in our 3-wall strategy, which focuses on multiple growth avenues while extracting synergies from our established ecosystem. -- underpinned by premiumization, innovation, diversification and operational discipline. Importantly, our emerging growth engines continue to scale improving the quality and resilience of growth across lighting, switchgear and wires portfolio. Lighting and Sylvia remained a structural growth engine, delivering 25.4% earner revenue growth driven by distribution expansion, portfolio premiumization and steady market share gains in consumer lighting. The consumer lighting business grew in high double digits with a meaningful improvement in volume to value conversion. Our share of high-value loans expanded to 6 up 500 basis points versus last year, supported by strong traction across premium categories. Professional Lighting continues to gain traction, aided by execution of key relighting and Sasa projects, and we continue to see healthy project employee pipeline. Our emerging growth engines, Shikhar switches and wise continue to scale well. Wire grew more than 200% RNA, although on a small day, while switches and switchgear sustained growth momentum with double-digit growth. as we accelerated our electrician engagement initiatives and continue to leverage our plans and lighting distribution ecosystem for effective cross-sell. In the ECD segment, revenue grew by 22.7% year-on-year to INR 669 crores, led by a strong summer and deeper penetration in both our DPM and MD markets. France delivered high double-digit growth outperforming peers on the back of our distribution strategy and continued focus on premiumization and product development. Our BLDC portfolio grew 36% year-on-year while new product launches contributed 30% of in revenue this quarter. Our overall premium mix increased to 36% of domestic and revenue. Our appliances portfolio sustained its upward trajectory with strong traction in heating and government care categories delivering double-digit growth. premiumization and innovation-led launches remain a core pillar of our growth. During the peak summer season, we anchored our fans campaign on India's first innovation narrative led by ARO O2, India's first oxygen and regen ceiling fans, along with our Aerosilentand Ecotecold launches. This innovation focus earned strong external recognition also -- with Orient Electric winning 3 Red design awards. We continue to expand our direct-to-market footprint, adding approximately 3,600 new retailers under the DPM Network is -- on the service, Samvat platform, along with AI-led capabilities continue to improve the service delivery experience through deeper consumer insights and faster issue resolution. Our e-comm business scale, delivering double-digit growth, supported by a stronger assortment and healthy consumer traction. Our export business also grew by double digit, expanding deeper into international markets. Operational discipline remained central to our approach. In the context of commodity inflation, we implemented calibrated price actions during the quarter across all segments and categories. Our project Sansa program continued to deliver tangible benefits translating into INR 10 crores of cost savings in Q1. Gross margin for the quarter moderated to 29.8%, impacted by commodity price inflation. Despite this pressure, our operating leverage and disciplined cost management helped us deliver an improvement in EBITDA margin to 7%. -- an improvement of 102 basis points year-on-year. PBT after exceptional item was at INR 42.45 crores, up 79.4% in there. while PAT stood at INR 31.5 crores, up 79.7% year-on-year. We closed the quarter with working capital days at 25 days and a net cash position of INR 133 crores reflecting continued balance sheet discipline. Looking ahead, we remain confident in the momentum of our growth story, anchored in the 1 orient approach and our 3-wall strategy. We keep -- we will keep pushing all the levers of our diversification engines, lighting, switchgear and wires to steadily raise the contribution of our non-fan categories while accelerating premiumization and innovation-led launches across BLDC fans, high-value looms and appliances. Building Distribution as a sustained competitive moat remains central through DPM expansion or pass-on e-com and Kudco presence and a stronger service and digital ecosystem. With our consumer-led thinking getting deeply rooted in our ways of working, we are confident that we will continue to improve our brand value proposition, enhance our customer preference -- with the festive build up ahead, improving consumer sentiment and the normalization of channel inventory, we remain confident of delivering mark-to-market better performance. With these remarks, I would like to open the floor now for your questions. Thank you.

[Operator Instructions] The first question is from the line of Ravi.

Congrats on a good set of numbers. First question is with respect to the growth in the ECD business, we would have seen 22%, 23% kind of growth, especially for key categories like France, et cetera, what would have been the price increase portion that would have been there in this growth number? And how much more price increase that we would like -- we would need to take to offset the raw material price inflation -- and if we can -- we will be able to take it -- so we start at...

Thank you, Ravi, for your question. I think we've seen a very healthy growth in our ECD business. And this is not just in fans, but across all different categories in appliances also -- the key question is, is this growth largely led by price increase, commodity increase led or this is volume. As I said, we've had a volume value growth across all categories that we had -- so that's the confidence that we've seen from the market on our new products and on all the launches that we've done. We've taken price increase. In fact, we've been competitive, slightly ahead of the peers in terms of taking price increases, not only in terms of the timing of our price increases, but also in the quantum of price increases. . If you look at it from last year, December and it's the commodity this quarter, but previous quarter was commodity plus be ratcheting. We've taken price increases from December to June 6 times. If you look at sequentially from a quarter-on-quarter sequentially, we've added about close to about 10% plus price increase in fans . And yes, the commodities are fluctuating, LME goes up and down. So we'll keep taking calibrated reactions to it. Even in the appliances side, we've taken a very high single-digit price increase. We're closely watching all the commodities and wherever necessary, mark-to-market competitive, we will take price increases, but and then we've not shied away from taking price increase in 1 of the core categories we've taken 6 times and all of the times we've been kind of reading the price...

Got it. Yes. Yes, sir. Very clear. And second question is with respect to BLDC fans. So that segment has been seeing very strong growth. And I think this quarter, we had seen 35%, 36% growth. How do you see this particular category within the entire fans category panning out in terms of their mix as a percentage of the overall fan industry. And from an Orient perspective, what are we doing different in the BLDC space? And in terms of manufacturing vis-a-vis outsourcing of these fans, how do we think about it for BLDC fans. . And overall, our BLDC Fans are they more profitable than the induction motor-based plans. And over the past few years, this proportion would have definitely increased for us but still the margins for the ECD business has been range -- so when can we start seeing the overall ECD business margins improving?

So Ravi, I think a lot of questions that you've asked. And I think largely on the BLDC category, Yes, there is a growing consumer preference for tech. There are brands who played on tech, and there are brands who played on design. As a strategy, Orients and I can very confidently say we played both on tech and design. So we've looked at -- understood the consumer requirement and solve for their problems. But also, we've hooked that act and design together for consumers. So our GDP growth was 36%, and this is on the back of last year earlier, we were at about 40%, 45% growth that we've had in the BLDC. And this segment continues to grow to our ceiling fan business, now this is almost close to about 27% to 30%. And I see this segment to outpace the induction. Obviously, the -- and these are all premium there ASP of 2,500 plus. We look at a larger share of profitability also coming from it. And the solution that we give to the consumers is from a tech design also but also on the quality of product that we give. Our core of the BDC is our PCBs are in-house designed, all our BLDC portfolios in-house, where we are stringent quality controls and processes that we have. So -- we see a great response to it. We saw -- and we've looked at the solving consumer problems like Noise is 1 of the big issues that the consumer said. Our BDC, which is a great-looking aerosilent, which is a minimalistic and a moralistic design that we can say, it's a different design language which has been really appreciated. First, India's first 1 to have less than 50 dB down. So all these things that we're doing from a profitability perspective, yes, we see BLDC more profitable. But it all returns brand to brand who wants to play what by segment and what level of profitability is it. Just that answers the...

The next question is from the line of Anirudh Joshi from ICICI Securities. .

Yes. And really seller set of numbers, so convert entire team. Sir, 2 questions from my side. Is there any inventory or looking at the June quarter or the inventory trade inventory was largely normal and this is the primary sales are largely equaled to the consumer offtake for the quarter? That is question number 1. And question number two, if you can indicate the performance in some of the D2C markets versus the non-DTC market. So how is growth difference and revenue breakup in these 2 different innovation for us. . The last question. BLDC products are growing pretty rapidly, plus we are seeing new formats are also coming like carbon has introduced a breadless billing fans also and at least whatever checks we do based on that, there is some acceptance for that product also. So do you see similar segments becoming bigger or the regular induction based filing may continue rosta least over next 3 to 4 years. Yes, that is the question.

So thank you, Anu. I think there was a little bit of clipping in your voice, but I've got your questions. Your big first question is saying did we build up an inventory and largely did we do push sales? Or did we do a full base sale? I think if you look at it, this was a season and I started the call with saying, look, this season was much better than last year. It built up around mid of April throughout May, it was hot. And in some of the markets where we are strong, we saw a slightly longer spell of heat. So it's been a very balanced secondary, primary based quarter. We've seen volume growth. We've seen all our new NPDs, and we measure our commercialization of and we look at repeat orders from that perspective. So there was no inventory buildup that we did, that was largely secondary primary led. So that's on the first question. Well, as I said, it's been a very secular growth across channels, across categories, across subcategories and that's been the hallmark for this quarter that every part of the business grew decently and that's the same reflection we had both in the DTM and in the markets. So we don't give the breakup and other things that you are aware of it. But just to tell you, both the markets grew healthy double digit, and we've seen volume growth also across different markets. Yes, BLDP remains core to our growth, to our premiumization strategy to our tech and design platform that we've taken. And yes, we keep looking at all the different opportunities that the consumer has. One of the things that we also look at is solving the core need of a consumer, which is not just air delivery, but the actual air throw and the feel that the consumer gets under the fan. So those are things that we do, but we take your feedback, we take your point that you measured and we're keeping our watch and all possible edicencies and subsegments that could come up.

Okay. Sure, sir. That's helpful. Last question from my side. The commodity prices have been extremely volatile. So post war, there was in a way, increase plus INR depreciated post the seas fire, there was some softening of commodities. And again, in past week or 10 days, we have seen some increase in the commodity prices. So while there has been some rounds of price hikes in France, 1 to pass on some commodities and secondly, to, in a way, take care of additional costs post BE -- so is there any incremental price hike required or as of now, most of the costs are fully passed on? So that is question one. And lastly, -- how should we look at the margins for this year, while I understand that it's not possible to give the guidance, but any range that if you would like to indicated mix compared to last year, where should we see the margins -- operating leverage will play out this year due to strong growth. So any indications on the cost and the price hikes and the margins -- that will be very helpful?

So multiple questions rolled into 1 fact let me just first start by saying you said post war. So there is no post-water is still on -- so I think commodity prices have been fluctuating up and down. We're keeping a close watch on it. So I don't think so as an industry, industry was able to pass on whatever was required to be passed on to the consumers in terms of inflation. And it is not very easy to also pass on because it's not just 1 commodity link, but there are other multiple factors. -- freight and forwarding charges went up. The moment you settle down your -- the dollar rupee ratios have held up you look at different commodities, which were not usually handling impacting like paints and all those are going up. the minimum wages have gone up. So it's been a barrage of commodity increase across all elements that has gone up. We've been mitigating with each price or commodity hit that we've got. We've been mitigated in there, and that's what is reflecting in our gross margin. Moving forward, I had already given a guidance of thing, ideally, we would like to be in the 32% to 34% gross margin range. But it all depends, and this is on a BAU condition, but the times that we're dealing in or right now managing the business, they are extremely volatile. So giving -- to give guidance on the gross margin would be difficult because none of us can predict what could be the inflationary trends in the commodity that could go. But from our side, as a strategy, -- we will be competitive, we will pass on the prices as required. And it's not just passing everything to the consumer. We have to create a value proposition for the consumer. -- and hence, the premiumization story kicks in for times like this very well for us. So we'll do everything there. But what is controllable in our hand is maybe not the variable cost inputs, but the fixed costs, and we've been very prudent on that. So those are the actions that we will continue to do to make sure that we deliver, if not on the gross margin, but on the EBITDA margins there. We've seen improvement in the EBITDA margins for the last 3 quarters. We've been upward trajectory of 7% plus. Quarter 4 was obviously 8.2%. And we've been now 100 basis point improvement versus last year in spite of the fact that we've had extreme unforeseen commodity increases. So the focus remains on getting the bottom line as well as being competitive in driving the secular growth across different segments that we are now dealing in.

Okay. Sure. Sir, this is very, very helpful.

The next question is from the line of Dhruv Jaind from Ambit Capital.

And congratulations on very good numbers in the circumstances that we live in. So my first question was on an extension of the point that you were just mentioning right now, which is where you've been trying to drive operating leverage to your fixed cost prudency, right? Just wanted to understand, incrementally, how should we see that kind of building up -- do you think that you have more levers or I'm just thinking incrementally that number should maybe grow at, say, 5% or 6% because last 3 or 4 quarters, we've not seen that number go up, but I'm guessing business will require investment. So just your thoughts there. .

Sadu, thanks. And I think we've been maintaining and saying, look, the investment in terms of resources and in human capital and our people costs that we've done, we have done ahead of the curve investment in the last 2 years. And this is why we were setting up our emerging businesses teams. So switchgear, which is wires we put in people there. We were expanding into DPM businesses. We were getting into those markets. So those are investments that we had done ahead of its curve. None of our fixed cost expense in terms of whether it's CapEx required for new products and whether it's CapEx required for our maintenance and capacity enhancements or automation at our plants. Those are some things that we are spending the way which is required. And you see in our terms of our new product launches, our business and fund comes from new products. We hit about 15% in lighting from new products. And you'll see that in the Viagens, which is also, which are relatively new. -- businesses that we are scaling up. So in terms of doing the right cost inputs, we will continue to do. So what we are also doing is we are doing a way tighter cost prudence, but we are not necessarily cutting what is required for the business to grow. So if the concern is saying, are we going to squeeze the future growth cost inputs? The answer is no, we're not going to do this. We had invested slightly ahead of the curve. We are now seeing and driving productivity and those investments to start giving us operating leverage.

Fair enough. So my second question is on buyers, right? So we've seen that you've got about 2x growth in this quarter. And even in the past quarter, you've done then. Now I just want to understand how many states -- have you sort of targeted? And what's the target there in terms of, say, a revenue number or a market share number over the next 2 or 3 years? .

Yes. So on the wires business, the immense opportunity that's available right now. Given the fact that there is huge infrastructure growth that's happening, -- there is huge affordable housing that's happening. There is huge Tier 2 expansion that's happening. We are largely -- we are only in the house wires category right now. We don't look at that business right now from a market share perspective. We look at it from a run rate perspective. And while we share the numbers on a ongrowth. But for us, it's a daily run rate business that needs to keep going up. We focused and are right to win or right to enter and do well in this category comes stems from the fact that 45% of the large fan dealers do wires also. And we are leveraging our distribution strength there. Currently, we are driving this leverage or a cross-sell, while 2 different teams do that in our strong markets, and that's largely in the north and east that we're doing with slowly and slowly expanding the footprint. As of now, we've not taken while in India. We will first get strong in our stronger markets and then expand, and that's been the strategy around this.

Sure. Just a question, Slide 3, say, from a 3-year perspective, now incrementally, you've been years the last 2 years now, incrementally, how should we look at Orion from a 3-year view, right, in the sense that what is the top line growth ambition that you have and also, I remember you're talking about reaching double-digit margins in 8 quarters, about 2 quarters or so back, right? Where are you in terms of that progress? I understand that is what has been out of the box, but just from a 3-year perspective, how should we look at growth? And if you could spell out what is -- which category would drive or be the key growth drivers for your incremental ?

So Dhruv, I think what we've said was saying, look, the first milestone is to cross the INR 5,000 crores. And for that, we need to do faster than the market growth. And largely, we were talking about .CAGR of About 14% to 15%. Last year has been extremely bad. First, H1 was very muted for the industry, but our mark-to-market performance was much better. where we saw double-digit growth happening in quarter 1, we've had good double-digit growth, high double-digit growth. Our first primary task is to maintain this momentum and keep growing. And from that perspective, there is not a single 1 that I can say, this will grow, and this will not grow for us. It's very important that the core categories deliver the objective of growth and margins and the emerging categories delivered the objective, operating leverage to come in from a high growth pattern. And that's been our strategy. That's what we've been doing. We are, as I said, first half was to get the gross margins in, and that's where we said our complete prudence on getting the cost structure right in terms of right product, right buying, right manufacturing. But some of the things that we've seen in the last 4 months in terms of inflationary prices, this is something that all of us never saw even during the COVID time. It's been extremely volatile, unpredictable and something that you can only react to and not proactively manage. So that's something that has come or the blue and hit the gross margin aspiration that we had. But nevertheless, in spite of that, if you see in the last 3 quarters, we've improved our EBITDA margin, 7%, 8.2% and now 7, which is 102 basis points improvement over last year. On a year-on-year basis, the 3-year journey has been from a 5.3 to [indiscernible]. So you're continuously seeing an improvement happening -- those are the operating leverages that will kick in, and we've discussed one-on-one also and what are the levers and the structures that we're doing to improve it. So that's something that we are very confident that we'll keep improving on. The pace of improvement will have 1 factor of these inflationary trends, which could delay it, but it's not if we will do double-digit, it's then only about when we'll do double-digit given this. So we are committed on our parts to double digit. We are committed on our path of mark-to-market better performance and which we've been doing for the last 8, 10 quarters. And we are committed to our CAGR being healthy, healthy double digit. Trust that answers your question.

It does. No, no. Thank you so much and all the best .

[Operator Instructions] The next question is from the line of Keshav from HDFC Securities. .

Congratulations on strong set of numbers. Firstly, I just want to understand out of the cost inflation as of today, how much has been passed on? And secondly, as I understand, you indicated you have taken a calibrated price hike in this quarter -- so possibly fair to assume possibly Q2 gross margins will be better than Q1?