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Customer addition in new products category to drive growth; maintain BUY

Result Synopsis

AMBER delivered better than expected revenue growth while missing the margin estimates on back of higher raw material expenses which saw an increase of 1.25% and change in product mix. RAC demand was subdued for the quarter as which resulted in low secondary sales and some of the brands left with higher?than?expected inventory. On the components front, its electronics division has registered strong growth on back of new customer additions and product category expansion into telecom products. Motor division is also witnessing improved traction in terms of exports and company has already got approval for its BLDC motors. Management is targeting to maintain its market share at around 26% of the manufactured products and improve upon it. Considering strong growth potential and enhanced capabilities in existing business this coupled with increased traction in new businesses like wearables and hearables coupled with opportunities in exports should drive revenue in medium term. We have increased revenue estimates, while we trim our margin estimates considering company is acquiring new customer at lower margins to get its foot?in?door with the new customer. We however continue to maintain our positive stance; increased capex spends, and lower profitability will impact its return rations in near term; however, management is confident of improving RoCE in next couple of years. We maintain BUY on the stock with revised PT of Rs2,564. We believe AMBER’s focus on enhancing its capabilities on components augurs well for the future with multiple brands setting up own manufacturing.  Further, entry into newer segments of wearables, hearables, telecom products and exports will give further boost to the revenues. We have trimmed our margin estimated considering lower profitability and now estimate Amber’s Revenue/EBITDA/PAT to grow at 26%/32%/45% CAGR over FY22?25E. We continue with our positive stance on stock; and maintain BUY on the stock with revised PT of Rs2,564 as we roll forward our valuation multiple and now value stock at 30x vs 32x earlier on lower return ratios.

Result Highlights

* Quarter summary – Amber delivered better than expected revenue growth with components side of the business delivering far superior growth on back of new customer additions and entry into new geographies and product categories.  

* Margins – Margins have been lower than expected on back of increased in raw material expenses which gets passed on with a quarters lag and the utilization of the new plants have been at lower levels.

* RAC industry –Demand has been sluggish for RAC in Q3 with October and November have seen decline, while demand started to pick up from mid  ?December. Channel inventory with certain brands have been higher than normal. 

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