Amber Enterprises share price: Sharekhan retains Buy rating with a revised price target of Rs 3716

Amber Enterprises is one of the key beneficiaries of the import ban on air-conditioners (ACs) with refrigerants helping the company gaining new customers (signed six customers since the announcement) with further scope for additions. Secondly, the government’s likely plan to expand production-linked incentive (PLI) schemes for ACs and components, with Rs 5000 cr worth of incentives bodes well for Amber Enterprises, though the details are still awaited. Amber share price today is Rs Rs 3160, up Rs 66 or 2.1%.

Further, inventories have normalised on the back of sustained retail and OEM demand for Amver Enterprises. Sharekhan expects Q4 FY21 to be much better as inventory normalised and anticipation of strong summers. Amber Enterprises is well-placed to benefit from growing opportunities. It is a market leader in the RAC OEM/ODM industry with a market share of 71% and a 24% share in the overall RAC market (growing at 15-16% domestically) is well-placed to benefit from growing opportunities wherein overall penetration levels still remain at 8%. Its components and mobile applications business (40% of revenues) is slated to benefit from upcoming opportunities in developing a component ecosystem by the government through PLI/PMP schemes.

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On the export front, Amber Enterprises ambition remains intact to scale up its global offering both in RAC and components market (already received orders) wherein the opportunity is currently about $9.5 bn in components and a 7 mn market in RACs providing a huge opportunity for Amber to gain market share. Over a span of 2-3 years, Amber Enterprises expects to enter global markets and currently developing the right products for the right market (USA alone imports 20 million units out of the total 65mn units exported by China/Thailand).

In commercial refrigeration, (market size estimated at Rs 6500 cr), Amber Enterprises has recently launched new products and would develop an 18-20 products portfolio in the next 2-3 years, which augurs well for incremental growth opportunities.

The mobility solutions (Sidwal) business’ outlook of Amber Enterprises remains strong led by order wins during the previous quarter and the overall order book remains strong in all three segments viz. ACs, components and mobility. Amber Enterprises capacity expansion through a greenfield project at Supa (Pune) with a projected capacity of 1-million units (operational by Q4FY22) should improve business and reflect in the coming quarters. Sharekhan believes in the near term, with the channel inventory normalising, Amber Enterprises should see a revival in the RAC segment’s growth while the components & mobile application business improves its growth trajectory.

Overall, Sharekhan believes that Amber Enterprises has a long runway for growth with multiple growth drivers across its product verticals. Amber Enterprises is currently trading at a P/E of 73.8x/42.5x its FY2022E/FY2023E earnings, which Sharekhan believes leaves further room for an upside given multiple growth avenues and potential to scale-up. Hence, Sharekhan retains Buy rating on Amber Enterprises with a revised price target of Rs 3716.

Amber Enterprises Key Risks:

1)      Lower demand offtake due to economic slowdown (also due to COVID-19) might impact revenue growth momentum
2)      Lack of a diversified revenue base in terms of product categories and high revenue concentration.