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Strong recovery amid demand revival…

In Q3FY21, Amber Enterprises reported a strong topline recovery at 97% compared to its pre-Covid sales in Q3FY20. The recovery was led by its component and mobility application (CMA) business, which reported almost 100% recovery in Q3FY21 YoY (up 35% QoQ). Further, the revenue contribution of CMA division in topline also increased to 46% in Q3FY21 from 45% in Q3FY20 (50% for 9MFY21 vs. 40% in 9MFY20). The rising contribution bodes well for overall business as CMA business commands EBITDA margin in the range of 6-22%. On the RAC front, the company witnessed a solid volume recovery QoQ (3x jump) as major clients of the company saw strong pent up demand of RACs from the urban, semi urban regions in Q3FY21. The company believes normalised channel inventory and volume offtake for upcoming season are key growth drivers for Amber in the near future. The company has further earmarked a capex plan of | 300 crore for FY22E-23E to add capacities in Pune and Sri City. We see a long term play in Amber given a significant business opportunity arising through import restrictions on RAC and its components (business opportunity of ~| 10,000 crore) and India’s AC export opportunities (market share may cross | 27,000 crore in the next 10 years from mere | 450 crore in FY19).

Faster recovery in component, mobility business

On the CMA business front, the component business recorded a strong recovery due to addition of new clients and strong demand of non AC component business (i.e. component for washing machines and refrigerators). However, business recovery in Sidwal was slightly delayed (sales recovery was 64% vs. ~97% recovery in overall consolidated sales) owing to slow execution of orders from railways and metros. However, the company sees a strong recovery in Sidwal (with order book of | 400 crore) going forward, with railways & metros starting operations post ease in lockdown restrictions. The company has also witnessed increased inquiry for export of its components (motors & heat exchangers).

Focus on maintaining EBITDA margin, going forward

Gross margin during the period was up ~150 bps YoY due to use of low cost of inventories. However, the company has taken price hikes to offset rising input prices. This, along with improving product mix (rising contribution of CMA business) and various cost optimisation measures are likely to keep EBITDA margins elevated.

Valuation & Outlook

We revised our earnings estimate upward for FY23E to 8% and model revenue, PAT CAGR of 19%, 26%, respectively, in FY20-23E. We believe EBITDA margin would remain elevated with various cost optimisation measures. We reiterate our BUY rating with a revised target price of | 3025 valuing the company at 31x FY23 earnings (earlier TP of | 2830).

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