Neutral Orient Electric; target of Rs 500: Motilal Oswal

Motilal Oswal recommended Neutral rating on Orient Electric with a target price of Rs 500 in its research report dated October 25, 2021.

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// else // $ (‘#toptitleTXT’).html(tickTxt+typevar+’already exists in your watchlist’); // //} } //$ (‘.accdiv’).html(”); //$ (‘.accdiv’).html(appndStr); } }, //complete:function(d){ // if(typparam1==1) // { // watchlist_popup(‘open’); // } //} }); }); } else { var disNam =’stock’; if($ (‘#impact_option’).html()==’STOCKS’) disNam =’stock’; if($ (‘#impact_option’).html()==’MUTUAL FUNDS’) disNam =’mutual fund’; if($ (‘#impact_option’).html()==’COMMODITIES’) disNam =’commodity’; alert(‘Please select at least one ‘+disNam); } } else { AFTERLOGINCALLBACK = ‘overlayPopup(‘+e+’, ‘+t+’, ‘+n+’)’; commonPopRHS(); /*work_div = 1; typparam = t; typparam1 = n; check_login_pop(1)*/ } } function pcSavePort(param,call_pg,dispId) { var adtxt=”; if(readCookie(‘nnmc’)){ if(call_pg == “2”) { pass_sec = 2; } else { pass_sec = 1; } var url = ‘//www.moneycontrol.com/mccode/common/saveWatchlist.php’; $ .ajax({url:url, type:”POST”, //data:{q_f:3,wSec:1,dispid:$ (‘input[name=sc_dispid_port]’).val()}, data:{q_f:3,wSec:pass_sec,dispid:dispId}, dataType:”json”, success:function(d) { //var accStr= ”; 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Motilal Oswal’s research report on Orient Electric

Revenue grew 37% YoY and came in 19% above our estimate. While the surge in commodity prices led to a 480bp YoY deterioration in gross margin, strong volume growth, led by operating leverage, cushioned the impact at the EBITDA margin level v/s our expectation. EBITDA grew 7% YoY and was 31% ahead of our expectation. Adjusted PAT grew by 7% and came in 46% ahead of our expectation. – Working capital stood elevated owing to higher inventory in anticipation of global supply chain shortages and possibility of a third COVID wave. The management expects working capital to normalize over the next two quarters. Despite escalation in inventory levels, the company continues to remain net cash, a feat achieved in 4QFY21. – OEL’s cost structure (with higher employee costs and ad spends as a percentage of sales) makes it a strong operating leverage story, if strong topline growth materializes. 2QFY22 result performance reconfirms this hypothesis. On account of a superior performance in 2QFY22, we increase our FY22-24E EPS by 5-6%. Our TP stands at INR500/share (on an unchanged target multiple of 45x FY24E EPS, a 10% discount to HAVL). OEL trades at a discount of 40%/15% v/s HAVL/CROMPTON on a FY24E PE basis. On an EV/EBITDA basis, the discount stands at 48%/36%. We maintain our Buy rating. OEL is our top pick in the Consumer Electrical space.

Outlook

We value OEL at 45x FY24E EPS, with a TP of INR500. At the CMP, the stock trades at a FY23E/FY24E P/E of 36x/30x. Our longer term thesis indicates a reduction in the margin differential between OEL and leading FMEG peers (refer to our initiation report). On a FY24E P/E multiple basis, OEL is trading at a discount of 40%/15% v/s HAVL/CROMPTON. On an EV/EBITDA basis, the discount stands at 48%/36%. We maintain our Buy rating.

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