ICICI Direct's research report on Amber Enterprises India
Amber Enterprises, one of the largest contract manufacturers of room air conditioners (RAC) is one of the biggest beneficiaries of the government’s production linked incentive (PLI) schemes and import ban of finished room AC (RAC) in India. Amber is the key supplier to all top 10 AC brands and commands ~24% volume market share of ACs sold in India in FY20. We believe, after a washout H1FY21, the company may witness a strong recovery in H2FY21 supported by normalised inventory at dealer level coupled with robust pent up demand of RACs amid changing consumer lifestyle (work from home) post pandemic. In addition, the import restrictions on RAC and its components present business opportunity of ~Rs 10,000 crore for Amber. Also, India’s AC export market share may cross Rs 27,000 crore in the next 10 years (from mere Rs 450 crore in FY19), hence also benefitting it. Therefore, we see significant business opportunities for Amber in the years to come. Considering a long term structural growth story for RAC contract manufacturing in India, we believe revenues and PAT may witness a CAGR of 19% and ~23% in FY20-23E, respectively.
We believe China+1 strategy by key clients coupled with market leadership position in the domestic RAC OEM/ODM industry creates a significant growth opportunity for Amber, going forward. Despite capital intensive business, the D/E remained low at 0.3x supported by efficient working capital management (~12% sales) and RoE & RoCE of ~15% each. We roll over our valuation on FY23E and reiterate our BUY rating on the stock with a revised target price of Rs 2830/share (valuing 31xFY23E earnings).
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