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Amber Enterprises India Ltd>
  • CMP : 2,172.8 Chg : 57.30 (2.71%)
  • Target : 3,050.0
  • Target Period : 12-18 Month

16 May 2022

Higher input cost drags margins…

About The Stock

Amber is a leading solution provider for air conditioner OEM/ODM industry in India.

·       The company has a product portfolio including RACs, RAC components and other non AC components


·       Derives ~50% of its revenues from RACs and the rest from components and mobility applications

Higher input cost drags margins…


Q4FY22 Results

Component business drove topline, higher input cost dragged margin.

  • Revenue was up 21% YoY to ~₹ 1937 crore led by 38% growth in component & mobility business to ₹ 935 crore. RAC segment revenue grew, albeit at a slow pace of 9% YoY to ₹ 1002 crore
  • The EBITDA margin declined 236 bps YoY to 6.5% due to higher raw material costs and employee costs (up 44% YoY)
  • PAT down 22% YoY to ~₹ 59 crore, tracking lower margin
What should Investors do?

Amber’s share price has appreciated at 24% CAGR over the past four years (from ~₹ 1140 in May 2018 to ~₹ 2710 levels in May 2022).

  • We change our rating on stock from BUY to HOLD
Target Price & Valuation

We revise our target price to ₹ 3050/share and value Amber at 35x P/E FY24E EPS.

Key Triggers for future price performance
  • The AC industry is likely to grow 30% YoY in FY23E supported by a revival in the real estate industry and changing lifestyle. Amber having the largest market share of ~26% (in terms of bills of materials), will be a major beneficiary of increased RAC demand
  • With the component business contributing ~50% to its topline, Amber is a major beneficiary of the PLI scheme provided by GoI
  • New export opportunities (of components) in the US and Middle East
Alternate Stock Idea

We like Polycab in our coverage universe.

  • Polycab is one of the biggest players in the wire & cable industry with organised market share of ~24%. Robust b/s with average RoE, RoCE of 24%, 27%, respectively
  • BUY with a target price of ₹ 2850

Key Financial Summary

(Rs# Crore) FY19 FY20 FY21 FY22 4 Year CAGR(FY18-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net sales 2,752.0 3,962.8 3,030.5 4,206.4 0.1 5,552.9 6,917.2 0.3
EBITDA 212.9 309.3 220.3 275.4 0.1 388.7 518.8 0.4
EBITDA Margin(%) 7.7 7.8 7.3 6.5 - 7.0 7.5 -
Net Profit 94.8 164.1 83.3 111.3 0.1 203.4 290.4 0.6
EPS (|) 30.1 52.2 24.7 33.0 - 60.4 86.2 -
P/E(x) 89.9 51.9 109.6 82.0 - 44.9 31.4 -
RoE (%) 9.6 14.5 5.2 6.4 - 11.2 13.8 -
RoCE (%) 12.3 14.3 7.7 6.8 - 10.5 13.4 -
- - - - - - - - -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results:

  • Revenue grew ~21% YoY to ~| 1938 crore, led by 38% growth in the components & mobility segments to | 935 crore. RAC segment grew albeit a slow pace of ~9% YoY to | 1002 crore driven by volume growth of 27% YoY. However, change in product mix led to a sharp dip in realisation
  • On the component & mobility front, motors, electronics, components revenues increased 13%, 48% and 47% YoY, respectively, to | 80 crore,
    | 262 crore and | 511 crore, respectively. Mobility application business (i.e. Sidwal) reported muted revenue growth of 3% YoY to | 82 crore
  • Gross margin declined 208 bps YoY (450 bps QoQ). Rising costs of commodities and supply chain constraints led to an overall increase in input costs. The company has been able to pass on the majority of price increases to customers with a lag of a quarter. Employee costs also shot up by ~44% YoY due to higher Esop expenses
  • As a result, EBITDA margin saw a dip of 236 bps YoY 6.5%
  • PAT saw a dip of ~23% YoY to | 59 crore, mainly tracking lower margins and higher interest outgo (up ~78% YoY to ~ | 19 crore)

Q4FY22 Earnings Conference Call highlights:

  • RAC industry has grown 39% YoY to | 17920 crore in FY22. On the volume front, the industry reported growth of 23% YoY to 6.4 mn units. The industry is likely to witness volume growth of ~30% YoY (to 8.2 mn units) in FY23E supported by opening up of schools, colleges, institutions and a revival in the real estate industry
  • The company witnessed ~170 bps increase in market share (at OEM level) in FY22 to 26.6%. Amber sees continued market share gain in FY23E supported by customer addition and increased capacity in the southern region
  • Leading brands are cautiously building up RAC inventory due to change in BEE norms expectation from July 2022
  • Amber is ready with required changes in products under the new BEE norms
  • The company is providing very comprehensive and integrated solutions in the component and finished good space
  • Apart from HVAC, Amber is also expanding business opportunity into hearables & wearables (through its electronic division) and automotive industry (supplying motors to E-rickshaws) and fans. Revenue contribution of non-AC products to see substantial growth, going forward
  • Component revenue share increased from 25% in FY17 to 50% in FY22
  • Acquisition of Pravartaka will help Amber Enterprises to enhance its capability of injection moulding tools manufacturing and grow its component segment with focus on providing more diversified solution in components for automotive, electronics & consumer durable
  • The motor division has reported revenue growth of 81% YoY to | 236 crore (up 13% YoY to | 80 crore in Q4FY22) led by increased export. The company has started export of motors to overseas clients (exported 1.5 lakh units of motors in the US and Middle East). The export volume is likely to be double in FY23. The motor division revenue is likely to grow at a CAGR of 25%, supported by customer addition and addition of new products for domestic and international clients
  • The electronic segment (mainly Iljin and Ever) reported strong revenue growth of 41% in FY22 to | 650 crore (up 48% YoY to | 262 crore in Q4FY22). The company has added new customers and started supply of new age application of smart hearables and wearables. Amber sees strong revenue growth (of about 50%) in FY23 supported by customer addition
  • The component division revenue increased 71% YoY to | 1057 crore (up 47% YoY to | 511 crore in Q4FY22) due to consolidation of Amber PR and Pravartaka Tooling. Component segment is likely to grow ~25-30% supported by customer addition and expansion into new geography
  • On the mobility business front (Sidwal), the company added a new global customer in FY22. Amber has started supplying cooling solutions for data centre clients. The company has added an entire product line of commercial ductable AC and cassette AC which it has started offering to existing customers. Amber has already signed a few MNC companies to provide cooling solutions for data centre. The order book of Sidwal is at | 600 crore
  • Average ticket size of cooling solutions for data centre (for capacity of 8-14 kwt) ranges between | 4 lakh and | 5 lakh
  • Lower realisations in Q4FY22 is attributable to a change in the product mix. The window AC sales saw a sharp dip in Q4. The average realisation of IDU is | 6000-6500, Window AC-| 17,000 and ODU | 11000 per unit
  • The company faced inflationary pressure due to the Russia-Ukraine war and lockdown in China (led to a challenge in raw material availability). Amber has taken a price hike of ~9% in FY22 vs. 11% cost inflation. The positive impact of price hike will be visible from Q1FY23 as it takes a quarter to pass on the price hike for Amber
  • Under PLI, Amber has incurred required capex for FY22 and will have to clock incremental revenue in FY23E to claim 6% benefit in FY24
  • Post PLI, local sourcing of compressors will increase to 80-85% in next two years vs. 16% currently. Increased local sourcing will lead to improve inventory turnover for players like Amber
  • FY23 capex is likely to be in the range of | 320-350 crore
  Q4FY22 Q4FY21 YoY (%) Q3FY22 QoQ (%)   Comments
Revenue 1936.7 1598.4 21.2 974.3 98.8   Seasonal demand of RAC coupled with strong component sales helped drive overall revenue growth in Q4
Other Income 9.4 8.5 10.8 8.6 9    
Raw Material Exp 1669.9 1344.9 24.2 796.2 109.7   Delay in price hike led to 208 bps YoY decline in gross margin
Employee cost 42.7 29.7 43.7 39.7 7.8   Higher employee expenses is due to one time ESOP expenses of ~| 4 crore in Q4FY22
 Other Expenditure  98.8 82.6 19.6 64.8 52.5    Higher fixed cost is attributable to start of new capacities 
Total Expenditure 1811.4 1457.2 24.3 900.7 101.1    
EBITDA 125.3 141.2 -11.3 73.6 70.2    
EBITDA Margin (%) 6.5 8.8 -236 bps 7.6 -109 bps   Sharp increase in employee expenses along with lower gross margins dragged overall EBITDA margin
Depreciation 30.2 22.7 33.0 27.1 11.6    
Interest 18.6 10.5 77.5 12.3 50.7    
Exceptional items              
PBT 85.9 116.4 -26.3 42.8 100.4    
Total Tax 26.6 40.0 -33.6 9.9 168.3    
PAT 59.3 76.5 -22.5 32.9 80.0   Sharp decline in PAT is largely due to lower EBITDA margin and higher interest costs

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