Buy Amber Enterprises India; target of Rs 3025: ICICI Direct

ICICI Direct's research report on Amber Enterprises India

In Q3FY21, Amber Enterprises reported a strong topline recovery at 97% compared to its pre-Covid sales in Q3FY20. The recovery was led by its component and mobility application (CMA) business, which reported almost 100% recovery in Q3FY21 YoY (up 35% QoQ). Further, the revenue contribution of CMA division in topline also increased to 46% in Q3FY21 from 45% in Q3FY20 (50% for 9MFY21 vs. 40% in 9MFY20). The rising contribution bodes well for overall business as CMA business commands EBITDA margin in the range of 6-22%. On the RAC front, the company witnessed a solid volume recovery QoQ (3x jump) as major clients of the company saw strong pent up demand of RACs from the urban, semi urban regions in Q3FY21. The company believes normalised channel inventory and volume offtake for upcoming season are key growth drivers for Amber in the near future. The company has further earmarked a capex plan of rS 300 crore for FY22E-23E to add capacities in Pune and Sri City. We see a long term play in Amber given a significant business opportunity arising through import restrictions on RAC and its components (business opportunity of ~rS 10,000 crore) and India’s AC export opportunities (market share may cross rS 27,000 crore in the next 10 years from mere rS 450 crore in FY19).

Outlook

We reiterate our BUY rating with a revised target price of rS 3025 valuing the company at 31x FY23 earnings (earlier TP of rS 2830).