Orient Electric share price likely to see over 16% upside, says Nirmal Bang; here's why

The brokerage house Nirmal Bang Equities Private Ltd stated in its report that they recently spoke with Orient Electric's CFO, Saibal Sengupta, about the company's medium-term plan. The brokerage maintained a "buy" call on the stock after the meeting, revised the target price to ₹255, and projected a 16.7% increase from the current market price (CMP) of ₹227.

The brokerage claimed that channel checks showed a 5-8% price reduction in Fans and that the company may have had to impose price reductions as a result of the market leader starting the practice. The Lighting segment is experiencing ongoing channel de-stocking as a result of ongoing value erosion. In FY24, it is anticipated that the B2C lighting sector would contract by at least 5–10%. Two to three quarters from now, the management anticipates stabilisation.

Also Read: Why Coal India shares are skyrocketing — explained

"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!

"We maintain BUY with a revised target price of ₹265, valuing it at 33x Sept’25E EPS. The stock has undergone significant price correction recently and therefore entry at the current price level offers a favourable risk-reward ratio. While DTM strategy is a step in the right direction, any significant delay in the commissioning of the Hyderabad plant remains a risk to the overall business strategy and it therefore remains a key monitorable," the brokerage said.

Also Read: Piramal Enterprise to provide for ₹3,164-crore AIF exposure; Emkay cuts target price as it sees material impact on P&a

Following the meeting, the brokerage identified the three most important points to look out for going forward. 

Hyderabad plant commissioning remains a crucial milestone

By first quarter of FY25, the plant is anticipated to be operational, and two quarters after that, stabilisation will be expected. Although this plant will aid in sharpening attention in the Western and Southern markets, any lag in this procedure will continue to be a critical observation point.

Also Read: Stock split 2023: Tiger Logistics sets board meeting date for stock sub-division

Strategic decision to first enter the weaker Southern markets – a positive

By focusing on the Southern states, the company is able to maintain a strong presence in a region where summers are longer, which extends the window of opportunity for sales of its cooling products.

With roughly 45% of total revenue, the Northern market is where Orient is strongest geographically. The revenue share of Southern markets has risen from approximately 15% a few years ago to approximately 22–25% at present.

Frequent top management churn – a negative

Two C-suite departures occurred in CY23 for the company, and the current MD has been filling in in the interim until a professional is assigned as the new MD (most likely in FY24 or 1QFY25).

“While these developments have a negative bearing on Orient, we draw comfort in the fact that the earlier designed strategies have been carried on despite the leadership changes,” Nirmal Bang said. 

Here's what the brokerage likes about Orient Electric

“The company’s focus to remain asset light (Hyderabad greenfield capex done after ~3.5 decades) (2) Conscious effort to target weaker states through DTM strategy (DTM states registered a combined revenue growth of 100%+ YoY in 2QFY24) (3) Focus on cost optimisation without quality compromise (R&D done completely in-house) (4) Consistently increasing its premium Fans portfolio (~30% revenue contribution in 2QFY24),” the brokerage said. 

Also Read: Market outlook 2024: Brace for volatility; banking, auto, infra may shine

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.