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Focus on long term growth drivers…

Amber Enterprises witnessed a strong sales recovery in H2FY21 led by pent up demand for room air conditioners (RAC) and new customer additions in the component business. Despite a significant loss of sales in Q1, the company reached 75% of its pre-Covid level revenue in FY21. Amber’s strategy for long term growth remains intact. It is focusing on 1) capacity building to get PLI benefits, 2) addition of new customers in FY22-23, 3) looking for technological tie ups to increase presence in central AC business (VRF, VRV), 4) focus on exports of components and 5) explore business opportunities in its mobility business (metro/AC rail coaches). However, we believe the current lockdown related disruptions in peak period would hit its Q1FY22 revenue and earnings. Hence, we revise our revenue, earnings estimate downward by 19%, 33%, respectively, for FY22E.

Strong recovery led by component, mobility business

In Q4FY21, consolidated revenue growth at ~22% YoY to | 1598 crore was led by component & mobile application (CMA), RAC business with segment revenue growth of ~32% and 16% YoY, respectively. Amber has added six new clients post import ban of gas filled AC. Revenue contribution of CMA in Q4FY21 has increased to 40% from 37% in Q4FY20. The company sees strong revenue growth in CMA segments led by customer addition in the component business and strong order pipeline of Sidwal (| 350 crore order book by FY21). Further on the export front, Amber has received necessary approvals to export components to Middle East. The company is also expected to get necessary approvals in the next eight to 10 months to export components in US. The overall export opportunity for Amber would pan out in the next two to three years. We build revenue CAGR of 42% in FY21-23E led by 42%, 39% revenue CAGR in CMA, RAC business, respectively.

Price hikes, cost optimisation measure to safeguard margins

EBITDA margin in Q4FY21 increased ~110 bps YoY to 8.8% led by savings in employee & other costs. Price hikes to the tune of 10-12% in Q4FY21 and increased revenue contribution of CMA helped restrict gross margin fall to 80 bps YoY. The management guided for further price hike (of 2-3%) and continued cost savings measures to protect future EBITDA margin. We build in improvement in EBITDA margin from FY23 onwards (to 8.8% vs. 7.3% in FY21) led by better product mix and high operating leverage.

Valuation & Outlook

We continue to like Amber for its focus on acquiring new business opportunities either through government’s Atmanirbhar scheme or shift in focus on China+1 strategy by key clients amid pandemic. We believe its strong balance sheet (D/E 0.2x) will help the company to sail through near term challenges. We reiterate our BUY recommendation on the stock with a revised target price of | 3130 (earlier | 3025) valuing at 35x FY23 earnings.

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