Reduce Amber Enterprises, target price Rs 1,156: ICICI Direct

ICICI Direct has given a reduce rating to Amber Enterprises with a target price of Rs 1,156 based on 20 times FY22E EPS of Rs 58.

According to the brokerage, Amber Enterprises continues to enjoy an improved business outlook with a strong order book, expected increase in consolidated margin profile with ramp-up of subsidiaries and improved seasonality due to the recent acquisition of Sidwal Industries and traction of component business. New customer acquisitions leading to better-than-industry growth is the core investment thesis. However, significant business loss in the first quarter FY21 (Q1 contributed to 30 per cent of FY20 revenue), channel inventory (estimated ~2-2.5mn units) and demand disruption pose a challenge to FY21 earnings, says the brokerage.

Investment Rationale

Amber has increased its RAC market share to 22 per cent in FY20 from 19 per cent in FY17 and 15 per cent in FY15. The earnings have increased from Rs 220 million in FY17 to Rs 620 million in FY18 to Rs 937 million in FY19 to Rs 1.6 billion in FY20. Growth options remain in the commercial RAC (room air-conditioner) segment (Rs 300 billion market), exports, higher import substitution (2 million IDU units, 28 per cent of finished RAC units by value still imported) and mobile applications through Sidwal.

The brokerage has factored in a drop in sales from Rs 40 billion in FY20 to Rs 34 billion in FY21 due to Covid-19 outbreak impact but expects a recovery to Rs 46 billion sales in FY22E split between Rs 28 billion for RAC, Rs 15.3 billion for component and Rs 3.1 billion for Sidwal.

The brokerage expects FY22E EBITDA/PAT at Rs 3.8 billion/ Rs 1.8 billion, respectively. Net debt is expected to reduce from Rs 2.5 billion in FY20 to Rs 1.5 billion in FY22E.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1315.18 crore, up 66.81 per cent from last quarter sales of Rs 788.43 crore and up 9.96 per cent from last year's same quarter sales of Rs 1196.01 crore. The company reported net profit after tax of Rs 62.82 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 44.02 per cent stake in the company as of December 31, 2019, while FIIs held 12.36 per cent, DIIs 7.22 per cent and public & others 36.38 per cent.