Motilal Oswal Recommends Buy on Amber Enterprises with Target Price of Rs 5500

Motilal Oswal is optimistic about Amber Enterprises and has given it a “Buy” rating, setting a target price of Rs 5500 in their research report from October 5, 2024.

Fast Growth Expected in Electronics Segment

Amber Enterprises (AMBER) is expanding its consumer durables, railways, and electronics divisions. The company is confident in the long-term growth of the Residential Air Conditioner (RAC) segment, driven by rising AC demand. AMBER is also adding new clients across sectors like automotive, defense, medical, and telecom, with a strong focus on boosting its electronics division.

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Although the railways segment is growing slower than expected, the electronics division is set to expand rapidly. Amber expects its revenue, EBITDA, and profit to grow significantly over the next few years, with a projected growth rate of 21%, 27%, and 52% respectively between FY24 and FY27. The company has a target price of Rs 5500, based on its discounted cash flow (DCF) analysis.

Key Investment Highlights

• RAC Market Growth: The RAC market grew by 40% in FY24, with Amber holding a 25-26% share. Although the company’s margins were affected by OEM insourcing, Amber expects volume growth and margin improvements in the future.
• Electronics Segment Expansion: India’s electronics market is expected to grow from $115 billion to $300 billion by FY30. Amber is focusing on expanding its presence in PCB manufacturing, catering to sectors like defense, healthcare, and telecom. With strategic partnerships, the company is expected to grow its electronics segment by 35% annually in the coming years.
• Railways Segment: Growth in the railways division may be slower in FY25, but Amber is set to ramp up production by FY26 and beyond, with plans to supply more components for railway coaches.

Financial Projections

Amber’s revenue is projected to grow by 21% annually between FY24 and FY27, with strong contributions from its consumer durables, electronics, and mobility segments. The company expects to invest heavily in these divisions, with planned capital expenditures of INR 4 billion in FY25 and INR 3.5 billion for the following two years. Amber is forecasting steady margin improvements and expects its profit to grow by 52% during this period.

Valuation and Recommendation

Amber’s stock is currently trading at high multiples based on its earnings forecasts for FY25, FY26, and FY27. However, Motilal Oswal remains bullish, reiterating a “Buy” rating with a target price of Rs 5500, reflecting strong potential growth in the coming years.

Risks

Some risks include slower growth in the RAC industry, stricter energy efficiency regulations making products costlier, and increased competition across key segments.