Published on 28/05/2019 10:22:09 AM | Source: SPA Securities Ltd

Update On Amber Enterprises India Ltd By SPA Securities

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We recently met up with the Chairman & CEO of Amber Enterprises India Ltd (AEIL) - Mr Jasbir Singh to get updated on the company's performance & plans as well as to get an insight in to Room Air Conditioner (RAC) industry.

Following are Key Take Aways (KTAs) from our meeting:

Amber Enterprises India Ltd is a prominent solution provider for Air conditioner Original Equipment Manufacturer (OEM) / Original Design Manufacturer (ODM) Industry in India. AEIL has a dominant presence in manufacturing of Indoor units (IDUs) & Outdoor units (ODUs) of split air conditioners (SACs) and reliable & critical components of RACs with 11 manufacturing facilities in India. Technology and product dynamism in the electronics industry is increasingly influencing branded consumer durable players to restrict their focus to their core competence areas of marketing and distribution. 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. AEIL is strongly positioned in terms of quality, cost & delivery with highly backward integrated production facilities for components like heat exchangers, multi-flow condensers, Printed Circuit Boards (PCBs), motors, sheet metals & injection molding. Its key customers include leading branded RAC players like Voltas, Hitachi, Daikin, LG, Panasonic, and Whirlpool & they command ~ 3/4th share of the Indian RAC market. 8 out of top 10 RAC brands in India are AEIL's customers. During FY'14-'18, consolidated revenue & EPS have compounded at a robust 21% annually to INR 1,923 crore& 19.7 respectively.


RAC industry to grow at an encouraging 12 to 15%yoy in FY'20 compared to 5% previous year

RAC industry in India is set to grow at 12 to 15% in FY'20. In last financial year, Industry had suffered low single digit ~5% growth due to adverse impact of unseasonal rains. However, AEIL's revenue have been estimated to have grown at 10%,i.e. 2x the industry growth. AEIL is expected to continue outperforming RAC industry  led by increasing share of wallet from customers & addition of new customers.In Q1FY'20, Management is guiding for 35% sales volume growth in RACs for AEIL, albeit aided by a lower base as Industry had de-grown 12% during the corresponding quarter last year. During FY'19, AEIL has added Croma & Flipkart as its customers and in Q1FY20 will be starting supplies to Amazon, O General and Toshiba. Recent acquisitions over last 12 to 18 months (IL GIN & Ever Electronics), engaged in to electronic Printed Circuit Boards (PCBs), should enable AEIL to gain share in inverter based RACs where the market is trending.For FY'20, management is guiding for ~ INR 700 crores revenue for IL GIN & EVER put together with further improvement in EBITDA margins. AEIL is also planning a foray in to South India with a capex of INR 40 crs. These acquisitions and expansion plan should further consolidate its position as reliable OEM/ODM partner.


Outlook & Valuation

AEIL is the leader in OEM/ODM segment in India with 55% share of RAC business. Being a leader in one of the least penetrated consumer durables category, RAC, growth potential is very high. At the same time, 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 to RAC industry growth. With branded RAC players focusing on marketing & branding aspect, outsourcing of production of RACs from OEM / ODM players has increased from from 16% (FY'12) to 34% (FY'17) & is further expected to increase to 56% by FY'22. AEIL should be a major beneficiary of this trend. At CMP of INR 805, the stock is trading at 18x FY21E EPS based on Bloomberg consensus.


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