Care Ratings stated that the ratings assigned to the bank facilities of Orient Electric (OEL) continue to draw strength from its established market position with PAN-India presence and strong brand recall in the domestic fans industry with sustained marketing efforts and continuous product innovation to remain competitive.

Furthermore, the non-fans segment has been growing at a faster pace and hence gradually de-risking the product concentration, although, fans continue to remain a sizeable contributor to the total operating income (TOI) in FY23 (refers to the period April 01 to March 31).

The ratings also factor in the comfortable capital structure and strong debt coverage indicators and liquidity. The ratings continue to draw strength from OEL being a part of the established C.K. Birla group.

The ratings take note of the moderation in operating profitability of OEL in FY23 with contraction in profitability margins in the electrical consumer durables (ECD) segment, though the lighting and switchgear segment exhibited growth.

The sales and profitability of fans were impacted during the year on account of unfavourable weather conditions in the peak seasons and disruptions caused by the implementation of BEE star ratings for fans, which was in line with the industry trend. Going forward, with normalisation of demand and various marketing initiatives undertaken by the company, the performance of the ECD segment is expected to improve.

The ratings remain constrained by the working capital-intensive nature of operations, exposure to volatility in raw material prices, seasonality in sale of OEL's products, and stiff competition in the industry.

OEL is implementing a greenfield project in Hyderabad to further increase its fan manufacturing capacity and improve its presence in the southern India market. The project is envisaged to be entirely funded out of internal generations and the liquidity available on OEL's books. The ratings take cognisance of the implementation risk associated with the planned capex in southern India.

Orient Electric, belonging to the CK Birla Group, is engaged in the manufacturing of fans (capacity of 97 lakh units p.a.), lights & luminaries (capacity of 341 lakh units p.a.) and switchgear units (capacity of 142.8 lakh units p.a.), through its manufacturing units situated across Haryana (Faridabad), West Bengal and Noida. OEL is also engaged in the selling of home appliance products (coolers, water heaters, etc).

The company reported 49.53% decline in net profit to Rs 24.62 crore on a 12.67% fall in sales to Rs 657.91 crore in Q4 FY23 over Q4 FY22.

The scrip shed 0.47% to currently trade at Rs 243.85 on the BSE.