Orient Electric: Prominent Fan Market Player

Orient Electric Ltd (OEL) belongs to the CK Birla group. The companies under CK Birla group form industry groups of “Technology & Automotive”, “Home & Building” and “Healthcare & Education”.

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OEL is engaged in manufacturing & selling of Fan, lights & luminaries, switchgear units & home appliances products (coolers, toasters, etc). The company originated in March 2018 post demerger of Consumer Electric Division of Orient Paper & Industries Ltd into Orient Electric Ltd. OEL is currently managed by Mr. Chandra Kant Birla. He is the chairman of the Group.

In order to know the detailed family & group structure, Read – CK Birla Group Structure

A. History & Major Company Events

1939:

Orient Electric Ltd, formerly a division of Orient Paper and Industries Ltd, incorporated as Orient Paper Mills Ltd. in 1939. Thus, it started operations at a one-paper-machine facility in Brajrajnagar, Odisha.

1954:

Orient Fans, the erstwhile Calcutta Electrical Manufacturing Company, became part of the CK Birla Group.

1990:

Orient Electric developed & patented the revolutionary PSPO (Peak Speed Performance Output) technology in the early-nineties. Company modified manufacturing plants in Faridabad & Kolkata in order to improve production & meet the ever-changing needs of the customers.

2008:

Orient Electric forayed into a new range of electrical products. Thus, started manufacturing of CFLs (compact fluorescent) & FTLs (fluorescent tube). Therefore, OEL setup advanced manufacturing unit at Faridabad in the state of Haryana dedicated to manufacturing of CFLs & FTLs.

2011:

In addition to current products, Orient Electric ventured into the home appliances market with a wide range of products including air coolers, water heaters, juicer mixer grinders, mixer grinders, toasters, electric kettles, rice cookers and electric irons.

2014:

The Company changed its identity from ‘Orient Electricals’ to ‘Orient Electric’. The Company also launched a new unified communications campaign ‘Switch to Smart’ & unveiled a vibrant new logo in orange. The company also launched BLDC fans (Brushless DC motors) during the year. Further the company entered into LED lighting.

2015:

The company ventured into Switchgear business. Orient Electric’s range of energy-efficient LV switchgear products includes MCBs (Miniature Circuit Breaker), RCCBs (Residual Current Circuit Breaker), isolators & distribution boards. The company manufactures switchgear products at its Noida facility.

2016:

Orient Electric became the first Indian lighting brand in 2016 to be awarded the three stars rating by BEE for its LED lamps. Moreover, the company opened its first exclusive smart shop to make shopping more experiential. In addition, Orient Electric launched the Aeroquiet Fan.

2017:

Consumer Electric business demerged from Orient Paper & Industries Ltd. to merge with Orient Electric Ltd with effect from March 1, 2017.

In addition, Orient Electric Expanded the Aero Series range of Fans.

2018:

Orient Electric Ltd listed its equity shares on May 14, 2018 on BSE & NSE.

2018:

OEL entered into a strategic partnership with Italy based De’Longhi Group for exclusive rights to market & sell its appliance brands in India. As a result, this deal made the entry of 3 International premium small appliances brands – De’Longhi, Kenwood & Braun into India.
In addition, the company launched a new range of lifestyle portable fans.

2019:

In order to expand in South India, the company is planning to set-up new manufacturing facility for various products of the company in South. Thus, planning to scout an appropriate location & firm up a project plan.
In addition, Orient Electric launched a new ceiling fan in the premium range.

B. Shareholding Pattern

As on 30th September 2019, promoters & promoter group shareholding is 38.52%. institutional & non-institutional shareholding is 25.64% & 35.84% respectively.

orient electric shareholding pattern as on 30 September 2019

Shareholders Holding more than 1%

major public shareholders in orient electric
major promoter shareholders in orient electric

C. About Executive Management

(i) Mr. Chandra Kant Birla – Chairman

Mr. Chandra Kant Birla also known as CK Birla is the Chairman & Non-Executive Director of the Company. Also, he is the chairman of CK Birla Group. CK Birla is the son of Ganga Prasad Birla & a member of the Birla family. He is married to Ms. Amita Birla. Ms. Amita is chairman of Birlasoft, co-chairman of National Engineering Industries (NEI) & head of Birla Corporate Services. Mr. Chandra Kant received remuneration of INR 0.40 crore for FY19 which includes INR 0.05 crore Fee for attending Board & Committee Meetings & INR 0.35 crore as commission.

Age of Mr. CK Birla is 63 years. His daughter Ms Avani Birla is Senior Vice President in CK Birla Group.

(ii) Mr. Rakesh Khanna – Managing Director & CEO

Mr. Rakesh Khanna was appointed as of Orient Electric from March 03, 2015. Previously, he worked with Jumbo Electronic as Head-Sony & IT Products, UAE. He holds a B.E. (Mechanical Engineering) degree from Thapar Institute of Engineering and Technology. Also, he holds Master Degree in Management Studies from University of Mumbai. He has more than 30 years of work experience in India & abroad in the consumer durables, consumer electronics, electrical and lighting sectors. His remuneration for FY19 is INR 3.08 crore and in FY18 is INR 2.59 crore.

D. Principal Business Activities

Electrical consumer durables and lighting & switchgear are the two main businesses of the company. Electrical consumer durables contribution to the revenue of the company is 74.94% in FY18 and 71.32% in FY19. Lighting & switchgear contribution is 25.06% in FY18 and 28.68% in FY19.

(i) Electrical consumer durables

Electrical consumer durables include ceiling fans (portable & airflow) along with components & accessories thereof. Secondly, the segment includes appliances – coolers, geysers & home appliances etc. Fan is the main product of this segment, which contributes around 62% of the total revenue of the company, whereas electrical consumer durables division contributes approx 71% of the company’s revenues. OEL also has brands like De’Longhi, Kenwood & Braun in its offerings. In fact, each one of these brands has its own niche like De’Longhi for coffee machines, Kenwood for home cooking & Braun for blenders & irons.

(ii) Lighting & Switchgear

Lighting & Switchgear includes lights & luminaries – LED, street lights, switches, MCB etc. Company is the 2nd largest manufacturer of LED lamps in Non-OEM segment with two manufacturing units in Noida. Switchgear category is dominated by local manufacturers. Company has taken contract from the government for replacing the conventional streetlights with LED variants. Company said that streetlights are a high margin product. In lighting business, Government revenue contributes 1/3rd of the revenue.

E. Revenue Classification

(i) Geographical Classification

OEL is primarily doing business in India but also exporting in more than 35 countries. The company is the largest exporter of fans from India. Moreover, the company secures more than 60% share in exports of fan. Moreover, the company has a strong presence in Middle East & Africa. Revenue from India in FY18 is INR 1,489.35 crore and in FY19 is & INR 1,763.01 crore. Revenue from outside India in FY18 is INR 136.23 crore & in FY19 is INR 101.39 crore.

geographic classification of revenue of orient electric

(ii) Traded & Manufactured Goods

Finished goods revenue is INR 1,056.81 crore for FY18 & INR 1,140.27 crore for FY19. Traded goods revenue is INR 573.91 crore for FY18 & INR 754.99 crore for FY19. Finished goods revenue increased by 7.9% & traded goods revenue increased by 31.55%.

manufactured and traded goods bifurcation of orient electric

(iii) Segment Wise Revenue

Electrical Consumer Durable contribution to the total revenue of the company is INR 1218.14 crore in FY18 & INR 1329.61 crore in FY19. On the other hand, Lighting & Switchgear revenue in FY18 is INR 407.44 crore & in FY19 is 534.79 crore. Revenue growth rate for Electricals consumer durable and lighting & switchgear is 9.2% and 31.2% respectively.

segment wise revenue of orient electric

F. Segment Wise Performance

segment wise performance of orient electric

G. Significant Ratios

H. Cost Structure

Raw material cost constitutes 68% of the total expenditure of company. Raw material for the manufacturing of fans, lighting & switchgear are silicon sheets, copper rods and wires, steel and aluminum.

I. Manufacturing Capacity

Orient Electric Ltd has 5 manufacturing plants in West Bengal, Assam, Haryana & 2 in Uttar Pradesh.

J. Distribution Network

  • The company has presence in 40 locations internationally
  • Dealer Count is more than 5000
  • OEL is connected with more than 1,00,000 retailers & 1,25,000 retail touch points across India.
  • Spread in India is across 450 cities
  • Moreover, the company has 450+ service centres & 1000+ service technicians

K. Competitive Advantage/Moat

  • Strong Market Share – Orient Electric holds leading position in fan segment. OEL ranks 2nd in the Indian Fan market. The Company enjoys more than 50% market share in the premium segment. Also, holds more than 30% market share in decorative & premium segment combined. Revenue from fans contributes ~62% of the total revenue. OEL gained market share in Air-coolers & is among the top 5 players in India.
  • New Partnership – In 2018, Orient Electric entered into partnership with Italian small appliances maker De’Longhi Group. Thus, OEL has brands De’Longhi, Kenwood & Braun in its offerings. OEL distributes these premium products through its own brands stores, large format retailers, specialist store channel & e-commerce. Moreover, the company believes that each of the three brands has the potential to become a Rs 100 crore brand in next 3-5 years.
  • New manufacturing facility in South India – Then, the company approved plan for setting up a new manufacturing facility for various products of the company in South India. Therefore, this expansion plan open wide opportunity for company as Southern areas are known for a hot & humid climate in summer. Thus, requirement is higher for such areas. The facility is expected to set up by FY21 with estimated cost of INR 125 crore.

L. Competitors

M. Industry Overview

  • Domestic electric fan market in India increased at 13% CAGR between FY08-17 to reach Rs 70 billion (US$ 1.1 billion).
  • The organized fan market in India is estimated to be around Rs 6,500 crore.
  • The fan segment is projected to grow in high-single digits due to high penetration in India. The LED light segment is growing at ~25% led by replacement of non-LED to LED. The appliances segment is also clocking high growth rate due to rising disposable incomes and increasing electrification.

Growth drivers for industry

  • Rural electrification
  • Increasing focus by the government through programs like UJALA, NEEP, SEEP and increasing consumer awareness on energy efficient products will increase the speed of transition to more energy efficient products like LED lights and BLDC fans.
  • Also, rising middle-class with higher disposable incomes
  • Moreover, Government’s Housing for all program.

N. Risks/Concerns for Orient Electric

  1. Competition: Competition level in India is increasing. There are many players in consumer durables in segregated segments. The entry barrier is low for this industry.
  2. Raw Material Costs: Orient Electric consumes raw material like silicon sheets, copper rods & wires, steel & aluminum for manufacturing activities. The prices of these materials are very volatile. Enhanced raw material costs could enhance the overall product cost structure which can pressurize profit margins. For maintaining profit margins company have to increase the prices which can reduced the demand of product in the market.
  3. Weather: Sudden changes in weather conditions like a delayed summer or winter, shorter seasons than usual, unseasonable summer rains and winter mildness impact the offtake of fans, air coolers & water heaters.
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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications. 

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Author: PA Wealth Advisors

Financial Advisors, Investment Advisory Services, Portfolio Management, Mutual Funds Official Website : www.pawealthadvisors.com

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