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RAC shifts to in-house; diversification up

Transition in RAC business model impacts revenue               

Amber Enterprises India’s (AMBER IN) consolidated revenue declined 4% YoY to INR 13bn in Q3FY24, 19% below our estimates, as customers moved to in-house manufacturing than outsourcing. Segment-wise, revenue from the consumer durable segment (CD; 72% of overall sales) was flat YoY, and revenue from electronics (19% of sales) fell 11% YoY due to delay in approvals for smart metering orders. Revenue from mobility applications (9% of sales) was up 7%. Shift from outsourcing to in-house manufacturing in room air conditioners may impact RAC revenue, which is part of CD segment, in FY25E.        

Sidwal – Revenue potential 4-5x in next four years due to Titagarh JV

AMBER had announced a 50-50 JV with Titagarh Rail, a prominent player in railways stock and passenger rolling stock. This partnership may enable it to expand its product offerings in Vande Bharat to include seats, interiors, couplers, toilets, gears and pantographs. AMBER estimates a revenue potential of 4-5x from the current levels in the next four years due to increasing product offerings and robust growth in railways demand. Thus, its wallet share may rise to 20% from 5% per coach.   

Expanding PCB offerings via strategic partnerships

In January 2024, AMBER acquired a 60% stake in Ascent Circuits, a PCB manufacturing company. Additionally, it signed an MoU with Korea Circuits, a leading PCB manufacturer in South Korea. These strategic partnerships will help AMBER expand its PCB offerings into mobile PCB, semiconductor substrates, single and multi-layer PCBs. The management expects revenue to likely double in the electronics segment in the next two years with margin rising to 7-8%.                

Valuation: reiterate Accumulate with higher TP of INR 3,830

We lower FY24E/25E EPS 9%/8% on lower RAC sales given the shift in core RAC business away from outsourcing. We raise TP by 22% to INR 3,830 from INR 3,140, on 33x (earlier 28x) December 2025E P/E. We raise our earnings multiple on the back of diversification from RAC to non-RAC segment through electronics manufacturing and railways. We reiterate Accumulate as we expect an earnings CAGR of 38% and an ROE/ROCE of 12%/11% in FY23-26E.

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