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Amber’s 1QFY24 numbers missed our topline estimates but was above our PAT estimates due to strong operating performance. Amber’s strategy of focusing on higher-margin components vs. RACs seems to have driven this beat on EBITDAM. Amber is witnessing increased traction in its mobility division, with a large order win expected to further boost the order book, as it looks to double this business in 2-3 years. While unseasonal rains is expected to cap the industry’s volume growth to 7-8% for FY24, Amber’s dominant market share in the RAC segment and components manufacturing industry (29% from 25% in FY21) is likely to allow it to grow ahead of the market’s pace. We expect this segment to post a 14% CAGR over FY23-26E. We maintain HOLD with a Jun-24 TP of Rs2,300, based on 25x its FY25E one-year fwd. EPS.

Muted revenue but robust margin performance

For Q1FY24, Amber’s revenue (consolidated) declined by 7% YoY to Rs17bn, missing street and our estimates by 20-23%. Revenue was mainly dragged due to muted performance in the RAC segment as unseasonal rains led to weak demand. Mobility revenue grew by 11% YoY, with a large order of Rs8bn adding to its strong order book, as the company continued to expand on customer adjacencies. Electronics revenue increased by 28% YoY, as demand for the wearable segment and the overall domestic EMS opportunity remain upbeat. EBITDA (consolidated) increased by 33% YoY to Rs1.3bn, beating street’s estimates by 13%, owing to a favorable product mix by focusing on higher-margin profile components business vs. RAC products. PAT increased by 9% YoY to Rs0.5bn owing to strong operating performance. Q1 capex was only Rs0.4bn, with overall FY24 guidance maintained at Rs3.5-3.75bn.

Strategy and Outlook

Amber has transformed from a pure RAC and components manufacturer to an end-toend component supplier. The RAC and components division now accounts for 73% of the revenue vs. 89% in FY18. Moreover, with the tapering of FY24 capex (Rs3.5bn from Rs7bn in FY23), management expects ROCEs to further improve to 19-21% in the next 3-4 years from 16.5% in FY24E. Given the unseasonal rains in Apr-May 2023, our expectations of the RAC industry growing by 17-18% in FY24 have been toned down to 8-9%. We factor in a 16% CAGR for the RAC and components division over FY23-26E, with a larger contribution from components. Structural trends for other segments (mobility and electronics) remain intact, with a strong order book due to railway and metro capex plans with expected robust growth in the wearables segment. We maintain HOLD with a Jun-24 TP of Rs2,300, implying a P/E of 25x (unchanged), based on oneyear fwd. EPS. Key risks include continued growth in in-house manufacturing by brands, rising WC requirements, increased penetration in the RAC segment and growing order book for subsidiaries due to higher government spending on railways and infrastructure.

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