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New capabilities to chart next leg of growth; downgrade to ADD

Result Synopsis

AMBER’s Q2FY24 results have been a mixed bag with revenue coming in below estimates, while margins have been better than estimates. Lower than expected revenue was on account of some slackness in its motors and electronics division which has seen muted growth of 3% each in Q2. Motors division was affected on lower exports. Management is confident of growth bouncing back in both verticals maintaining motors growth at 25% and electronics growth at more than 30% in FY24. Company has acquired new capabilities in its electronic vertical and has guided of doubling its revenue in FY26 on base of FY24. Apart from this company has also entered in 50%-50% JV with Noise where it expects revenue of the JV to clock Rs10bn in FY25. On mobility front Amber continues to witness strong traction and now with the technology transfer agreement company has acquired additional capabilities and has strong order book of Rs11bn. Company also expects its mobility revenue to double in FY26. Amber is witnessing increased traction in new businesses like wearables and hearables and coupled with new opportunities in the telecom communication equipment space should arguer well for the company going forward. Our FY24 estimates have been lower on back of increased interest expenses, while our FY25 estimates increase marginally on increased traction the company is expected to gain from its new capabilities. We continue to maintain our positive stance; we however downgrade the Stock to ADD rating with PT of Rs3,255 valuing it at 33x on FY25 vs earlier 30x. Stock should be accumulated on decline 

We believe AMBER’s focus on enhancing its capabilities on the components side is bearing fruits as it can increase wallet share from its existing customers and enabling addition of new customer. Further, entry into newer segments of wearables, hearables, telecom products and exports will give further boost to the revenues. We now estimate Amber’s Revenue/EBITDA/PAT to grow at 13%/28%/45% CAGR over FY23-25E. We continue with our positive stance on stock; and downgrade stock to ADD rating on the stock with PT of Rs3,255

Result Highlights

* Quarter summary – Amber delivered lower than expected revenue growth as its motors and electronics segment has seen muted growth of 3% each. Standalone revenue grew by 38% on favorable base, while Sidwal saw growth of 23.6%.

* Margins – Gross margins and EBITDA margins have seen improvement of 122bps and 154bps respectively on yoy basis Gross margin at 22.3% as been highest in past many quarters.

* Channel inventory –Channel inventory for RAC has been at normalized levels, with certain brands have higher than normal inventory. Channel inventory is expected to to be at normalized levels across brands by Q3 and Q4 should see strong growth.

* Capex – Company has incurred capex of Rs1.49bn in 1HFY24 and expects capex of Rs3.5-3.8bn for F24. Major capex cycle for company is behind and there will be one green filed capacity expected next year.

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