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Structural growth drivers intact despite 4Q miss; maintain ADD given limited upside

Result Synopsis

AMBER’s Q4 performance was lower than expected as RAC volumes were impacted due to supply chain issues emerging on account of lockdowns in China and lesser ordering from brands as they wanted to clear existing inventory before implementation of new BEE ratings. Average realization trended lower as there was change in business mix towards IDU and declining share of window ACs. Components business continues to register strong revenue growth and now contributes 50% to  overall revenue. AMBER is expecting RAC industry to clock 30% growth in FY23 and expects to outperform the industry and gain market share of 100bps. Gross margins are expected to normalize from Q1 as company passes the material inflation with a quarter’s lag. Considering strong growth potential and enhanced capabilities, we continue to maintain our positive stance, however on back of limited upside we maintain ADD on the stock.

We believe AMBER’s focus on enhancing its capabilities on components augurs well for the future with multiple brands setting up own manufacturing.  Further, entry into newer segments of wearables and hearables will give further boost to the revenues. Exports, increasing in portfolio of commercial air‐conditioners and manufacturing under PLI scheme will further boost revenue visibility and improve utilization in lean season boosting operational efficiencies. We estimate Amber’s Revenue/EBITDA/PAT to grow at 29%/51%/78% CAGR over FY22‐24E. We continue with our positive stance on stock; however, we continue to maintain ADD on stock with PT of Rs3,857 based on 35x FY24E, given limited absolute upside.

Result Highlights

* Quarter summary – Amber’s consolidated revenue growth of 21.2% was below estimates as supply chain disruption in China resulted in lower than expected RAC volumes. Gross margins contracted by 208bps as company passes increased commodity prices with a quarter’s lag.  

* RAC Volumes – RAC volumes stood at 2.6mn units for FY22, registering growth of 22% yoy. Amber is expecting strong growth in RAC industry and is confident of outperforming industry.  

* Subsidiaries – Performance of subsidiaries continues to witness strong improvement. Now with PLI scheme, company expects subsidiaries to see significant traction as they have been able to develop component ecosystem. Revenues of PICL, ILJIN and EVER are expected to grow at 25‐30% CAGR in medium term.

* PLI scheme update – Amber has got approval for PLI scheme and would require investments of Rs4bn of which Rs1bn will be done by ILJIN and Rs3bn will be done by Amber. Amber expects capex for FY23 to be around Rs3.5‐4bn including investment to be made under PLI schemes.

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