Buy Amber Enterprises India; target of Rs 2600: ICICI Direct

ICICI Direct's research report on Amber Enterprises India

In consonance with our view of contract manufacturers being the biggest beneficiaries under the government’s flagship “Atmanirbhar Scheme”, the recent ban on import of finished room AC (RAC) is likely to create multifold business opportunities for Amber Enterprises. Currently, India imports ~ 1.6 mn units (~Rs 3500 crore) of finished RAC that is ~22% of total volume sold in India in FY20. We believe Amber being a market leader in the original equipment manufacturer, original design manufacturer (OEM, ODM) industry with volume market share of ~70%, is likely to get significant business opportunities from Q4FY21 onwards (considering the immediate restriction on imports). Further, to maintain liquidity (amid pandemic) and fund its capex requirements (for its two upcoming plants in west, south India), the company has also raised Rs 400 crore through QIP. Considering significant business opportunities for both its business segment i.e. RAC and component and mobile application, we revise our revenue, earning estimates upward by 13% and 19%, respectively, for FY22E.

Outlook

We believe China+1 strategy by key clients coupled with market leadership position in domestic RAC OEM/ODM industry creates a significant growth opportunity for Amber, going forward. We introduce FY23E estimates and model revenue, earning CAGR of 24%, 23%, respectively, in FY19-23 supported by ~80 bps increase EBITDA margin. We reiterate BUY on the stock with a revised target price of ~Rs 2600 (valuing 37x FY22E earnings).

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