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Electronics segment to grow at a fast pace

We recently interacted with Amber Enterprises (AMBER) management to understand the scope of growth in the consumer durables, railways, and electronics segments. Management highlighted a positive view on the long-term growth of the RAC segment, particularly components expected to be driven by improved AC demand in the coming years and continuous addition of new segments and clients in consumer durables. For the electronics division, the company is adding new customers in segments such as automotive, defense, medical, and telecom and is targeting to grow its electronics division at a fast pace. The company is also continuously expanding the scope of addressable market in railways, though ordering remains slow in this segment. We maintain our positive stance on AMBER on account of its ability to grow other segments beyond RAC. We slightly revise our estimates on slower growth in railways and higher growth in electronics segment and expect revenue/ EBITDA/PAT CAGR of 21%/27%/52% over FY24-FY27. We reiterate BUY with a DCF-based TP of INR5,500, implying 42x P/E on two-year forward EPS (Dec’26).

Key investment thesis on the company

RAC industry is growing fast, thus aiding growth in consumer durables

The RAC market stood at 10m units in FY24 and is currently growing at a fast pace of 40%. The company has maintained its market share of 25-26% in the RAC market and expects a similar trend in future. Due to insourcing from various OEMs, realization and margins in this segment were impacted. However, AMBER, with its ability to cater to IDU/ODU as well as component requirements, is expecting to benefit from volume growth. With increased share of components in overall consumer durable sales, AMBER also expects some margin improvement in future.

Electronics segment will continue to remain on a high growth trajectory

The electronics market in India is expected to reach USD300b by FY30 from the current level of USD115b. PCBs form nearly 3-4% of the BoM of electronics and the PCB market in India currently stands at USD4b. With very small scale of PCB manufacturing taking place in India at INR30b, the scope of TAM expansion for PCB manufacturing in India is very high, at USD5bUSD6b, over the next few years. AMBER has expanded its presence in PCB assembly and PCB manufacturing across a wide range of industries in the electronics segment through ILJIN, Ever, and the acquisition of Ascent circuits. It currently holds 20% of total market share in PCB manufacturing. For PCB assembly, the company already caters to a wide range of segments, such as aerospace & defense, railways, industrial, telecom, automobile, healthcare, hearable & wearable, and consumer durables, and will move up the value chain to manufacture Flex, HDI, and Semiconductor substrate PCBs through its MoU with Korea Circuit. The company expects to grow this segment to INR18-20b in FY25 and at a 35% CAGR over the next few years. With a wide range of user industries, the scope of margin expansion in the electronics segment is also quite high.

Railways segment’s performance may remain weak in FY25

AMBER has already increased its addressable market from 3-4% of BoM per coach to 18-20% of BoM per coach through its JV with Titagarh. The company’s greenfield plant and brownfield plant will start offering prototypes by 1QFY26, with full production slated to commence from 4QFY26. Thus, a sharp ramp-up is expected in the mobility division from FY27 onwards.

Scope for further indigenization in the RAC industry

There is scope for further indigenization in the RAC industry as the import dependence is still higher for specific components. For instance, the import dependence is higher for key components of high-value intermediaries such as compressors, copper tubes, and aluminum stock. AC OEMs are already making investments in these areas. However, AMBER already caters to nearly 70% of the BoM of RAC and currently does not have plans to foray into compressor manufacturing.

Financial outlook

We expect AMBER’s revenue to clock a 21% CAGR over FY24-FY27, driven by 17%/ 36%/26% CAGR in the consumer durables/electronics/mobility segments. We revise our estimates to factor in slower growth in railways and higher growth in the electronics segment in FY26. We expect its gross margin to range around 18.3% and EBITDA margin to be 7.4%/7.8%/8.4% for FY25/FY26/FY27E. We expect 52% PAT CAGR over the same period, driven by improved revenue as well as margins. We model a capex of INR4b in FY25 and INR3.5b each for the next two years as Amber is continuously investing across components, electronics, and railways to widen its scope of offerings. With improvement in margins and stable working capital, we project an OCF of INR2.2b/INR6.4b/INR7.9b for FY25/FY26/FY27. However, FCF may remain weak at INR(1.8b)/INR2.9b/INR4.4b due to a higher capex over the next 2-3 years. We, thus, expect its RoE/RoCE to start moving up over the next 2-3 years.

Valuation and recommendation

The stock is currently trading at 72.2x/51.7x/35.1x P/E on FY25/26/27E earnings. We roll forward our valuations and reiterate a BUY rating on AMBER with a DCF-based TP of INR5,500, implying 42x P/E on a two-year forward EPS (Dec’26).

Key risk and concerns

Key risks and concerns include lower-than-expected demand growth in the RAC industry; change in BEE norms making products costlier; and increased competition across the RAC, mobility, and electronics segments.

Consumer durables and RAC divisions to remain dominant segments in the near to medium term

AMBER has maintained its market share of 24-25% in the RAC market and expects a similar trend for future. Management claims that the company can cater to IDU and ODU as well as components for the RAC segment. However, the company enjoys better margins in RAC components than in finished products.

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SEBI Registration number is INH0000004