amber enterprises ltd - markets mojo€¦ · globally the room ac market (rac) size is expected to...
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Amber Enterprises Ltd
12 Mar 2019
Initiating Coverage
2
Conditioned for a ‘Cool, Secular’ growth
Sector: Consumer Durables
Price performance
Target Price:
CMPPotential Upside
MARKET DATA
No. of Shares
Market Cap
Free Float
Avg. daily vol (6mth)
52-w High / Low
Bloomberg
Promoter holding
FII / DII
12 Mar 2019 Company Report
BuyRs. 954
: Rs. 772: 24%
: 3.14 Cr.
: Rs. 2,189 Cr.
: 56%
: 25,113
: 1,200/621
: AMBER IN
: 44.02%
: 10.73%/ 4.88%
Shareholding patternFinancial Summary (Consolidated)
Source: Company, Axis Securities CMP as on Mar 11, 2019
Y/EMarch
Net Sales(Rs Cr)
EBITDA(Rs Cr)
PAT (Rs Cr)
EPS (Rs)
Change (%)
P/E(x)
RoE (%)
RoCE(%)
EV/EBITDA (x)
DPS(Rs)
FY17 1,736 139 22 9.3 (16.3) - 7.0 19.1 - 2.5
FY18 2,172 192 62 19.8 113.0 - 10.0 17.9 - 0.0
FY19E 2,379 210 94 29.9 50.7 25.8 10.0 14.5 10.5 2.5
FY20E 2,820 258 126 40.1 34.2 19.3 12.1 16.7 8.1 2.5
FY21E 3,306 314 164 52.3 30.5 14.8 14.0 19.1 6.2 2.5
Dec-18 Q-o-Q Chg
Promoters 44.02% 0.00
FPIs 10.73% 0.03
MFs / UTI 4.73% 0.33
Banks / FIs 0.15% 0.01
Others 40.37% (0.37)
Hiren Trivedi - CM research| [email protected] | (+91 22 4267 1759)
Suvarna Joshi – SM Research| [email protected] | (+91 22 4267 1740)
0
60
120
180
Mar-18 Jun-18 Sep-18 Dec-18 Mar-19
BSE Sensex Amber Enterp.
Amber Enterprises
3
Investment Rationale
Amber Enterprises Ltd.(AEL) is a leading solution provider for Air conditioner OEM/ODM* Industry in India. The companymanufactures Room Air Conditioners (RACs), Indoor Units (IDUs), Outdoor Units (ODUs), Split and Window Air Conditioners. Amberalso manufactures RAC and non RAC components in its endeavour to be a total solutions provider for the RAC industry in India. Withits 12 manufacturing plants strategically located close to OEMs, the company caters to 8 out of top 10 AC brands in India whichtogether have 75%+ market share in India.
We expect revenues to increase at 15% CAGR over FY18-21E; earnings to grow at 38% CAGR to be driven by
Company Report
Sector: Consumer Durables
Amber Enterprises
12 Mar 2019
Market penetration in the RAC segment is a mere 4% in India as against global levels of 30%
RAC penetration (4% in India) lags vis-à-vis other consumer durables like TV (60%), Washing Machine (10%), Refrigerator (20%)
and Air Coolers (17%)
Higher replacement demand from developed countries and new demand presents huge opportunity
India is the only market in the world which has witnessed consecutive positive growth in demand for RAC’s between 2013-17
Domestic demand for RAC is expected to grow at CAGR of 12.4% between FY17-22E
Underpenetrated RAC market with higher growth trajectory
* OEM / OEM – Original Equipment Mfr / Original Design Mfr
Increasing penetration levels of RAC’s aided by higher
disposable income
Reducing replacement cycle of RAC’s due to energy
efficient products
Demand emanating from climatic changes, higher
demand for cooling products including RAC’s
Higher contribution from AC components & non AC
components from recent acquisitions EVER Electronics
& ILJIN Electronics
We initiate coverage with “BUY” rating with a target price of Rs. 954 i.e. ~24% upside (implies 18 x FY21E)
4
Investment Rationale
Company Report
Sector: Consumer Durables
Amber Enterprises
12 Mar 2019
The increasing trend of warmer summers has necessitated higher cooling requirement in peak summer from March to Mayonwards
Global average surface temperatures has risen by 1.4 ºF (~0.8 ºC) over the last century as per NOAA* The combined effect of climate change and an evolving El Niño could make 2019 the hottest year ever as per IMD Given the strong correlation of RAC demand to increases in temperature, the RAC sales are bound to increase as we approach
summer
Changing Climatic Conditions
Local manufacturing to get a boost from Government steps to promote India as hub for innovation, design and manufacturing Setting up port-based electronic manufacturing clusters to support local manufacturing and exports Increased Customs Duty on imported AC’s from 10% to 20%, Compressors for Refrigerators & ACs from 7.5% to 10% to
encourage domestic production AEL a leading one stop solutions provider for the RAC brands is in a sweet spot, as it will cater to the growing demand from RAC
brands
Make in India ; Recent government initiatives
The OEM market is expected to grow as companies shift towards localized manufacturing (65% for RACs) given India’s superior
design capabilities and competent workforce at lower wage rate than China
In FY2012 OEM outsourcing was ~16% which has increased to 34% in FY2017 and is expected to grow to 44% by FY2022E
Total RAC volumes are expected to grow by 12.4% CAGR between FY17-FY22E, while outsourcing is expected to grow by
25.1% CAGR in the same period
Increasing trend of outsourcing by OEMs augurs well for AEL
*National Oceanic & Atmospheric Administration
5
Investment Rationale…
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
AEL has grown from a single unit at Rajpura to 12 manufacturing units across 7 locations in India
The manufacturing facilities have a high degree of backward integration thus making it a one stop shop for RAC brands
Strategically located in proximity to customer’s facility ensuring prompt response to clients manufacturing requirements
Strategic location of manufacturing facilities
Acquisition of IL JIN and Ever Electronics critical component manufactures – Advantage AEL
Aids its endeavour towards being one stop solutions provider for customers
Enhanced product offering thus increasing content per AC leading to growing wallet share with existing customers
Expanded capabilities to cater to shifting customer preference towards inverter RAC’s
Expanded into AC and Non AC components , adding to diverse client profile and other consumer durable goods
Backward Integration – Right step at opportune time
Amber is the market leader leader in the OEM/ODM industry with 55.4% share in volume terms (outsourced market)
AEL’s share stands at 19.1% in the overall RAC market in terms of volume
Key customers include Godrej, Bluestar, Daikin, Hitachi, LG, Panasonic, Voltas, Whirlpool and Carrier Midea which together
account for 75% of the market share.
Market leader in domestic RAC, OEM/ODM industry
6
RAC Market Size set to Increase
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Globally the Room AC Market (RAC) size is expected togrow 1.3x between FY18- FY22E
India’s RAC market size is expected to grow 1.6x betweenFY18- FY22E
Sustained demand for AC’s is expected from developedcountries due to:
Replacement demand - reducing replacement cycle
Shifting to energy efficient & cost effective products
Increasing demand being witnessed from emergingeconomies as AC penetration increases
India’s low level of penetration of RACs ( ~4%) presents hugescope for growth in demand.
Changes in climatic conditions leading to higher demandfor cooling products
Increasing affordability due to higher disposable income
Regulatory changes leading to development of energyefficient products –catering to new and replacementdemand
Global RAC Market Size & growth trajectory
India’s RAC demand to grow at higher pace
India’s RAC Market opportunity
3.0 3.0 3.1 3.43.9
4.75.5
6.26.9
7.78.6
0.0
2.0
4.0
6.0
8.0
10.0
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
FY2
2
Volu
me
(In
Mn)
85 91 91 86 88 95 102 110 118127
136
0
40
80
120
160
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
FY2
2
Volu
me
(In
Mn)
Source: Company, Axis Securities
7
Make In India – Thrust on Localization
Low Localization Levels (%)
Source: Company, Axis Securities
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
30
70
35
10
35
70
30
65
90
65
0 50 100
Refrigetaor
FPD TV
WashingMachine
Air Coolers
Residential Acs
Localisation levels in Appliances Import
Item Old Revised
Air Conditioner 10 20
Refrigerators 10 20
Washing Machines ( Less than 10 kg ) 10 20
Compressor for Refrigerators & ACs 7.5 10
Speakers 10 15
Customs Duty Increase: Select Consumer Durables (%)
Localisation at 65% for RAC’s is lower as compared to Air Coolers
(90%) & Refrigerators (70%)
Rising cost of imports (Customs Duty raised) to push leading AC
brands to increase their localization content to fulfil growing
demand for completely built units and components in addition to
Make In India thrust
AEL better placed than peers to capitalize on growing localization
needs of customers due to Fully backward integrated facility Higher capabilities in terms of components vis-à-vis peers Diverse product offering
Scope for growth due to increasing localization
On like to like basis there is no comparable peer due tofragmented players and wide range of components provided byAEL
AEL is almost 5x its fragmented players which are spread acrossdifferent locations
Being a one stop shop solutions provider offering wide range ofcomponents to RAC brands with 12 manufacturing units across 7locations gives AEL and edge over its peers.
Varied Components offerings – advantage AEL
8
Changing climatic conditions
CY2019 expected to be hottest year ever as per IMD and WorldMetrological department due to a) El Nino effect and b) risingtemperatures
Increasing trend of warmer summers has necessitated highercooling requirement in the peak summer months starting fromMarch - May
March-May temperature forecasts across 4 major Metros in Indiaindicate
Maximum temperatures over next 3 months could be in the range of26ºC to 41ºC
Minimum temperatures could range between 8ºC to 25 ºC
Q4 and Q1 are seasonally strong quarters for RAC sales. HenceRAC demand is set to increase as we approach summer
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Temperature variation across Metros (High / Low)
RACs a necessity than a luxury owing to climate change
Scope for growth of residential air conditioners
Maximum demand of RACs to come from India & China
33.330.5
33.6 34.0
21.7
15.4
22.324.8
0
10
20
30
40
Mumbai Delhi Kolkata Chennai
0C
elsi
us
Max (High) Temp. Min (Low) Temp.
Emerging countries with growing population and incomes will spurdemand for comfort cooling as global temperatures rise
Demand for AC’s is set to increase in tropical and sub-tropicalcountries, like India, China, Brazil, and Indonesia
Source: Company, Axis Securities, Accuweather, IEA
9
Underpenetrated Markets a huge scope for growth
Currently the penetration of RAC’s in India is merely between 4-5%vis-à-vis 30% globally and ~100% in China. This presents a hugeopportunities for growth
ACs have now become a necessity than being a luxury due to
sustained rise in temperatures along with increasing affordabilityand financing options
Governments thrust on Electricity For All is expected to provide animpetus for increasing demand for consumer durables in rural andsemi-urban areas
India, the only secularly & positively growing market for RACsacross the world. In 2017 India’s demand for RAC’s grew by14.2% vs. 13.2% in China – a significant and strong growthopportunity for Amber, the market leader in OEM/ODMoutsourcing
Source: The Japan Refrigeration and Air-conditioning Industry Association, Company, Axis Securities
RAC Penetration India vs. South Asian Countries
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
RAC Penetration vs. Other Consumer Durables
30%
100%91%
54%
30%
4%
0%
50%
100%
Global China Japan Malaysia Thailand India
4%20%
10%
60%
17%30%
85%70%
89%
25%
0%
20%
40%
60%
80%
100%
Room AC Refrigerator WashingMachine
FPD TV Air Cooler
India Global
India the only positively growing market across the world in RAC
Growth in RAC Demand ( %) 2013 2014 2015 2016 2017
Global 7.4 (0.8) (4.9) 3.0 8.2
India 3.4 6.6 4.7 11.3 14.2
China 9.0 (2.0) (8.0) 3.5 13.2
Japan 6.2 (5.7) (4.7) 3.1 6.9
North America 4.6 4.3 (1.6) (0.9) 1.2
Europe (3.5) (17.8) (4.9) 13.4 8.7
Middle East 26.8 3.8 (3.0) (2.0) (4.0)
Africa 5.8 1.9 (3.0) 5.2 (2.4)
Latin America 8.5 3.5 (11.0) (12.2) 5.3
10
Increased Outsourcing – advantage AEL
Increasing trend of outsourcing by brands to ODM players as
Brands adopt an asset light strategy focusing on branding, marketing
distribution and innovation
Distinct advantages of domestic manufacturing via OEM/ODM
significant cost savings
lower lead time
better working capital management
quicker response to market trends and requirements
Co is well placed to cater to this increased outsourcing demand due to -
Fully backward integrated operations – one stop shop for RAC
brands
Enjoying economies of scale
R&D capabilities with quality manufacturing set up
Faster response time line due to strategic plant locations
Source: Company,, Frost & Sullivan Analysis , Axis Securities
Forecast of Consumer Durables ODM Industry
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
8.6
4.7
3
4.9
1.6
0.5
0 2 4 6 8 10 12 14
FY22E
FY17
FY12
(Volu
me
In M
n)
Total RAC Volume OEM/ODM
RAC & Outsourcing Volumes forecast
CAGR 12.4% CAGR 25.1%
84%
16%
FY12
RAC OEM/ODM
66%
34%
FY17
RAC OEM/ODM
0
100,000
200,000
300,000
400,000
0
5
10
15
20
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0
FY2
1
FY2
2
(Rs
Mn)
(Mn
Uni
ts)
Value (Rs Mn) Volume (Mn Units)
Source: Company, Axis Securities
Asset light Strategy of brands leading to growing ODM share
44%56%
FY22E
RAC OEM/ODM
11
Regional Share of RAC Demand
Cooling degree days is a metric that indicates coolingrequirement due to heat and humidity. India has highercooling requirements as cooling degree days are more
Higher Cooling requirements will ensure RAC demandcontinues to grow.
India’s higher cooling requirement is expected to pushdemand for cooling products including AC’s
AEL with its 12 units is well equipped to cater growingdemand across regions.
AEL is scouting for presence in South India over next 2-3years to capture demand in Southern region
0 1,000 2,000 3,000 4,000 5,000
Los Angeles
Miami
Delhi
Kolkatta
Mumbai
Chennai
Cooling Degree Days
Hot & DryHot & HumidCompositeColdModerate
North India, the Largest Market for RAC’s accounts for 33% demand
South India (a highly growing market)accounts for 30% demand of RAC
Eastern Ind
ia
acco
unts for 1
5%
dem
and
of R
AC
Wes
tern
In
dia
acc
oun
ts for
22
%
dem
and
of RA
C
While AEL is well equipped to cater North , West & East….. Higher cooling requirements , increases scope for demand growth
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Source: Company, Axis Securities
… Company plans to expand its presence in South India over
next 2-3 years
12
India’s demographic dividend a key demand driver
Rising Affluent Middle Class Population Estimated to form ~69% of total population by 2020 People living in urban clusters to be ~64% by 2020 Changing lifestyle causing early adoption of white goods in
young population, a strong demand generator Rising Indian Per Capita Income (IPCI) leading to
Rise in spends on aspirational goods including consumer durables likeRACs
65% of the consumer durables demand comes from first time buyers as perindustry reports
Reducing replacement Cycle of Window ACs Window AC replacement cycle is ~5-8 years , while Split AC (SAC) is 10-12 years
Shift in demand to Energy Efficient ACs Demand shift to SACs due to easy availability and lower replacement cycle Replacement demand coming from existing & new customers for energy
efficient inverter AC’sSource: Company, Axis Securities, IMF
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Increasing middle class population Increasing per capita income leading to higher discretionary spends
AC Demand trajectory to remain robust going ahead…
1,4
82
1,4
86
1,6
10
1,6
39
1,7
49
1,9
76
2,0
16
2,1
88
2,3
80
2,5
85
2,8
03
3,0
40
0
750
1,500
2,250
3,000
3,750
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9E
FY2
0E
FY2
1E
FY2
2E
FY2
3E
(In
USD
)
52
69
40
50
60
70
80
2012 2020
(%)
30%
70%
Replacement Demand
New Demand
Key Drivers of Demand
Increasing urbanization
Growth in per capita income
Shortening replacement cycle aided by innovative energy saving RAC’s
(inverter AC)
Easy availability of electricity and growing aspirations
13
Company Brief
Amber Enterprises Limited was Established in 1990, AEL set up its first factory set up at Rajpura, Punjab
Witnessed structural evolution into a complete RAC solution provider from having commenced as sheet metal manufacturer
Is the largest backward integrated ODM manufacturer of RACs - a key lever for growth and profits
Wide product portfolio including RAC and its components (heat exchangers, multi-flow condensers & motors), plastic components
(case liners, extrusion sheets & vacuum forming)
12 state-of-the-art manufacturing units across India which are in proximity to customer factories, a prime advantage over peers
caters to 8 out of the top-10 AC players in the country and has a market share of +55% in volume terms (OEM/ODM) and 19%
share in the overall RAC market
Followed inorganic route to growth in its quest of profitable growth (20% Earnings CAGR over FY13-18)
Post the acquisitions of ILJIN & Ever Electronics (2018) it has become the leading Company with capability to manufacture RAC
PCBs in India
AEL is highly backward integrated player which caters to 49% of client requirement for outdoor units, 78% for Indoor units and
60% for Window AC’s (WAC’s)
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Outdoor Units Indoor Units Window AC's
49
35
16
Amber Compressors Outsourced
78
22
Amber Compressors Outsourced
6028
12
Amber Compressors Outsourced
Source: Company, Axis Securities
14
Strategic acquisitions & locations – AEL’s business differentiator
Company Report
Sector: Consumer Durables
Amber Enterprises
12 Mar 2019
Source: Axis Securities
Customer Type: Complete Units,
Components
Kala Amb (HP)
Dehradhun (U.K)
Greater Noida (UP)
Rajpura (Punjab)
Jhajjar (Haryana)
Faridabad (Haryana)
Existing facilities
Pune(Maharashtra)
Customer Type: Complete Units,
Components
Company Acquired
Overview Acquisition PriceAcquisition Rationale / Objective
PCIL, 2013
Est. in 1994 and has a capacity of 3mn
motors p.a. Acquiredin 2013. It has a
topline of Rs. 86 cr as of 9MFY19
Rs. 48.97cr 100% subsidiary with base
at Faridabad
Expand customer base & product
offerings
ILJIN , 2017
Acquired in Dec-17, has a capacity of
1.8mn units p.a Mfg PCBs for Home appliances &
automobile products. It has a top-line of Rs. 231 cr as of 9MFY19
Rs. 54.43 cr, 70% subsidiary with base
at Greater Noida
Expand product offering and
customer base , increasing AC &
Non AC component capabilities
Ever Electronics ,2018
Est. in 2004 Acquired in Mar-17, Mfg PCBs
for AC, other Consumer Goods &
automobile products. It has a top line of Rs.
177 cr as of 9MFY19
Rs. 21 cr for 70% stake, currently AEL holds19% in Pune
based Ever Electronics
Increasing geographic reach
along with expansion in
customer base
15
Product Portfolio
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Room Air Conditioners Segment Contribution & growth Key Clients
Window Room Air Conditioners
Split Air Conditioners
Inverter Split Air Conditioners
526699 699
1,2521,525
0
500
1000
1500
2000
FY14 FY15 FY16 FY17 FY18
(Rs
Cr)
Air Conditioners
71.7
RAC AC Component Non AC Component
Capacity Energy Rating
Split AC
1 ton **
1.5 ton ***
2 ton *****
Inverter AC (1, 1.5, 2 ton) *****
Window
1 ton **
1.5 ton ***
2 ton *****
Source: Company, Axis Securities
FY18 RACs contribute 71.7% of total revenues RAC Segment Revenues grew by 31% on
CAGR basis between FY14-18
16
FY18 AC Components contribute 13.8% of total revenues
AC Components Revenues grew by 12% on CAGR basis between FY14-18
Product Portfolio
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
AC Components Segment Contribution & growth Key Clients
Heat Exchanger
Sheet MetalComponents
Copper Tubing
Electric Motor PCB’s for AC
186 212 210 189
293
0
100
200
300
400
FY14 FY15 FY16 FY17 FY18
(Rs
Cr)
AC Components
13.8
RAC AC Component Non AC Component
Source: Company, Axis Securities
17
Product Portfolio
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Non AC Components Segment Contribution & growth Key Clients
262 319
179 211
310
0
200
400
FY14 FY15 FY16 FY17 FY18
(Rs
Cr)
Non AC Components
Plastic Extrusion
Printed Circuit Boards for Others
Sheet Metal
14.6
RAC AC Component Non AC Component
Source: Company, Axis Securities
FY18 Non AC Components contribute 14.6% of total revenues
Non AC Components Revenues grew by 4% on CAGR basis between FY14-18
18
Key Milestones - Amber Enterprises
2018 2017 2013 2012 2012
1990 1994 2004 2006 2008 2008 2009 2010
Incorporated in Jalandhar Punjab
First Factory established in Rajpura
Manufacturing of Microwaves ovens
2012 2011 2010
Commenced Manufacturing of Heat Exchangers
Kasna, Kala Amb & Pune Unit established
Started Dehradun Unit 4
Started Noida Ecotech Unit
Dehradun Unit 5established
IPO
Investment by Ascent, exit to Reliance through purchase by
Ascent
Investment byReliance Alternative IF
Jhajjhar Unitestablished
Dehradun Unit 6established
Exit to Green India Venture Fund
Acquisition of PICL
Investment by Green India Venture Fund
Acquisition of IL JIN
InvestmentAcquisition
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Source: Company, Axis Securities
19
Market Leader in RAC OEM/ODM
AEL is Market leader in the domestic OEM/ODM segment with 55.4%
share in terms of volume and 19% in terms of overall RAC volumes
AEL caters to 8 out of top 10 AC brands in India which together have
75%+ market share, who’s outsourcing requirements have only increased
thereby benefitting AEL
Government initiatives like Make In India, hike in customs duty have
made outsourcing of AC’s /AC components attractive for domestic as
well as MNC’s OEMs
The OEM/ODM manufacturing was 16% of the total RAC volumes in
FY12 , which increased to 34% in FY17 and is expected to touch ~56%
by FY22E
Amber is well prepared to capitalize on the growing OEM/ODM pie
with its fully back ward integrated manufacturing facilities
Source: Company, Axis Securities
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Ambers share in RAC Market Market Share Analysis – RAC
14.7%
55.4%
0.0%
20.0%
40.0%
60.0%
FY15 FY17
16%
15%
12%
11%10%
9%
9%
5%
4%2%
7%
Voltas LG Daikin Hitachi
Llyod Electric Blue Star Panasonic Samsung
Carrier Godrej Others
Outsourced manufacturing expected to increase
0.5 0.6 0.71 1.2 1.6 1.9 2.5 3.2 4 4.9
2.5 2.4 2.42.4 2.7 3.1 3.6 3.7 3.7 3.7 3.7
0
10
20
30
40
50
60
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
FY21E
FY22E
OEM/ODM (RAC) (LHS) Non OEM/ODM (LHS) % OEM/ODM (RHS)
20
Focus on product offerings – sticky customer relationships
Set-up a dedicated R&D centre at Rajpura, Punjab (DSIR*,Govt. of India) approved centre.
Equipped with latest technologies: 3D modelling, productlifecycle management software.
AEL’s consistent focus on R&D led to strengtheningrelationships as it offers high degree of product customization,value addition with thrust of cost effective solutions to clients
Customers recognition for AELs superior products and servicequality: 2014-15: Panasonic’s Cost Improvement Outstanding
Performance Award’ 2015-16: Blue Star’s Vendor Performance Excellence Award’ in
finished goods category 2016-17: Godrej Industries Best Support: Green Supply Chain
Award 2016-17: LG Electronics' Best Tooling Management Award
2-3 years for critical components with leading brands like LG
AEL works along with customers by ensuring value addition tothe end product and ensuring clients trustworthiness for AEL
Higher switching cost a key factor considered by existingcustomer that keeps competition at bay
Reducing overdependence on Top 3 clients
The company derived ~75% of the revenues from top 3Clients in FY13 which has decreased to ~ 45% in FY18.
The company currently caters to 8 out of top 10 AC brands inIndia with a relationship of more than 5 years with majority ofits clients.
Consistent improvement in product /offerings quality withfocus on R&D and modernising manufacturing set up
Consistently growing wallet share with existing customers bymoving up the value chain (functional components to completeRAC units)
Source: Company, Axis Securities; *DSIR: Department of Scientific & Industrial Research, Ministry of Steel and Technology
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Strong R&D capabilities with focus on innovation Lengthy approval cycles an entry barrier:
Client Stickiness with strong relationship
FY18 –45%FY13 –
75%
Client additions 2017: Daikin & Hitachi2018/19 Carrier Midea, Havells
21
Scaling up the Value Chain & Backward Integration
Source: Company, Axis Securities
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Sheet Metal
Heat Exchangers
Injection MoldingComponents
IDU ,ODU for Split ACs
Induction Motors
2003
2008
2009
2010
2012
Printed Circuit boards (PCB’s)2018
Multi-flow Condensers
Commenced operation as a sheet metal and componentmanufacturer in 2003. Today, Amber has scaled up the valuechain to become a leader in Original Design Manufacturingsegment for Window /Split AC , Indoor / Outdoor Units.
AEL emerged as a one-stop-solution provider with strong designcapabilities for AC manufacturers by growing both organicallyas well as inorganically
Acquired component manufacturers thus ensuring backwardintegration of its operations
FY13, acquired PICL - manufacturer of induction motors
FY18, acquired Ever Electronics & IL JIN - manufacturers of PCB’sfor AC and Other White Goods
Strong growth in FY2017 driven by launch of new products:
In Door Unit (IDUs) models and
Inverter RACs
New products under development like Brushless DC Motor,Resin-core Motors and Inverter Controllers will aid in gaininghigher wallet share from existing customers
Reported revenue CAGR of 20% over FY13-18 led by :
Increasing product offerings (growing up the value chain)
Better equipped to cater to either full RAC demand (withoutcompressor) or by proving critical components to OEM brands.
Acquisitions of key component manufacturers - adding customersas well as geographical expansion
Investing in R&D and
Product design capabilities
Source: Company, Axis Securities
22
SWOT
Strength Market leadership with 55%+
share in RAC OEM/ODM; 19% in Overall RAC market
Caters to 8/10 top AC brand producers in India
Strong & sticky customer relationships
Economies of Scale
Manufacturing plants (12) in proximity to customer ensures quick response time
Weaknesses Absence of manufacturing unit in
South Relatively lower bargaining power
with customers
Opportunities Low penetration @ 4% in India Increasing localization due to Make
in India , inherent cost advantage Increasing foray of new OEM
brands in India Growing wallet share: new
customers existing components; existing customers new value added components
Threats Seasonal Changes affecting
industry growth
Brands resorting to in house production
Increase in competition
Shift in demand to greener products
SWOTStrength
Opportunities
Weaknesses
Threats
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Source: Company, Axis Securities
23
An able Management Team
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Jasbir SinghPromoter, Chairman & CEO
Over 13 years of experience in the RAC manufacturing sector. Hehas successfully established over seven factories in past ten yearsand established relationships with various large brands.
Daljit SinghPromoter & Managing Director
Over 12 years in finance services and 10 years of experience inthe RAC manufacturing sector. significant contribution to theoverall growth of the Company and successful completion of IPO
Sudhir Goyal CFO
Over 13 years experience in the manufacturing Sector;previously worked with Hythro Power Corporation, AltimaSystems, ETA Ascon group, Jamshedpur Mineral WoodManufacturing Co . Member of ICAI
Sanjay AroraDirector Operations
Over 34 years experience in the manufacturing industry;previously worked with Onida, Savak Ltd, Monica Electronics,Kortek Electronics & LG Electronics India Pvt Ltd. In charge ofoperations , innovation , security & legal matters.
Udaiveer SinghPresident RAC
Over 22 years experience in the manufacturing industry; withAmber since December 2003 . He oversees the planning andoperation of RAC manufacturing facilities of the company.
Sachin GuptaVice President RAC
Over 14 years experience in the manufacturing industry; WithAmber since November 2014 . He is in charge of the businessdevelopment. Previously worked with Godrej & Boyce and LGElectronics India .
. Source: Company, Axis Securities
24
Q3FY19 - Quarterly Performance - Standalone
AEL posted standalone revenues of Rs 389 cr ( up 15% Y-o-y)led by higher AC revenues in a seasonally tepid quarter. HoweverEBITDA margins witnessed a downtick due to higher raw materialprices which are passed on to customers with a quarter lag. Thereported PAT stood at Rs 3.8 cr vs. Rs 0.11 cr in Q3FY18
The company has taken a price hike in Q3FY19. It expects topartially recover the margins by passing on the increased cost ofraw material in Q4FY19
On the RAC front the management is confident of its volumesguidance of 2.1mn for FY19 versus 1.9mn in FY18 (10.5% y-o-ygrowth). Further , the company has witnessed robust demand inJanuary and thus expects higher volume growth for the quarter
The company has added new clients like Carrier Midea during thequarter and is confident of growth picking up in the AC and NonAC components segment in the near future
Post the consolidation of ILJIN and Ever Electronics (recentacquisitions) the growth is expected to be strong
To cater to the Southern India’s demand for RAC’s, ACcomponents and other components AEL plans to set up facility inSouth India near potential client clusters
The Capex of around Rs 90 cr will be incurred over next 2-3 yearsfor setting up unit in South India
We expect double digit volume growth in Q4FY19 and Q1FY20,these being seasonally strong quarters for the RAC industry
Source: Company, Axis Securities
Quarterly Performance - Standalone
Rs Cr Q3FY19 Q3FY18 % Change
(YoY)Q2FY19
% Change (YoY)
Sales 388.8 338.4 14.9 226.3 71.8
Other Inc 0.3 4.0 (93.0) 2.8 (89.9)
Total Revenue 389.0 342 13.6 229 69.9
Expenditure
Net Raw Material 334.0 285.3 17.1 186.1 79.5
Personnel 9.8 9.8 0.2 10.5 (6.5)
Other Exp 22.8 19.2 18.9 20.8 9.8
Total Expenditure 366.7 314.3 16.6 217.4 68.7
EBIDTA 22.4 28.0 (20.3) 11.6 91.9
Interest 3.5 16.6 (79.2) 3.3 5.6
Depreciation 12.2 11.0 11.2 12.3 (0.9)
PBT 6.7 0.5 - -3.9 -
Tax 2.8 0.3 - -2.2 -
PAT 3.8 0.1 - -1.7 -
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
25
Financial overview
We expect top line to grow at CAGR of 15% between FY18-21Eaided by increasing RAC volumes and contribution from recentlyacquired subsidiaries EVER Electronics and IL JIN
We expect growth in subsidiaries led by growth in AC & non ACcomponent volumes due to increase in wallet share from existingclients as well as new client additions
FY19 EBITDA margins to remain soft due to integration ofsubsidiaries, we expect margins to remain in the range of 8.8-9.5% improvement in margins due to subsidiaries as well ashigher utilization of RAC segment over next 2 years.
The PAT is expected to grow at CAGR of 38% between FY18-21Eled by healthy top-line growth, cost optimization and improvedmargin performance
Strong growth in EBITDA
EBITDA margins
Healthy top line growth
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Source: Company, Axis Securities
9801,236 1,092
1,7452,180 2,380
2,8213,307
0
1,000
2,000
3,000
4,000
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9E
FY2
0E
FY2
1E
Sales (Rs cr.)
81109 117
139192 210
258
314
0
100
200
300
400
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
EBITDA (Rs Cr)
8.3% 8.8%
10.7%
8.0%8.8% 8.8% 9.1% 9.5%
0%
2%
4%
6%
8%
10%
12%
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
EBIDTA margins (%)
26
Financial overview
Repayment of debt post IPO and reducing D/E (from 1.03x pre
IPO to ~0.11X in FY21E) will aid bottom line growth.
The cash conversion cycle has reduced from 52 days in FY15 to
31 in FY18, we expect it to stabilize at around these levels.
The company focused on setting up new capacities, expansion
and acquisitions between FY13-FY18, resulting in lower FCF.
Stabilizing capex and improvement in capacity utilization will
augment improvement in return ratios. We expect ROE to increase
from 10% in FY2018 to 14% in FY21E.
We expect the PAT margins to grow from ~2.9% in FY18 to 4.9%
in FY21E.
Efficient Working Capital management (days)
Improving ROE due to superior earnings trajectory
Declining interest cost (Rs cr)
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
32.3
42.8
53.2
63.5
53.8
21.9 19.7 18.0
0.0
20.0
40.0
60.0
80.0
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
4852
46
2531 34
31 30
0
20
40
60
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, Axis Securities
12.6 12.8
9.6
7.0
10.0 10.0
12.1
14.0
0.0
4.0
8.0
12.0
16.0
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
27
Outlook & Valuations
We estimate Amber Enterprises to post topline CAGR of 15% and
bottom-line CAGR of 38% over FY18-FY21E
We expect the company to report stable EBITDA Margins in the
range of ~8-9.5% between FY18-FY21E due to operating
efficiency and cost optimization
ROE is estimated to increase to 14% over FY18-FY21E
We value Amber Enterprises at 18x FY21E EPS as we expect it to
report Revenue/EBITDA/PAT CAGR of 15%/17.7%/38%
respectively over FY18-21E and thus arrive at a price target of
Rs. 954 (24% Upside)
Volatility in raw material prices
Competition from domestic and overseas players
Forex volatility
Customers resorting to higher in-house manufacturing
Risk Factors
Valuation
12mth fwd P/E (x)
P/E band
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Source: Company, Axis Securities
500
700
900
1100
1300
1500
Jan-
18
Feb-1
8
Mar-1
8
Apr-1
8
May-
18
Jun-
18
Jul-1
8
Aug
-18
Sep
-18
Oct
-18
Nov-
18
Dec
-18
Jan-
19
Feb-1
9
Mar-1
9
Price 20x 25x 30x 35x
13
23
33
43
53
Jan-
18
Feb-1
8
Mar-1
8
Apr-1
8
May-
18
Jun-
18
Jul-1
8
Aug
-18
Sep
-18
Oct
-18
Nov-
18
Dec
-18
Jan-
19
Feb-1
9
Mar-1
9
PE Mean Mean+1Stdev Mean-1Stdev
28
Financials (Consolidated)
Profit & Loss (Rs Cr) Balance Sheet (Rs Cr)
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Source: Company, Axis Securities
Y/E March FY17 FY18 FY19E FY20E FY21E
Net sales 1,736 2,172 2,379 2,820 3,306
Other operating income 8.8 8.7 0.5 1.1 1.3
Total income 1,745 2,180 2,380 2,821 3,307
Cost of goods sold 1,605 1,988 2,170 2,563 2,994
Contribution (%) 7.5% 8.5% 8.8% 9.1% 9.5%
Operating Profit 139 192 210 258 314
PBIDT 139 192 210 258 314
Depreciation 40 49 56 61 64
Interest & Fin Chg. 64 54 22 20 18
Pre-tax profit 36 89 132 177 232
Tax provision 14 27 38 51 67
PAT before Comprehensive Income
22 62 94 126 164
Adjusted PAT 22 63 94 126 164
Y/E March FY17 FY18 FY19E FY20E FY21E
Total assets 750 1,063 1,219 1,314 1,459
Net Block 557 710 666 655 641
CWIP 15.2 11.6 50.0 50.0 50.0
Investments 22.7 36.4 36.4 36.4 36.4
Wkg. cap. (excl cash) 120 171 161 170 195
Cash / Bank balance 35.2 133.8 305.9 402.4 537.0
Capital employed 750 1,063 1,219 1,314 1,459
Equity capital 23.8 31.4 31.4 31.4 31.4
Reserves 339 861 947 1,065 1,221
Borrowings 380 135 205 181 168
Def tax Liabilities 6.7 35.2 35.6 37.5 39.4
29
Financials (Consolidated)
Cash Flow (Rs Cr) Ratio Analysis (%)
Source: Company, Axis Securities
Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Y/E March FY17 FY18 FY19E FY20E FY21E
Sources 198 452 177 172 217
Cash profit 126 165 172 206 247
(-) Dividends 6 0 8 8 8
Retained earnings 119 165 163 198 238
Issue of equity 2.1 7.6 0.0 0.0 0.0
Change in Oth. Reserves
79.9 459.8 0.0 0.0 0.0
Borrowings 62 (179) 35 (8) (5)
Others (65) (2) (22) (18) (16)
Applications 198 452 177 172 217
Capital expenditure 88.8 199.7 50.0 50.0 50.0
Investments (6.9) 13.7 0.0 0.0 0.0
Net current assets 99.8 139.5 (45.4) 25.7 32.6
Change in cash 16.3 98.6 172.1 96.5 134.6
Y/E March FY17 FY18 FY19E FY20E FY21E
Sales growth 59.4 25.1 9.6 18.5 17.2
OPM 8.0 8.8 8.8 9.1 9.5
Oper. profit growth 19.3 38.0 9.2 22.8 21.7
COGS / Net sales 92.5 91.5 91.2 90.9 90.6
Depreciation / G. block 5.5 5.3 5.9 6.1 6.2
Effective interest rate 15.8 22.4 15.6 12.0 12.4
Net wkg.cap / Net sales 0.07 0.06 0.07 0.06 0.05
Net sales / Gr block (x) 2.4 2.3 2.5 2.8 3.2
RoCE 19.1 17.9 14.5 16.7 19.1
Debt / equity (x) 1.03 0.12 0.18 0.14 0.11
Effective tax rate (%) 38.0 30.3 29.0 29.0 29.0
RoE 7.0 10.0 10.0 12.1 14.0
Payout ratio (Div/NP) 29.3 0.7 8.8 6.6 5.0
EPS (Rs.) 9.3 19.8 29.9 40.1 52.3
EPS Growth (16.3) 113.0 50.7 34.2 30.5
CEPS (Rs.) 26.1 35.5 47.6 59.3 72.7
DPS (Rs.) 2.5 0.0 2.5 2.5 2.5
30
Disclaimer
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Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables
Instead of a company visit, we have done a conference call with the company’s management.
31
Disclaimer
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Company Report12 Mar 2019
Amber Enterprises
Sector: Consumer Durables