Anand Rathi recommends 'Buy' on Orient Electric with price target of Rs 310

Anand Rathi has reaffirmed its 'Buy' recommendation for Orient Electric, setting a target price of Rs 310. This revised target comes in light of the company’s strategic focus on premiumisation and enhanced distribution to drive substantial margin improvements. The brokerage highlights that management is targeting double-digit margins within the next seven to eight quarters, leveraging a shift towards margin-accretive products and efficient asset utilisation.

Orient Electric has demonstrated consistent growth, with margins improving for the fifth consecutive quarter. The company reported a 9.4% year-on-year increase in Q4 revenue, reaching Rs8.2 billion, attributed largely to the lighting and switches segments. The EBITDA margin saw a significant expansion to 7.8%, backed by reduced operational expenses. Furthermore, the profit after tax (PAT) surged by 144.2% year-on-year to Rs313 million, despite increased depreciation and lower other income. The company’s strategic initiatives are expected to support continued financial resilience and profitability.

The company’s focus on premiumisation, alongside a better product mix, has resulted in a gross margin increase of 67 basis points year-on-year, reaching 31.4%. Anand Rathi anticipates a robust revenue and PAT compound annual growth rate (CAGR) of 14.6% and 50.8%, respectively, over FY25-27. The brokerage projects a return on capital employed (RoCE) improvement from 18.4% to 29.6% during the same period. This outlook underscores a positive trajectory for the company’s financial performance.

Anand Rathi’s revised target price reflects a valuation of 35 times the FY27 estimated earnings per share (EPS) of Rs 8.90. Currently, the stock trades at 38.7 times the FY26 estimated EPS of Rs 6.30. The brokerage suggests that Orient Electric’s strategic adjustments will likely yield significant benefits, justifying the higher valuation.

The outlook for Orient Electric is further strengthened by favourable external factors, such as the anticipated severe summer across India, which might boost sales for fans and cooling products. The management remains optimistic about the upcoming quarter's performance, supported by a recovery in fan demand observed over the past week.

Despite the positive outlook, Anand Rathi identifies potential risks that could hinder growth. A weaker-than-expected summer or slower government lighting tenders could pose challenges. However, the overall forecast remains optimistic due to the company’s strong market position and strategic focus.