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Buy Amber Enterprises Ltd For Target Rs.3,443

Strong growth levers ahead; upgrade to BUY

Valuation and view – Strong growth momentum in first fortnight of April was impacted by lockdown across various regions on the back of Covid second wave. This has resulted in lower than expected volumes in RAC. Post easing of lockdown, demand is returning to normalcy faster than expected. Channel inventory is expected to be liquidated by September. Amber has firmed up plans to apply in PLI scheme with investments of Rs4bn and on the exports front by commencing initial shipments to Middle East for two large brands.         

We believe AMBER’s focus on increasing RAC capacities, R&D initiatives, backward integration and diversification into non‐AC components through its subsidiaries with enable it to grab most of the opportunities coming its way due to favourable government policies. This along with exports and manufacturing under PLI scheme will further boost revenue visibility and improve utilization in lean season boosting operational efficiencies. Given the above opportunities and dominant position, we estimate Amber’s Revenue/EBITDA/PAT to grow at 32%/40%/60% CAGR over FY21‐24E. We upgrade the stock to BUY from ADD with PT of Rs3,443 based on 35x FY24E earnings as we roll forward our estimates to FY24.

Result Highlights

* Quarter summary – Amber’s consolidated revenue growth of 173% was soft (7% lower than estimates) as Covid related lockdown impacted RAC volume. Gross margins expanded by 64bps on superior product mix and pass‐on of increased commodity prices to customers.   

* RAC Volumes – RAC volumes stood at 0.48mn units, growth of 139% aided by favorable base and import restrictions on gas charged AC’s. Amber has managed to keep its RAC share intact at 24%.  

* PLI Update – Amber has firmed up its plans for PLI scheme and is targeting to get into components like Sheet metal, Injection Molding, PCB board, Cross flow fans and Motors with an investment requirement of Rs4bn. Its existing green field facility is qualified to manufacture under PLI scheme.  

* Exports – Company has got approvals and is has started with initial supply of 2,000 units to two large brands in Middle East. As far as exports to United states is concerned, it will take 15‐18 months to get all the necessary approvals post which supplies will start. 

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