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RoI accretive acquisition of Pravartaka

Acquisition of Pravartaka brings injection moulding capability for small components and relationship with new customers. Pravartaka did Rs620mn in sales in FY21, and was acquired at EV/EBITDA of ~6.9x on FY21 EBITDA. It has two manufacturing facilities in North India. Promoter of Pravartaka will run the business as MD. At current capacity levels, the revenue of the company can be more than doubled to Rs130-140mn (net asset turnover of ~6x). We believe the acquisition will be earnings as well as RoI accretive for Amber. We maintain HOLD rating on the stock with a DCF-based TP of Rs3,434 (implied P/E of 37x FY24E EPS).

About Pravartaka:

Pravartaka is engaged in injection moulding components and injection mould tool manufacturing business. Tools segment contributes 18-20% of the total sales, while injection moulding components contribute ~80% of revenues. Company has two plants located at Greater Noida and Manesar, respectively. Marquee customers include LG and Daikin. The company has also been producing components for routers and set-top boxes.

Acquisition details:

Amber acquired 60% of Pravartaka Tooling Services Private Limited for a consideration of Rs220mn. At this valuation, the equity value of Pravartaka calculates to Rs366.7mn and enterprise value of Rs520mn. There is Rs150mn debt outstanding on the Balance sheet of Pravartaka. The acquisition is done on slump-sale basis. Amber has a put-call option to acquire the further 40% stake after 5 years. Promoter of Pravartaka will join as the MD of the business and report to Amber board. Further, there is a non-competition clause in the agreement.

Financial details of Pravartaka:

The company did Rs620mn in sales in FY21, and was adversely impacted by covid-lockdowns. We note the company could have clocked ~Rs80mn, had there been no covid-related disturbances. EBITDA margin for FY21 was 12%. The company highlights ~11% maintainable EBITDA margins going forward. Pravartaka is PAT positive. The management guided for 50% revenue growth in FY22E, and to double revenues in next 2-3 years.

Synergies:

We note the following synergies for Amber – (1) New customer acquisition in electronics and automobile segments and (2) in-house injection moulding capability for small components; Amber does injection moulding but for large components.

Maintain HOLD:

We model Amber to report revenue and PAT CAGRs of 33.2% and 56.7%, respectively over FY21-FY24E and RoE to be at 14.3% in FY24E. We remain positive on the company’s business model due to strong competitive advantage and growth opportunities. We maintain HOLD rating with a DCF-based target price of Rs3,434 (implied P/E of 37x FY24E EPS).

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