4 times return in 3 years: Analysts see many positives for this midcap stock

Amber Enterprises, a dominant player in the underpenetrated AC industry and the key beneficiary of government policies including PLI Scheme and import substitution, has been buzzing on Dalal Street due to its superlative performance since listing in January 2018.

Shares of the company have advanced 293% to Rs 3,373 on March 17 against the issue price of Rs 859. The stock has also not disappointed those investors who had bought it post listing. The scrip has advanced 173% from the closing levels of the listing day.

Brokerage JM Financial is positive on Amber Enterprises with a price target of Rs 4,000. “Amber Enterprises is a dominant electronic services manufacturing (EMS) player in the underpenetrated

Indian room air conditioner (RAC) industry with around 24% market share. We believe it is poised for exponential growth over the next 5 years led by a strong customer base catering to the top 10 brands, wide range of original design manufacture (ODM) products, favourable government policies such as production linked incentive (PLI), import substitution initiatives and expansion of offerings in mobile ACs and consumer electronics segments,” the brokerage said.

With an objective to support domestic manufacturing and make the country globally competitive, the central government introduced the PLI scheme in March last year. The scheme is conceived in a manner that incentives are payable by the government only after the investment is done, employment is generated, production and sales targets have been achieved.

“Over the past 5 years, Amber has delivered 26% and 25% CAGR in sales and EBITDA, led by increased outsourcing by brands and improving market share in the EMS space,” JM Financial said while adding sales and EPS to clock 17% and 26% CAGR, respectively over FY20-23.

Going with market analysts, India’s RAC segment continues to remain the most underpenetrated category with penetration of 7% against 14% for washing machines and 32% for refrigerators. This offers a multi-decade growth opportunity to EMS manufacturers. Increasing power availability, rising temperatures, improving affordability and better credit availability are key enablers that could push the RAC industry market size up from 7 million units at end-FY21 to 12 million units by FY25.

Edelweiss Securities highlighted that management’s focus on both global and domestic markets is encouraging and clearly implies high ambitions to tap into a large opportunity. The commentary on balancing returns with scale lends further stakeholder comfort. Some risks or challenges highlighted for the industry at large going ahead include logistical issues, supply chain etc. with neighbouring countries, and gaining global customers’ confidence as a hindrance to potential scale.

On global competition from China or Thailand on RACs particularly, Amber Enterprises believes domestic scale will help large India players improve their competitiveness.

For the latest quarter ended December 31, the company had posted 58% YoY growth consolidated net profit at Rs 18.27 crore. However, net sales increased marginally by 1.55% to Rs 576.42 crore. Amber Enterprises had posted a loss of Rs 18.75 crore and 8.60 crore in Q1FY21 and Q2FY21, respectively. Bottomline of the company also witnessed a de-growth of 13.51% to Rs 53.24 in Q4FY20. However, the profit and sales increased by 200% and 46% YoY, respectively, in Q3FY20.

Axis Securities has set a target price of Rs 3,614 for Amber. It expects the company to register revenue/earnings CAGR of 15.4%/21.8% respectively over FY20-23E. “The near term order outlook remains strong for RAC. Healthy build-up for the upcoming season, government policy measures and support through the PLI scheme makes us believers in this structural long term story. Strong traction in the under-penetrated RAC segment and growth opportunities led by government policies and export opportunities augur well for Amber over the long term,” the brokerage added.