IGI Logo

RAC industry revival only by Q4FY24; EVA creation remains muted

Unseasonal rains in North India in Apr’23 have impacted the revenue growth rates. However, we note Amber has gained market shares and reported revenue decline of just 6.8% vs industry revenue decline of 20-25% YoY. The strategy to focus on components business is working well. It has been able to partially arrest volume decline and expand margins. Considering elevated channel inventory, the RAC industry is expected to revive only in Q4FY24. While change in revenue mix, operating leverage and PLI benefits are likely to expand margins in FY24, we note the return ratios are still lower than cost of capital. Hence, the EVA creation is still muted. We believe the stock price upside is capped at current valuations and maintain HOLD with DCF based TP of INR 2,297 (implied P/E of 28x FY25E EPS).

*Q1FY24 result

Amber’s Q1FY24 revenue declined 6.8% YoY due to weak RAC demand. However, EBITDA and PAT improved by 32.9% and 8.8% respectively YoY. Gross and EBITDA margin expanded by 311bps and 232bps respectively, YoY due to better product mix.

*Positive on mobility and electronics

The favourable tailwinds present in mobility and electronics are likely to boost respective segment performance. The company aims generate strong revenues in these segments via improved offerings and wallet share gain.  

* Model margin expansion in FY24

We believe benefits of structural shift towards components business from core RAC manufacturing will likely lead to further margin expansion. We model the company’s EBITDA margin to improve by 70bps to 6.7% in FY24. Additionally, newer orders with higher margins, stabilising input prices, operating leverage and PLI benefits are likely to aid margins

* Maintain HOLD

We model Amber to report revenue and PAT CAGRs of 19.4% and 35.2%, respectively, over FY23-FY25E and RoE of 9.5% in FY25E. The management expects to outpace the RAC industry growth rate in FY24. However, we believe at current valuations (28x FY25E EPS), the upside is capped. We maintain HOLD with a DCF-based TP of INR 2,297 (implied P/E of 28x FY25E EPS).

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer