Article

Amber Enterprises India Ltd IPO Note

16 Jan 2018 Nikita Bhoota

Issue Opens: January 17, 2018
Issue Closes: January 19, 2018
Face Value: Rs.10
Price Band: Rs.855-859
Issue Size: ~Rs.600 cr
Public Issue: 69.85 lakh shares (at upper price band)
Bid Lot: 17 Equity shares
Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 59.0 43.5
Public 41.0 56.5

Source: RHP

Company Background

Amber is a market leader in the room air conditioners (RAC) original equipment manufacturer (OEM) and original design manufacturer (ODM) industry in India. It designs and manufactures complete RACs including split ACs and inverter ACs. Amber manufactures a range of equipment for ACs viz. heat exchangers, inverter & non-inverter printed circuit boards, multi-flow condensers, sheet metal components, injection molding components, etc. Amber also manufactures components for other consumer durables like case liners for refrigerators, plastic extrusion sheets and printed circuit boards, etc. for microwaves and washing machine tub assemblies. Its key customers include Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool.

Objective of the Offer

The offer consists of Fresh Issue of 55.3 lakh shares (aggregating up to ~Rs.475cr) at the upper end of the price band. It also includes offer for sale of up to 14.6 lakh shares (Rs125cr) by the promoters. The proceeds will be used for pre-payment or repayment of borrowings (~Rs.400cr) and for other general corporate purposes (~Rs.75cr).

Financials

Consolidated `cr. FY16 FY17 FY18E FY19E FY20E
Revenue 1089 1644 1973 2467 3083
EBITDA Margin (%) 10.4 7.8 8.9 9.0 9.2
Adj. PAT 24 28 61 117 141
EPS (`)* 7.7 8.9 19.5 37.1 44.9
P/E* 112.1 96.8 44 23.2 19.1
P/BV* 10.3 8.1 4.9 4.1 3.4
RONW (%)* 9.2 8.3 11.0 17.6 17.6

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Investment Rationale

The OEM/ODM manufacturers in India cater to ~34% of the outsourced requirements of the Indian RAC industry. Out of this, Amber enjoyed huge share of 55.4% (in volume terms) in FY17 (source: F&S report). This shows that its share in the total RAC market in India (in volume terms) has grown from 14.7% in FY15 to 19.1% in FY17.  Moreover, RAC penetration level in India (mere 4%) lags behind the global level of 30%, thus indicating enough room for growth. Amber’s customers command around 75% share in the Indian RAC market. We believe, Amber by virtue of its market leadership stands to benefit the most from growth surge in RAC industry. 

Amber has total installed capacity of 1.59mn outdoor units (ODUs), 1.37mn indoor units (IDUs) and 0.59mn window air conditioners (WACs) and several other components (as on FY17).  Currently, the capacity utilization is ~47% (H1FY18), thus providing enough room for scalability. We believe that benefit of operating leverage due to scale up, will support its margin profile.

Amber offers complete product basket (main products, critical as well as non-critical components) and is a one-stop solutions provider under one roof. This gives the company a competitive edge over other players in India and abroad as a consistent and reliable OEM/ODM   supplier. 

Amber currently exports to Saudi Arabia, Oman, Sri Lanka, Nigeria and Maldives. It intends to leverage low cost advantages of manufacturing in India and aims to export to Middle East, South and South East Asia as well as Europe.

Key Risk

Amber’s sales are concentrated with top five and top ten customers contributing 74.8% and 92.5% respectively to FY17 sales. Therefore, reduction in demand from top customers could have an adverse effect on its business.

Amber faces competition from other RAC OEM/ODM players as well as from China. Further, it may face competition from its RAC customers if they increase proportion of in-house manufacturing.

Conclusion

At the upper price band, though the stock looks expensive at ~97xFY17P EPS. However, considering, the leadership position in RAC OEM/ODM market industry in India, the strong growth prospects as well as operating leverage, the stock would be attractive at ~23xFY19E and ~ 19xFY20E (on rough cut basis). Dixon Technologies, which has a similar business model, trades at ~31xFY20E. We recommend SUBSCRIBE from long-term perspective.

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Amber Enterprises India Ltd IPO Note

16 Jan 2018 Nikita Bhoota

Issue Opens: January 17, 2018
Issue Closes: January 19, 2018
Face Value: Rs.10
Price Band: Rs.855-859
Issue Size: ~Rs.600 cr
Public Issue: 69.85 lakh shares (at upper price band)
Bid Lot: 17 Equity shares
Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 59.0 43.5
Public 41.0 56.5

Source: RHP

Company Background

Amber is a market leader in the room air conditioners (RAC) original equipment manufacturer (OEM) and original design manufacturer (ODM) industry in India. It designs and manufactures complete RACs including split ACs and inverter ACs. Amber manufactures a range of equipment for ACs viz. heat exchangers, inverter & non-inverter printed circuit boards, multi-flow condensers, sheet metal components, injection molding components, etc. Amber also manufactures components for other consumer durables like case liners for refrigerators, plastic extrusion sheets and printed circuit boards, etc. for microwaves and washing machine tub assemblies. Its key customers include Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool.

Objective of the Offer

The offer consists of Fresh Issue of 55.3 lakh shares (aggregating up to ~Rs.475cr) at the upper end of the price band. It also includes offer for sale of up to 14.6 lakh shares (Rs125cr) by the promoters. The proceeds will be used for pre-payment or repayment of borrowings (~Rs.400cr) and for other general corporate purposes (~Rs.75cr).

Financials

Consolidated `cr. FY16 FY17 FY18E FY19E FY20E
Revenue 1089 1644 1973 2467 3083
EBITDA Margin (%) 10.4 7.8 8.9 9.0 9.2
Adj. PAT 24 28 61 117 141
EPS (`)* 7.7 8.9 19.5 37.1 44.9
P/E* 112.1 96.8 44 23.2 19.1
P/BV* 10.3 8.1 4.9 4.1 3.4
RONW (%)* 9.2 8.3 11.0 17.6 17.6

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Investment Rationale

The OEM/ODM manufacturers in India cater to ~34% of the outsourced requirements of the Indian RAC industry. Out of this, Amber enjoyed huge share of 55.4% (in volume terms) in FY17 (source: F&S report). This shows that its share in the total RAC market in India (in volume terms) has grown from 14.7% in FY15 to 19.1% in FY17.  Moreover, RAC penetration level in India (mere 4%) lags behind the global level of 30%, thus indicating enough room for growth. Amber’s customers command around 75% share in the Indian RAC market. We believe, Amber by virtue of its market leadership stands to benefit the most from growth surge in RAC industry. 

Amber has total installed capacity of 1.59mn outdoor units (ODUs), 1.37mn indoor units (IDUs) and 0.59mn window air conditioners (WACs) and several other components (as on FY17).  Currently, the capacity utilization is ~47% (H1FY18), thus providing enough room for scalability. We believe that benefit of operating leverage due to scale up, will support its margin profile.

Amber offers complete product basket (main products, critical as well as non-critical components) and is a one-stop solutions provider under one roof. This gives the company a competitive edge over other players in India and abroad as a consistent and reliable OEM/ODM   supplier. 

Amber currently exports to Saudi Arabia, Oman, Sri Lanka, Nigeria and Maldives. It intends to leverage low cost advantages of manufacturing in India and aims to export to Middle East, South and South East Asia as well as Europe.

Key Risk

Amber’s sales are concentrated with top five and top ten customers contributing 74.8% and 92.5% respectively to FY17 sales. Therefore, reduction in demand from top customers could have an adverse effect on its business.

Amber faces competition from other RAC OEM/ODM players as well as from China. Further, it may face competition from its RAC customers if they increase proportion of in-house manufacturing.

Conclusion

At the upper price band, though the stock looks expensive at ~97xFY17P EPS. However, considering, the leadership position in RAC OEM/ODM market industry in India, the strong growth prospects as well as operating leverage, the stock would be attractive at ~23xFY19E and ~ 19xFY20E (on rough cut basis). Dixon Technologies, which has a similar business model, trades at ~31xFY20E. We recommend SUBSCRIBE from long-term perspective.

Research Disclaimer