Published on 11/02/2019 11:21:26 AM | Source: Emkay Global Financial Services Ltd

Buy Amber Enterprises Ltd For Target Rs.1126 - Emkay

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Hoping for warmer summers in FY20

* AMBER reported in-line revenues in Q3, driven by growth in Air conditioners and non-AC components segments, while AC components recorded a yoy decline as customers have migrated to sourcing of finished products.

* The Air conditioner segment’s growth was supported by a 15% increase in volumes and a 3% rise in realizations. The Non-AC components segment is now gaining traction with new customer additions.

* Management remains confident on achieving Air conditioner volumes of 2.1mn for FY19 on the back of a strong order book, new customer additions, and new product launches. The increase in import duty has also benefited the company, as brands are looking for increased dependency on local manufacturers.

* We maintain our estimates, with Revenue/EBITDA/PAT CAGR (FY18-21E) standing at 19%/17%/41%. Our AC volume estimates stand at a 13% CAGR over the same period. We maintain Buy, with a target price of Rs1,126 (11x FY21E EV/EBITDA).


External factors affect margins adversely

Standalone revenue grew 14.9% yoy to Rs3.8bn, driven by the Air conditioners and non-AC components segments with each recording 18% growth yoy. AC components revenues declined 23% yoy, as customers are increasingly opting for fully-built units away from the traditional component-level sourcing. EBITDA was down 8.2% yoy to Rs221mn, while EBITDA margins stood at 5.7% (-143bps yoy). Employee and Other expenditures increased 0.2% yoy and 18.9% yoy to Rs98mn and Rs228mn, respectively. PAT stood at Rs38mn vs. Rs1mn in 3QFY18. 



A strong order book, new customer additions, and the launch of new models should drive growth for Air conditioners. Management remains confident on achieving its 2.1mn units volume guidance for FY19, despite weak off-take (-7% yoy) recorded in 9MFY19. The brands have largely liquidated channel inventory over the last two quarters, while weather conditions in the coming months would be a deciding factor for the volume off-take in Q4FY19 and Q1FY20. We estimate a 13% volume CAGR for Air conditioners over FY18-21E. Margins are likely to rebound from 4Q to normalized levels as input cost inflation is being passed on to customers. Better performance with margin expansion of ILJIN and EVER should also support medium-term profitability growth. We estimate FY18-21E revenue/EBITDA/PAT CAGR of 19%/17%/41%. We believe that AMBER is a beneficiary of the localization drive that various brands are undertaking currently, which in turn has resulted in new customer additions. We maintain our below consensus EBITDA estimates as well as our Buy rating. The recent stock price correction of 23% over the last one month provides an attractive entry point, in our view, with valuations now standing at 8x EV/EBITDA and 16x PE on FY20E. 


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