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Our interaction with management of the company suggest Amber is gradually transforming into an air-conditioning solutions provider, thereby improving its wallet share from brands that have or are in process of setting up captive manufacturing capabilities. Amber is expected to outperform the industry as i) Completed reliability testing for critical electronic/mechanical components for RAC and is also winning orders ii) Acquired capabilities and approvals for Railways, which is aggressively increasing AC coaches. iii) Expects small exports order in the current fiscal, being on the verge of completion of 3-year testing period; iv) Launching new product categories of wearables, hearables, and telecom products; v) Major capex cycle is over, which will boost utilization levels and improve return ratios. Given its leadership position in outsourced RAC market, as also the potential to outperform RAC industry in medium term, we are upbeat about the stock. We continue with our BUY rating at a TP of Rs2,929 valuing the company at 30x FY25 EPS

* Amber to outperform RAC industry growth in near term: RAC industry would be subdued in near term with FY24 RAC volumes expected to stay flattish to minor positive, considering weak Q1 due to erratic weather. Nevertheless, we expect Amber to deliver mid-single digit growth on back of new customer additions by virtue of conversions from gas charging to RAC, as also supply of AC components to new customers.

* Supply of critical components in both electronics & mechanical segments to drive strong double-digit growth: That Amber subsidiaries supply key electronic components (Inverter PCBA) and mechanical components (BLDC motors of RAC) is a distinct edge as Amber has already completed reliability testing with key customers and have products approved by them. This will help increase share of components from brands which will in turn enable components business to clock strong double digit CAGR in medium term.

* Entry into new product category to boost growth: Amber’s entry into manufacturing of new products like wearables and hearables will help it outperform the industry given strong growth in the domestic market. As per industry report, India is now the world’s largest market with Q1CY23 shipments at 25mn units. Growth momentum is expected to continue in medium term.

* Sidwal’s growth to accelerate in railways push of air-conditioned coaches: Government is increasingly focusing on modernization of Indian railways and has earmarked capex of Rs2.6tn in budget for FY24, where it plans to increase airconditioned trains and coaches. Government has ambitious plan of increasing Vande Bharat trains to 75nos by August 2024, from present 23nos. Amber has got approvals for air-conditioner apart from it Amber has entered doors, gangway and pantry system which will enable them additional business from railways. Sidwal’s current order book stands at Rs7.1bn.

* Better asset turns and reduced capex intensity to boost Return ratios: Amber’s return ratio has been below par, saddled with lower asset turns and higher capex intensity. Now with assets turn set to get better with export opportunities, coupled with lower capex intensity, will improve return ratios. We expect RoCE to improve from 11% in FY23 to 16% in FY25 and continue its upward march.

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