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Enhanced capabilities to result in margin uptick; upgrade to BUY

Our interaction with management of the company suggest Amber is through its R&D initiatives and acquisition has acquired significant capabilities in AC’s and its components, Railways, PCBA and PCB manufacturing and non-AC components and consumer durables. Through its enhanced capabilities, Amber is expected to outperform the industry and improve its margins as i) RAC dependency will reduce on shifting the revenue mix towards the components; ii) Increasing scope of work in Railways and Metros through JV with Titagarh (Amber can supply 18% of BOM vs 4% earlier) iii) Acquisition of Accent circuits will result in Amber’s entry into Defence & Aerospace, Automotive, Medical and Electronics sector; iv) MOU with Korea circuits will to enable to manufacturing of flex, HDI and semiconductor substrates PCB. Moreover, margins are expected to improve as company moves up the value chain in the EMS space and major capex cycle is over, which will boost utilization levels and improve return ratios. Given its leadership position in outsourced RAC market, and enhanced capabilities in the AC and Non-AC components, we continue to remain upbeat about the stock. We upgrade the stock to BUY with TP of Rs6,080 valuing the company at 40x FY27 EPS.

* Amber to maintain its market share of ~25% in RAC industry: RAC industry is expected to grow at healthy 12% CAGR and expected to reach Rs500bn by FY29. Amber is expected to maintain its ~25% market share in RAC either by supplying RAC or the components to the brands. Amber can now supply ~70% of BOM to the brands vs earlier its capability of ~55-60%. We expect its consumer durables division to grow at 16.5% CAGR from FY24-27E with stable margins.

* New products to start contributing meaningfully from FY26: Amber’s new entry into washing machine will start contributing meaningfully from FY26, where management has guided volumes of 1.3-1.35 lakh units translating in revenue of ~Rs5bn with EBITDA margin of 7-8%.

* Sidwal to witness to accelerated growth in FY27 despite flattish FY25: Sidwal’s capability and qualification for orders has seen significant rise post its JV with Titagarh. Sidwal can now supply 18% of the BOM to railways vs earlier 4% as JV has enhanced its capability and qualification. Sidwal has strong order book of Rs20bn of which Rs8.5bn is from the new products. Management is maintaining its guidance of Rs10bn revenue for Sidwal in FY27 with ~20% margins as new factory will be commissioned by end of FY26.

* Acquisition of Accent circuit and MOU with Korea circuits to boost capabilities: Amber’s acquisition of accent circuits and MOU with Korea circuit will enable Amber to manufacture single-sided, double-sided, multi-layered, and RF PCBs. It will also be able to manufacture flex, HDI, and semiconductor substrates PCBs, fortifying PCB manufacturing. Amber will be able to manufacture PCB’s upto 10 layers which will result in value addition and would result in higher margins. Amber would able to add sectors such as Aerospace & Defence, Medical, Energy solutions, Automotive, Telecom, Data centres, Consumer Electronics, IT, and Lighting.

* Lower capex intensity and higher margin profile from incremental value addition to boost return ratios: Amber’s return ratio has been below par, saddled with lower asset turns and higher capex intensity. Now with assets turn set to get better with increased utilization, export opportunities, coupled with lower capex intensity and higher margin on back of increased value addition will improve return ratios. We expect RoCE to improve from 11% in FY24 to 19% in FY27 and continue its upward march.

Our Take:

We believe Amber will be able to maintain its market share at ~25% in the RAC. Amber has acquired significant capabilities in electronics components and is fast moving towards value addition resulting in margin improvement and sustained revenue growth as new sectors opens for the company. Exports is on track, expected to materialize from current fiscal in form of a small order which would showcase its capabilities to global customers and thereby help make quick breakthroughs. With increased efficiency, asset turn will improve and idle time will be utilized towards exports thereby improving return ratios. Considering the leadership position in outsourced RAC market and potential to outperform RAC industry in medium term, coupled with growing presence in critical functional components and export opportunities, we stay positive on the stock and upgrade the stock to BUY rating at a TP of Rs6,080.

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