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Last Updated : Aug 06, 2019 02:00 PM IST | Source: Moneycontrol.com

Amber Enterprises climbs 7% after SPA initiates coverage, sees 38% upside

With rising temperature and humidity levels, China and India are projected to account for more than half of the global expansion of RAC capacities.

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Shares of Amber Enterprises India, a prominent solution provider for air conditioner OEM/ODM industry in India, rallied 7 percent intraday on August 6 after SPA Securities initiated coverage on the stock with a buy call.

The brokerage set a price target at Rs 1,040, implying 38 percent potential upside from current levels, citing healthy growth going ahead.

The stock gained 15 percent in the last six months. It was quoting at Rs 797.35, up Rs 41.30, or 5.46 percent on the BSE at 1253 hours IST.

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"Our primary theme behind initiating coverage on AEIL is that with room air conditioners (RACs) market witnessing intense competition, OEM players have been shifting attention to core function of marketing & outsourcing production function to OEM/ODM players," SPA said.

OEM stands for original equipment manufacturing and ODM is original design manufacturing.

The brokerage believes Amber Enterprise (AEIL) being a leader in OEM/ODM segment of RAC market with 55 percent share should be the biggest beneficiary of this trend.

Recent increase in customs duty on in-door units (IDUs) & outdoor units (ODUs) to 20 percent from 10 percent in the last Union Budget to promote 'Make in India' campaign of Government of India should enable AEIL to increase market share, it said.

The changes in business models aimed at enhancing productivity and profitability have been driving branded RAC players to embrace the services of OEM/ODM companies like AEIL for design and manufacturing.

SPA also said over & above this organic growth, acquisitions done in the recent past would be adding 41 percent of revenue (standalone) by FY21 compared to 26 percent in FY19.

"All the 3 acquisitions done over the last 18-24 months are contributing positively to bottomline & after coming under AEIL's fold, management is guiding improvement in profitability. Above acquisitions have been quite a synergistic fit for AEIL and that too without leveraging balancesheet significantly," it added.

With rising temperature and humidity levels, China and India are projected to account for more than half of the global expansion of RAC capacities.

Company's continuous efforts to expand customer base, increasing share of wallet of customers as well as inorganic growth should enable AEIL to be an outperformer in the industry, said SPA which estimates revenues & net profits to compound annually at 25 percent and 32 percent respectively during FY19-21.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Aug 6, 2019 02:00 pm
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