Amber Enterprises hits 20% lower circuit on soaring raw material prices, higher operating costs

Gross margin declined 210 basis points on-year to 13.8 percent as the company was not able to completely pass on the rising raw material prices. EBIT margin contracted 250bps YoY to 4.9 percent as higher operating leverage was negated by lower gross margins as well as increased depreciation, staff cost and other expenses.

The company's management expects strong growth for its Components and Mobility divisions over the medium term with possible negative surprises coming from supply-side constraints.

"Diversification into the non-AC segment, rising focus on components and new customer acquisition to underpin future growth. PLI scheme is a key positive driver while higher raw material costs and hence average selling prices pose a threat to demand recovery," said BoB Capital in a note to its investors. The brokerage firm has a hold rating and kept a target price to Rs 3500 a share.

"Though the company has entered into various other segments and expanded its horizon with recent investments, it continues to derive a bulk of its revenue from a single industry. Given the recent geopolitical issues and rising interest rates, we believe that diversification into multiple product categories is imperative for success – we, therefore, prefer Dixon over Amber. We value Amber at 40x FY24E EPS, a 21 percent premium over its four-year average," the Bob Capital report added.

The company had taken a price hike of 8-9 percent for three quarters. It is likely to pass on another 2-3 percent price hike in 1QFY23. (2) Amber holds a market share of 26.5 percent in RAC and RAC only components. Management expects to add at least 100bps of market share in FY23.

Brokerage firm Nirmal Bank has given cumulative rating on the stock but cut its target price to Rs 3,400 from Rs 3,600 a share. The brokerage firm has cut its EBITDA margin and net profit estimates by 130bps/60bps and 34.8 percent/5.7 percent for FY23/FY24.