ORIENTELEC - Orient Electric Limited Share Price

In the earnings call for Q1 FY '26, management provided an outlook indicating cautious optimism for the upcoming quarters. Despite headwinds impacting seasonal sales, particularly due to milder summer temperatures and geopolitical tensions, Orient Electric reported a year-on-year revenue growth of 2%, totaling INR 769 crores. The company emphasized its resilience and agility in navigating these challenges and highlighted a focus on premiumization, innovation, and channel expansion.

Key forward-looking points included:

1. Margin Improvement Goals: Management reiterated their commitment to achieving double-digit EBITDA margins over the next 7-8 quarters, with Q1 EBITDA standing at INR 46 crores and an EBITDA margin of 6%, reflecting a 68 basis point increase year-over-year.

2. Consumer Market & Seasonal Impact: Management expressed confidence that Q1's performance is a seasonal impact and not indicative of long-term industry trends. They expect a positive recovery in revenues as seasonal headwinds ease.

3. Product Development & Marketing: The company will continue investing 4% to 5% of revenue in marketing, particularly in the core categories of lighting and fans. New product offerings, like the premium BLDC fan range, showed significant growth, with over 50% year-on-year increase in sales.

4. Distribution Network Expansion: The expansion of the distribution network saw the addition of approximately 1,800 new retailers under the Direct to Market (DTM) strategy in Q1, enhancing consumer accessibility.

5. B2B Lighting Business: A focus on the B2B lighting business remains, with ongoing projects and inquiries suggesting sustained growth in this segment, despite temporary delays in infrastructure projects.

Overall, management conveyed optimism regarding the upcoming festive season to bolster consumer sentiment and spending, positioning the company for potential growth in Q2 FY '26.

Questions and Answers from Earnings Call Transcript - July 25, 2025

1. Question from Natasha Jain (PhillipCapital): "While your EBITDA margin has risen, both your segment EBIT margins have fallen. Can we attribute this cost entirely to unallocated expenses like consultant costs, and should we consider this as the run-rate going forward?"

   Answer: Yes, while the rise in EBITDA to 6% shows improvement, the segment EBIT margins dipped partly due to muted sales in ECD and higher inventory levels. There were marketing spends that impacted margins. Over the next 7-8 quarters, we aim for double-digit EBITDA margins, especially as we move beyond seasonal dips.

2. Question from Natasha Jain: "On your lighting segment, given the significant Q-o-Q EBITDA margin improvement, can you elaborate on how this was achieved and its sustainability?"

   Answer: Our focus on premiumization and product mix improvement has driven margin growth. We proactively adjusted prices due to regulatory changes, cushioning us against cost impacts. We expect our margins to remain stable within the 29% to 32% range for the upcoming quarters.

3. Question from Nirransh Jain (BNP Paribas): "What is the current channel inventory situation for fans considering the previous quarter's performance?"

   Answer: Channel inventory is indeed corrected. In regions with high rainfall, the inventory for fans has normalized, but overall, there may still be pockets of elevated inventory that need adjustments based on regional demand shifts.

4. Question from Keshav Lahoti (HDFC Securities): "Can you provide the exact volume growth numbers for the B2B and B2C sides of the lighting business?"

   Answer: We don't disclose specific volume numbers as B2B is project-driven. However, B2C has seen double-digit volume growth, benefiting from strong distributor partnerships and product developments.

5. Question from Aditya (Securities Investment Management): "With insourcing production of PCB and BLDC motors, how have product development timelines improved, and can we expect more innovations?"

   Answer: We've reduced NPD timelines by about 10%-15% for BLDC projects. Continuous improvement is a focus, and we aim to further streamline processes while addressing consumer needs. We are committed to increasing our pace of innovation.

6. Question from Dhruv Jain (Ambit Capital): "What are your insights on lighting distribution expansion, and how do you foresee market share gains in this segment?"

   Answer: We are enhancing both numeric and weighted distribution. However, we still have room to grow compared to industry leaders. We maintain optimism for ongoing market share gains despite current pricing pressures.

7. Question from Nirransh Jain: "Did you see any slowdown in the B2B lighting segment this quarter?"

   Answer: Yes, some government project slowdowns occurred, but we anticipate a rebound as geopolitical tensions ease and demand stabilizes.

8. Question from Shivkumar Prajapati (Ambit Investment Advisors): "In your new state rollout, how are you measuring cost to serve and order fill rates compared to the legacy model?"

   Answer: We're monitoring logistics performance closely across markets. We aim for high service levels whether in MD or DTM markets, ensuring fulfillment and minimizing costs.

9. Question from Nikhat Koor (Dolat Capital): "Are you entering any new solar product categories, and what effects do you anticipate from the upcoming BEE energy changes?"

   Answer: We already have solar products in lighting and are evaluating further entries. The BEE ratcheting will introduce some price increases which we plan to manage with minimal disruption.

10. Question from Nirransh Jain: "Regarding advertising expenditures, how do you balance maintaining high spends while aiming for double-digit margins?"

Answer: While spending may increase temporarily to build brand recognition across categories, we expect a gradual reduction in spend percentages as our overall sales rise. Our focus remains on solidifying our brand identity and expanding key categories effectively.