Amber Enterprises: Operationally strong Q3, bright times ahead II Sharekhan retains Buy with price target of Rs 3170

Amber Enterprises reported operationally strong quarter leading to better than expected net profit. Consolidated revenue declined by 3% yoy at Rs 764.7 cr, (lower than estimates) as the industry achieved normalised inventories led by sustained retail & OEM demand. RAC (Room Air Conditioner) revenues came at Rs 413 cr vs Rs 431 cr in Q3 FY20 (down 4% yoy) while components & mobility application revenues declined by 2% yoy to Rs 352 cr. OPM expanded by 136 bps yoy to 8.2% (higher than estimates) on cost control measures and a 216 bps rise in gross margins.

Accordingly, EBITDA improved 16.1% yoy to Rs 63 cr. Higher operating leverage and a rise in other income (Rs 89.7 cr vs Rs 21.9 cr), lower interest cost (down 18% yoy and 16% qoq) drove up adjusted PAT by 19.3% yoy to Rs. 26.9 cr (better than estimates). Amber Enterprises management indicated that demand uptick in September continued in Q3 led by a festive season, pre-buying by dealers leading to driving normalised levels of inventories and expect Q4 FY21 to be much better as inventory normalised and anticipation of a strong summer.

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The benefit from the ban on fully-built refrigerant ACs is expected to accrue in coming quarters wherein it has added six new large customers. The government is planning PLI schemes with Rs. 5000 cr of incentives for ACs on cards where Amber is slated to benefit from upcoming opportunities although details are still awaited. On the export front, it expects to start RACs exports in CY2022 while in components; the same is expected from FY2022.

In commercial refrigeration, (market size estimated at Rs 6500 cr), Amber Enterprises has launched two new products and would develop 18-20 product portfolios over next 2-3 years. Its net consolidated debt stood at Rs. 263 crore. The company has lined up a capex plan worth Rs 300 cr for two greenfield projects, one in Pune and other in South India (either in Sri City or Chennai). Both plants would have a 1 MTPA capacity each. The Pune plant is expected to start production in Q4 FY22 while the South India plant is expected in Q1 FY23.

Sharekhan believes in the near term, with channel inventory normalising, Amber Enterprises should revive RAC growth while its components & mobile application business improves its growth trajectory. Overall, we believe the company has a long runway for growth with multiple growth drivers across its product verticals. Amber Enterprises is currently trading at a P/E of 62.5x/36x, its FY2022E/FY2023E earnings, which Sharekhan believes leaves further room for an upside. Hence, Sharekhan retains Buy on Amber Enterprises with an unchanged price target of Rs 3170.