Initiating Coverage: Amber Ent. Ltd.
03-04-2023

About the Company:

Amber is a prominent solution provider for the Air conditioner Original equipment manufacturer (OEM) Industry in India.It supplies to leading brands, such as Voltas, Panasonic, LG, Daikin, Hitachi, Whirlpool, Godrej, and Blue Star, which account for nearly 75% of the domestic refrigeration and air conditioning (RAC) market.

Amber manufactures Room Air Conditioners, Window air conditioners (WACs), indoor units (IDUs), and outdoor units (ODUs) of split air conditioners (SACs). It also manufactures Inverter RACs. In Components it manufactures Case liners for refrigerators, plastic extrusion sheets for consumer durables and automobile industry, sheet metal components for microwave, washing machine tub assemblies, and for automobiles and metal ceiling industries.

India heavily relies on Import of the components for manufacture of AC (60-70%), thus Company has very less pricing power. Costs can’t be passed on easily as there are a lot of suppliers and AC companies are fighting for their own market share. Any business decline for them would mean more margin pressure for Amber.

About the Products:

(Source : Company reports)

Revenue Mix:

About the Industry:

Increasing disposable income, growing urbanisation and easy availability of consumer finance are key growth drivers for Room Air Conditioners(RAC) segment. It has been witnessed that the consumer preferences are changing fast and pushing manufacturers to introduce new, innovative, and value-added products. This segment of the population is the key generator of consumer demand, and it is also the main driver of the RAC market.

Penetration of RAC market

(Source: Nirmal Bang Institutional Equities Research)

The Indian RAC market showed a muted growth in the last five years. During the year 2021-22 the first quarter which remains the peak season for business went negative due to onslaught of the pandemic. Whereas, quarter 2 and quarter 3 witnessed a sluggish growth. Penting up the demand, quarter 4 marked a robust growth thereby leading the industry to a total of approximately 6.4 million units as compared to approximately 5.2 million units of the preceding year. Out of this ~6.4 million units, the estimated market size of RAC Industry at OEM level excluding GST is valued at ` 12,160 Crores.

The Company holds around 26% of the total market share in the total manufacturing footprint in the industry and has a potential to grow exponentially in Original equipment manufacturer (OEM) business. It is also worthwhile to mention various initiatives undertaken by the government to facilitate economic activities and restore customer confidence which inculcated demand in the Consumer Durables market.

Business Performance:

In Q3 FY 2023 company recorded revenue of Rs. 1348  Cr as against 974 Cr in Q3 FY 22 .Q3 being a seasonally strong quarter. There was an increase in RMC by 1.25% owing to a change in product mix. Finance cost and Depreciation increased to Rs.29 Cr and Rs.36 Cr as compared to Rs.12 Cr and Rs.27 Crs. in Q3FY22, respectively leading to profit to fall from 36 cr in Q3 FY22 to 15 Cr in Q3 FY 23. The increase in Finance cost and Depreciation is largely due to capex incurred during the period and increased interest rates.

Capex guidance of 625-650Cr in FY 23, FY 24 to be 250-275 Cr. Net Debt came in at 900Cr. Closing net Debt should be about 500Cr as seasonality involved in cashflows. Management guided that peak revenues can be 5 times of current gross block. Utilisation levels of new plants now is 25-30%, next year this shall go to 50%. Old RAC plants are working at 75-80% of Utilisation. 3/5 year sales growth has been 15%/21% however PAT growth has been a lower 6%/38%.

Risks:

Inability of the management to get to the desired levels of utilisations will result in downside to our estimates.

Sharp increase in input prices and/or increase in competitive pressures shall impact margins going forward.

Outlook:

With changing energy rating norms (more energy-efficient products), wide range and a high installed base of window RACs, the replacement demand is also quite strong. It has been witnessed that the people are replacing window RACs with split. This trend is expected to grow further leading to expansion of domestic manufacturing capacities.

The government has recently announced PLI for RAC industry. Structure of the same suggests that it is more inclined towards OEMs as government intends to reduce the imports of key components. Company is eligible for 300 crores PLI in Amber and 100 crores in ILJIN which is the electronic subsidiary. This PLI Capex has to happen in 5 years, where the first year was the last year. Company does not see any hurdles in achieving the PLI target numbers. After that company will be getting 6% on the incremental sales as a first-year incentive.