Strategic shift beyond RAC; Margin set to rise…
About the stock: Amber Enterprises India (Amber) is a leading manufacturer and solution provider for room air-conditioner (RAC) industry, commanding leadership with market share of 26-27%. It has capabilities to manufacture ~70% BoM for RACs. Its electronics division (PCBA, Bare PCB and Box-build) serves customers across consumer durables, smart electronics, automotive, telecom, healthcare, industrial and defence. Plant location is diversified with 30 state-of-art manufacturing facilities spread across 9 states, being closer to its pan India client base.
Investment Rationale
Positioning from a RAC manufacturer to a diversified EMS player: Amber’s business mix is highly dominated by consumer durables division (~73% of revenue), which largely comprises of RAC segment and is thus cyclical in nature. The company is steadily diversifying into i) components business across RAC and nonRAC segments i.e. washing machine, refrigerators, ovens, water purifiers, etc. Completely built unit (CBU) proportion in revenue mix has reduced from 72% in FY18 to 43% in FY25. ii) electronics i.e. (~22% of revenue) is slated to grow at a brisk pace with large investments planned. Client base is diversified across consumer durable companies, automobile, IT & telecom, Industrial, Defence and Aerospace. Amber is investing a massive ~₹4,190 crores towards bare PCB and PCBA through Ascent circuits (capex: ~₹990 crore) and Korea Circuits (capex: ~₹3,200 crore). Further through inorganic expansion, company recently acquired Power-One microsystems and Unitronics marking its entry into battery energy storage, solar invertor, EV charger and industrial automation and control systems. iii) mobility (~5% of revenue)- Railway business is expanding from HVAC segment to manufacture train parts including doors, gangways, etc. All these expansions shall drive business growth while reducing business cyclicality.
Margin expansion to be aided by better product mix: The company currently earns modest EBITDA margin of ~7.7%, being present largely on consumer side. The company is strategically increasing its business mix towards better margin components, electronics and railway division. Recent acquisitions including Unitronics and Power-one micro system to have EBITDA margin profile of ~30% and 17-18% resp. Similarly, heavy capex plans on PCB side are expected to yield mid-high teen margin profile. Overall, we expect Amber’s EBITDA margin to improve from 7.7% to 8.5% over FY25-FY27E.
Rating and Target Price
• Amber, with its diversifying business mix, is well-positioned to benefit from the government measures in the form of PLI incentives, anti-dumping duty, capital subsidy as well as state incentives and such other measures. After marking its leadership in RACs, its expansion plan on electronics side offers large growth opportunity. Overall faster growth arenas of components, electronics and mobility division to be value accretive in terms of growth, margin and return ratios. We assign BUY rating on the stock with a target price of ₹ 9500 valuing the stock at 57x PE on FY27E EPS.
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