Amber Enterprises India Ltd, despite widening losses in the September quarter compared to the previous year, has received favorable ratings from several market analysts who have raised their target prices.
Jefferies India retained its ‘buy’ rating and increased the target price to Rs 3,990, marking a 44 percent increase from the current market price. Nuvama Research maintained a ‘hold’ rating but raised the target price to Rs 2,700 from Rs 2,490, while BoB Capital retained the ‘hold’ rating and increased the target price to Rs 2,900 from Rs 2,500.
During the September quarter of FY24 (Q2FY24), Amber Enterprises India Ltd reported a net loss of Rs 5.6 crore, compared to a loss of Rs 2.2 crore in the previous year. This loss was attributed to higher interest and depreciation expenses. Despite this, the company’s consolidated total income increased by 23 percent year-on-year to Rs 938 crore in Q2FY24 from Rs 762 crore. However, it declined by 45 percent compared to Rs 1,721 crore in Q1FY24.
The second quarter was challenging for the room air conditioner (RAC) industry, leading investors to focus on Amber’s non-RAC segments. The company’s electronics division grew by only 3 percent, falling short of the double-digit growth expectations. Nonetheless, Amber anticipates strong growth in FY24, with segment revenue expected to double from FY24 to FY26, driven by new clients and contracts.
The railways (Sidwal) and mobility businesses experienced a 25 percent year-on-year growth, and the order book of Rs 1,100 crore suggests a 25-30 percent growth from FY23-26. The Motors business witnessed a margin decline but shows potential for better margins and growth acceleration after FY24.
Amber’s operating profit margin (OPM) increased by 150 basis points year-on-year to 6.4 percent. Excess AC channel inventory from unseasonal Q1 rain is expected to clear in Q2, with full normalization anticipated by the end of the third quarter. The company has invested Rs 150 crore in capital expenditure in the first half and expects Rs 230 crore for H2. The management aims to reduce net debt to Rs 650-675 crore by March 2024, down from Rs 780 crore in March 2023.
Jefferies India is optimistic about Amber’s expansion into components and predicts a sales/PAT CAGR of +18 percent/+43 percent from FY23-26, driven by faster component sales, new capex, client additions, and potential benefits from the PLI scheme. They maintain a target PE of 33x.
BoB Capital has increased its FY24/FY25 EPS estimates by 3 percent/7 percent to account for Q2 performance and a more optimistic outlook for Amber’s non-AC business. They now value the stock at a new 29x P/E multiple (previously 27x), representing a 30 percent discount to the three-year average. They anticipate single-digit industry volume growth in FY24 due to a soft RAC outlook.
Amber’s RAC finished goods now make up 40 percent of sales, down from 71 percent in FY18. Electronics and mobility sales together represent 29 percent of H1 sales.
The management expects to double sales for electronics and mobility sales over the next two years through new applications, products, and client additions. Amber’s recent 50 percent joint venture with Noise in wearables is expected to generate Rs 1,000 crore in sales in the near term with Rs 15-20 crore in capital expenditure. The company also plans to expand manufacturing of passenger car Bills of Materials (currently at 4 percent).
Sidwal contributed 14 percent to Q2 sales (9 percent in H1) and is the highest-margin segment with an estimated OPM of 20 percent+. The company is receiving new orders for product additions in doors, gangways, and other railway sub-systems, which can increase its market share with existing customers, analysts said.
Nuvama Research predicts that the standalone business will achieve 11-13 percent revenue growth from FY23 to FY26, with a more substantial 21 percent EBITDA growth due to higher-margin components. Other businesses are expected to collectively see a 27 percent EBITDA growth from FY23 to FY25. Beyond FY25, Nuvama anticipates that the faster-growing non-RAC business will become a more significant part of the EBITDA.
