Multi-year growth story, rising return ratios make analysts bullish on Amber Enterprises

Apart from room air conditioners, the company is also on the path to be a diversified B2B EMS player

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With rising consumer spends, hot weather conditions and low AC penetration of only around 8 percent in India, the domestic AC industry is set to experience multi-year growth. A key beneficiary of this will be Amber Enterprises, say analysts.

Amber’s value market share in the production of room air conditioners (RACs) has grown significantly, increasing from 22 percent in FY19 to 29-30 percent in FY23. The number is set to grow bigger as India’s per capita GDP rises from $2,400 to $3,000 gradually.

Apart from RACs, the company is also on the path to be a diversified B2B EMS (electronics manufacturing services) player. In FY23, its sales mix was RAC at 44 percent, motors at 4 percent, electronics at 16 percent, components at 30 percent and mobility 6 percent.

In contrast, RAC alone made for 71 percent of sales back in FY18, noted Jefferies. “This diversification is expected to mitigate top-line seasonality,” the foreign brokerage said in a recent report.

The components division is expected to drive the next phase of growth, with a projected compounded annual growth rate of 22 percent over FY23-26, it added.

Having surpassed the peak of capital expenditure of over Rs 1,000 crore, Amber’s return on capital employed (RoCE) is expected to rise to approximately to 19 percent by FY26. In FY23, it managed to improve RoCE to 15 percent from 11 percent in FY22.

According to the management, achieving an RoCE of 21 percent is also not difficult. The company’s new capacities are operating at approximately 20 percent utilisation and as soon as this reaches 35 percent in the near future, the 21 percent RoCE target can be achieved, according to the company.

Jefferies has a “Buy” recommendation for the stock with a target of Rs 3,12o. It has projected a sales and profit after tax (PAT) CAGR for the period FY23-26 at 20 percent and 43 percent respectively.

This growth will be driven by the rapid expansion of the components division, commissioning of new capex, increased client base for RAC volumes, and potential upside from the PLI scheme.

“Our target price is set at Rs 3,120, based on a price-to-earnings (PE) ratio of 30x, in line with historical averages,” the broking firm noted. On May 30, the stock closed flat at Rs 2,136.90. Thus, Jefferies’ target indicates 43 percent from current levels.

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