Buy Amber Enterprises Ltd For Target Rs.3,641 - Yes Securities
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Well poised for next phase of growth in both RAC and components; maintain BUY
Our view
RAC industry is seeing strong traction post easing of lockdown conditions with industry expected to reach pre‐Covid levels of 6.5mn‐6.8mn units in FY22. Amber is expected to grow 400‐500bps faster than the industry as it has been consistently adding new customers and increasing wallet share from existing customers. Amber has been able to pass on increased commodity prices which has been heartening. Capacity expansion in RAC and building component ecosystem with PLI scheme will enable company to gain market share and outperform industry growth. Considering strong growth potential and enhanced capabilities, we continue to remain positive on the stock and maintain BUY.
Result Highlights
* Quarter summary – Amber’s consolidated revenue growth of 44% was soft (in line with estimates). Gross margins contracted by just 37bps as company has been able to fully pass on increased commodity prices to its customers.
* RAC Volumes – RAC volumes stood at 0.21mn units, growth of 22% has been aided by import restrictions on gas charged AC’s. Amber expects to reach a volume of 3mn units in RAC in FY22 which is at pre‐covid levels.
* Subsidiaries – Performance of subsidiaries continues to witness improvement. Now with PLI scheme, company expects subsidiaries to see significant traction as they have been able to develop component ecosystem. Revenues of PICL, ILJIN and EVER are expected to double in next 2 years.
* Exports – Amber has formed wholly owned subsidiary in US. Currently RAC products are in the reliability stage and exports are expected to start materializing in next 15‐18 months.
Valuation
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. We estimate Amber’s Revenue/EBITDA/PAT to grow at 34%/42%/63% CAGR over FY21‐24E. We continue with our positive stance on stock and maintain BUY with PT of Rs3,641 based on 35x FY24E.
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