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Last Updated : Nov 11, 2019 11:19 AM IST | Source: Moneycontrol.com

Amber Enterprises reports strong Q2 earnings; should investors buy, sell or hold?

Emkay maintained a buy call on the stock, with a target price at Rs 1,154, implying an 18.5 percent potential upside.

Sunil Shankar Matkar
 
 
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Shares of Amber Enterprises India gained 2.8 percent intraday on November 11 after reporting a strong set of earnings in the September quarter.

The stock has rallied more than 40 percent in the last nine months. It was quoting at Rs 987, up Rs 13.60, or 1.40 percent, on the BSE at 1042 hours IST.

Amber, the prominent solution provider for air conditioner OEM/ODM, continued its strong performance, beating revenue estimate by 10 percent. The Room Air Conditioner (RAC) volumes grew at an impressive 127 percent YoY, as continued demand for RACs even in a lean season and new customers supported the growth.

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The skew in product mix toward Indoor Units (IDUs) led to lower gross margins, which in turn restricted EBITDA growth. The operating performance of subsidiaries was encouraging, with better performance on the margin front.

"We are factoring in a 40 percent increase in FY20 volumes, driven by healthy industry growth and the additional volumes from new customer additions. Sidwal's performance remained healthy with a strong order book and a reduction in working capital days," said Emkay, which maintained a buy call on the stock, with a target price at Rs 1,154, implying 18.5 percent potential upside.

"We are increasing RAC volume growth assumption for FY20 to 40 percent from 35 percent earlier. Hotter summers can be a potential upside risk to our 13 percent volume growth projection for FY21," the brokerage said.

Amber Enterprises reported a consolidated net profit at Rs 11.7 crore in the September quarter against a loss of Rs 2.6 crore in the same period last year. Consolidated revenue grew by 89 percent year-on-year to Rs 623.2 crore in Q2FY20.

At operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) increased 170 percent YoY to Rs 36.7 crore and the margin expanded 180bps YoY to 5.9 percent during the quarter.

"We added new customers, and increased shares from existing customers drove growth in Q2," Amber Enterprises chairman Jasbir Singh told CNBC-TV18.

Singh said production for Amazon and Flipkart had started. "We don’t see any impact of unseasonal rains on business. Market share stands at 58 percent in outsourced market and net working capital days reduced to 47 days against 60 days last year," he added.

ICICI Securities also maintained a buy rating on Amber Enterprises led by improved business outlook with a strong order book, an increase in margin profile and improved seasonality with ramp-up of subsidiaries.

"Higher outsourcing will lead to better-than-industry growth (as evident in FY19/H1FY20), which is the core investment thesis. However, its capex-intensive business model and higher working capital will limit return ratios," said the brokerage. ICICI Securities also has a buy rating on the stock, with a target at Rs 1,143, implying 17.4 percent potential upside.

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 Nov 11, 2019 11:19 am
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