About the Company

Amber Enterprises India is engaged in the business of manufacturing a versatile range of products i.e. Air conditioners, microwave ovens, washing machines, refrigerators, heat exchangers, sheet metal components, etc. Currently, the Company has nine manufacturing facilities in India out of which two manufacturing facilities are operating in a tax exemption zone.

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 569.58 389.03 46.41% 392.78 45.01% 1963.11 1221.22 60.75%
PBT 6.18 6.68 -7.49% -5.43 213.81% 76.92 43.88 75.30%
PAT 11.53* 3.84 200.26% 4.58 151.75% 64.7 30.96 108.98%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 790.62 518.3 52.54% 623.09 26.89% 2655.78 1560.54 70.18%
PBT 24.48 7.17 241.42% 4.64 427.59% 120.65 42.03 187.06%
PAT 24.81** 3.99 521.80% 12.18 103.69% 101.32 27.94 262.63%

*includes negative tax expenses of Rs 5.36 Cr

**includes negative tax expenses of Rs 0.33 Cr

Detailed Results

    1. The company delivered a phenomenal YoY growth of 52.5% in consolidated revenues while consolidated profits grew more than 5 times YoY in the same period due to the low base in Q3FY19.
    2. EBITDA for 9MFY20 rose 97% YoY while EBITDA margins improved to 7.8%.
    3. The revenue growth (and current revenue contributions) across operational segments for 9MFY20 is:
      • RAC (Room Air Conditioner):                 Up 72% YoY (60% of total revenues)
      • Components & Mobile Applications: Up 68% YoY (40% of total revenues)
    4. RAC volumes sold in (MFY20 rose 75% YoY while revenues rose 70% YoY. PAT in the same period rose 2.6 times YoY.

Investor Conference Call Highlights

  1. Ecommerce sales account for 12% of RAC industry volumes.
  2. The RAC industry is estimated to have grown 18% in 9MFY20.
  3. The management has stated the reasons behind Amber’s stellar performance include the increasing penetration of the RAC industry, the rising ratio of outsourcing in the industry and increased sourcing of local goods by industry players.
  4. The company is also seeing a drop in the seasonality of the RAC industry as industry volumes in off months have risen.
  5. The company has also started exports of components to Sri Lanka, Bangladesh, Nigeria, and the USA.
  6. The RAC volumes sold in Q3 was 5.72 lac vs 4.23 lac last year.
  7. Sidwal 9M revenues were at Rs 176 Cr and EBITDA was at Rs 39 CR with margins of 22%. The company is confident of the growth of this subsidiary with the demand for AC coaches rising and the increasing commissioning of metros in major cities across the country.
  8. 9M Revenues for PICL grew 48% YoY to Rs 128 Cr with EBITDA at Rs 8 Cr with EBITDA margin at 6.8%.
  9. ILJIN revenues in 9M were at Rs 232 Cr and EVER revenues were at Rs 214 Cr with EBITDA margins of 5.8% and 3.5% respectively.
  10. The company expects a rise in margins and revenues in all of the subsidiaries going forward especially in ILJIN and EVER with the demand for inverter ACs rising in the near future.
  11. The working capital days have reduced to 56 days from 66 days a year ago in standalone terms.
  12. The net consolidated debt is around Rs 334 Cr.
  13. The fall in PBT is mainly due to higher interest costs from the increased debt for the recently completed acquisitions of ILJIN and Sidwal.
  14. The company is in a comfortable position to weather any adverse extension of the coronavirus disruption from China.
  15. Sidwal is seeing good order book from new trains and metros added in this year.
  16. The import substitution effect is expected to be seen in full force from next year onwards in the company’s subsidiaries.
  17. The management has clarified that the product mix is totally dependent on the specifications that the customer wants from the company and thus it cannot provide any definite guidance on margins going forward. Another key component of margins is import raw material prices which is subject to supply and foreign exchange fluctuations which is also out of the company’s control.
  18. The management is generally confident that consolidated margins should improve going forward.
  19. Q3 Revenues & EBITDA for subsidiaries are:
    • Sidwal: Revenue Rs 68 Cr, EBITDA Rs 18 Cr
    • PICL: Revenue Rs 43 Cr EBITDA Rs 3 Cr
    • EVER: Revenue Rs 58 Cr EBITDA Rs 1.81 Cr
    • ILJIN: Revenue Rs 66 Cr EBITDA Rs 4.28 Cr
  20. The company has enough raw materials till March and if the disruption in China extends past that period then it will start affecting the company’s operations. This will only affect the standalone business and will not have any effect on the component business as sourcing for the subsidiaries is mostly domestic.
  21. The company estimates that 20-25% of IDUs are still imported in India.
  22. The order outlook of Rs 600 Cr in Sidwal while the order book in hand is Rs 420 Cr. The company will be participating in a few tenders soon which should add to the order book.
  23. The company is testing a solar-powered AC but the management is cautious about this product acceptance due to the high costs involved.
  24. The company is seeing good traction in IoT solutions in ACs from industry players.
  25. The management expects the margins for IDUs and ODUs to converge once the company hits volumes of 2+ million. Currently, the margin difference in IDU and ODU of the same tonnage is around 1-1.5%.
  26. The capacity utilization of the components division is around 65-70% and in RAC the utilization rate is 85-90% at peak times and 75-80% in other times.
  27. The management does not see a requirement for large CAPEX going forward. The company will only be doing maintenance CAPEX, R&D and some small capacity expansion at tools and sub shop level.
  28. The split in the 40% revenue share of components is 8% for mobile components, 16% for non-AC components and 16% for AC components.
  29. The company is entering into new components manufacturing for existing customers. It is also going to launch commercial ACs in April for existing customers. The management expects this to be a good driver of growth.
  30. The management is confident of outpacing industry growth and its current capacity is sufficient to cater to the company’s growth plans for some time. The company will only require Rs 15-20 Cr to expand components capacity and thus it can be done easily if required.
  31. The market share of the company in the 60 lac AC market is around 21% which is up from 19% at the time of the company’s listing in 2018.
  32. The company will opt for the old tax regime at the standalone level and in subsidiaries, it will be in the new rate.
  33. The company aims to bring margins up for all subsidiaries and target 6.5% in ILJIN. Sidwal margins are expected to be at least 22% going forward.
  34. The company also sees a margin appreciation of 0.5% in EBITDA level on a standalone basis.
  35. The largest customer for the company is LG whom the company provides only components and no RACs.
  36. The management has admitted that smaller players in the outsourcing industry are suffering and the company is indeed facing lesser domestic competitive intensity than in the past.
  37. The management has stated that it takes only 5-6 months to set a greenfield facility and thus the company will only take any action to set up a new facility in South India when it feels that sufficient traction can be obtained in the region.
  38. Currently, the internal procurement from subsidiaries is around 3% of revenues. The management expects this number to go to 10% at max.
  39. The CAPEX for the year on a consolidated basis is expected to be Rs 120 Cr where Rs 96 Cr is already done. Out of the 96 Cr, Rs 35 Cr is maintenance Capex and Rs 20 Cr has been used for R&D.
  40. Next year the CAPEX is expected to be less than Rs 120 Cr given the company does not invest in a new facility in South India.
  41. The main competitors in the large PCB board for ILJIN in India are Diamond and Dixon.
  42. The opportunity from import substitution effect in FY21 onwards is from cost rationalization from high volumes of finished. The main growth area from the import substitution opportunity is in components as majority of PCBs and 70% of motors are still being imported at present. 90-95% of washing machine motors are also being imported in India.
  43. The company will not enter into compressor manufacturing as the market size is small and the CAPEX requirement is high.
  44. The inventory days in Sidwal has been improved further from 180 days at the time of acquisition to 84 days at present.

Analyst’s View

Amber Enterprises has cemented its position as a prime AC and white good components manufacturer in India. They have achieved phenomenal growth in the current quarter and the management remains optimistic about their prospects for the rest of the year. The performance in this quarter has indicated that the seasonal fluctuations for the industry are decreasing which is good for the company in the long term. The performance of the subsidiaries has been very encouraging and hints at other potential avenues for growth for the company. The company also has a good growth opportunity arriving from the import substitution effect expected to come in FY21 onwards in the components market. It remains to be seen how the company will be affected if the disruption in China from the coronavirus persists as most of the compressors are being imported from China. Nonetheless, given the company’s phenomenal growth record and the massive opportunity in the RAC industry and electronics components market in India, Amber Enterprises remains a preferred player in the white goods industry in India.


 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 392.78 229.04 71.49% 1000.73 -60.75% 1393.52 832.18 67.45%
PBT -5.43 -3.94 -37.82% 76.17 -107.13% 70.73 37.2 90.13%
PAT 4.58* -1.74 363.22% 48.57 -90.57% 53.16 27.11 96.09%

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 623.1 332.9 87.17% 1242.06 -49.83% 1865.16 1042.24 78.96%
PBT 4.64 -3.83 221.15% 91.53 -94.93% 96.17 34.85 175.95%
PAT 12.18** -2.55 577.65% 64.32 -81.06% 76.31 23.94 218.76%

*includes negative tax expenses of Rs 9.96 Cr

**includes negative tax expenses of Rs 7.54 Cr

 

Detailed Results

    1. The company delivered a phenomenal YoY growth of 87% in consolidated revenues while consolidated profits grew more than 5 times YoY in the same period due to the low base in Q2FY19.
    2. EBITDA rose 134% YoY while EBITDA margins improved 113 bps to 5.9% in Q1FY20.
    3. The revenue growth (and current revenue contributions) across operational segments for H1FY20 is:
      • RAC (Room Air Conditioner): Up 89% YoY (63% of total revenues)
      • RAC Components:                 Up 46% YoY (13% of total revenues)
      • Others:                 Up 76% YoY (24% of total revenues)

Investor Conference Call Highlights

  1. The company has observed that the seasonality change in the RAC market is reducing going forward and the RAC industry is not being affected by the overall economic slowdown in the domestic market.
  2. The volume growth for the quarter was 127% YoY. The RAC volumes were at 4.13 Lac units vs 1.82 Lac units last year. The volume growth in H1 was 99% YoY. The RAC volumes for H1 was 14.5 Lacs vs 7.3 Lacs last year.
  3. The growth in volumes was primarily due to the addition of new clients like Toshiba and Livepure. The production for e-commerce sites like Flipkart and Amazon has also started.
  4. Sidwal has recently won an order of Rs 167 Cr from BML (Mumbai Metro) which is to be executed in the next 18-24 months.
  5. The company has completed the acquisition of the last tranche of EVER has been completed in October and now Amber holds more than 70% in this company.
  6. The net debt for the standalone company stands at Rs 216 Cr vs Rs 270 cr last quarter. The working capital days were reduced to 45 days vs 57 days last year.
  7. Revenue contribution of subsidiaries for H1 was:
    • PICL: Rs 84 Cr (EBITDA: 6%, PAT: Rs 1.37 Cr)
    • IL JIN: Rs 166 Cr (EBITDA: 5.1%, PAT: Rs 2.53 Cr)
    • Ever: Rs 155 Cr (EBITDA: 3.5%, PAT: Rs 4.35 Cr)
    • Sidwal: Rs 94 Cr (EBITDA: 24%, PAT: Rs 15.5 Cr) (For 5 Months)
  8. The board have proposed an interim dividend of Rs 1.6 per share.
  9. Imports in window RACs have gone down to 2-3% post the import duty hike. 25-30% of indoor units are still being imported from China.
  10. The reduction in gross margins is mainly due to a change in product mix.
  11. The company has seen the RAC industry grow 15%-17% from April to October. Overall industry growth (primary sales) for the year should be around 15-18% range. The conservative range prescribed by the management is mainly as they are being conservative and considering a lagging impact from the economic slowdown on the RAC industry.
  12. The standalone tax rate is around 35%. The company will change into the new tax regime once they have exhausted the MAT.
  13. The pending order book for Sidwal is around Rs 480 Cr to be delivered in the next 18-24 months.
  14. Secondary sales for the industry has ballooned to more than 35% in the year to date.
  15. Online sales of RACs have grown significantly to 12% of volumes currently and the management expects this to rise to 15% in the next 2 years.
  16. In H1, out of the total volume of 14.5 Lacs, IDU counts for 6.98 Lacs, ODU counts for 5.12 Lacs and windows RAC counts for 2.41 Lacs.
  17. Consolidated Capex for the year so far including subsidiaries is Rs 67 Cr and around Rs 56-60 Cr is expected to be done in the rest of the year.
  18. The management feels that gross margins shall stay at similar levels. There is scope for expansion only when new premium products are added to the industry.
  19. Outsourced industry counts for 38% of total industry volumes and the company accounts for 57-58% of this market share.
  20. The company has identified the land package for expansion in Tirupati and the Capex expected here is around Rs 100 Cr over two years. The capacity expansion from this facility should be around 1 million units.
  21. The company has different duration contracts with different customers.
  22. The top 3 customers are LG (17-18%), Voltas (14-15%) and Panasonic (14-15%).
  23. Competition for the company in the outsourced manufacturing market is mainly from Chinese exporters.
  24. The company expects the existing MAT to run down by the end of next year.
  25. The capacity at the Jhajjar facility is around 1.5 million units.
  26. The management expects the industry growth to stay sustained as the replacement cycle for ACs has reduced to 7 years from 13 years previously and the prevalence of air conditioning in public spaces like schools and offices which has necessitated the presence of RACs at homes.
  27. Currently, export contribution to revenues is only Rs 80-90 Cr at annual levels. This is expected to come up slowly and should prove to be a good opportunity for the company in the next 10 years.
  28. The negative other income is mainly due to forex losses. The forex losses in H1 was Rs 1.8 Cr on a consolidated basis.
  29. The new South facility is expected to be financed by internal accruals and the company does not expect any big debt raising to do the same.

Analyst’s View

Amber Enterprises has cemented its position as a prime AC and AC components manufacturer in India. They have achieved phenomenal growth in the current quarter and the management remains optimistic about their prospects for the rest of the year. The performance in this quarter has indicated that the seasonal fluctuations for the industry are decreasing which is good for the company in the long term. The performance of the subsidiaries has been very encouraging and hints at other potential avenues for growth for the company. So far the industry has not been adversely affected by the current economic slowdown like other home appliances like TV. It remains to be seen whether the industry and the company shall be able to stay immune from the economic conditions in the future as well. Nonetheless, given their high position in the industry and overall growth prospects of the air conditioning industry, Amber Enterprises remains a good stock to watch out for, particularly since it is yet to come up to its IPO price levels despite delivering strong revenue and volume growth since its IPO.

 


 

Notes on Annual Report (FY18-19)

Industry Outlook

The industry is expected to grow 15%-18% in the next few years. The demand for ACs is mainly driven by a growing number of middle-class households, increasing level of disposable income and higher aspirational levels for living standards. Increasing office and retail spaces in the country, along with booming tourism and hospitality sectors and higher rural electrification will further contribute to the healthy growth of the Indian air conditioner (AC) market.

The above graphic identifies that the vast majority of ACs in the country are still 3-star and there is vast potential for conversion of this segment into 5-star ACs at the end of the product life cycle.

The Indian HVAC market is expected to reach $5.9 billion by 2024, registering a CAGR of 7% during 2014-24 period (Source: globenewswire.com). This market growth can be attributed to the increasing number of high-rise buildings, shopping complexes & malls, and hypermarkets in Tier-II cities. Apart from this, the market is also expected to propel on account of on-going Smart City projects across the country. The market is witnessing a huge shift towards the reduction of operating costs, increasing energy efficiency.

Opportunities Identified by the Company

FY19 Performance Update

  • Annual consolidated revenues for FY19 were Rs 2751.99 Cr which was up 28.3% YoY. Operating EBITDA was at Rs 212.36 Cr while profits for the year were at Rs 94.77 Cr.

 

  • The company had negative operating cash flows for FY19 as unseasonal rains in Q4 led to weak sales for the industry and pileup of inventory. Receivables have also spiked up a great deal in the same period.

 

  • The company has developed the first-ever India-made Inverter controller with IL JIN and Bi Square. They are working on developing low power consuming variants of standard window ACs. The company developed 5-star series in both 1 and 1.5-ton inverter AC categories.

 

  • Amber has initiated the development of VRF (Variable Refrigerant Flow) and Cassette (ceiling-mounted AC) with R410 and R32 green refrigerant for better energy efficiency in the commercial AC segment. The company is working on developing ACs with R32 and R290 refrigerant, resulting in low Global Warming Potential.

 

  • In the future, the company plans to study the concept of developing a solar inverter AC.

 

  • The company added new key clients like Carrier Midea, Micromax, Flipkart and Amazon in FY19.

 

  • On the acquisition of Sidwal, the company gained the following key customers in mobile application HVAC segment for
    • Railways and Metros:
      • Integral Coach Factory (ICF)
      • Rail Coach Factory (RCF)
      • Diesel Locomotive Works (DLW)
      • Chittaranjan Locomotive Works (CLW)
      • Bharat Earth Movers Limited (BEML)
      • China Railway Rolling Stock Corporation (CRRSC)
    • Defence: Bharat Electronics Limited (BEL)
    • Telecom: Department of Telecom (DoT)
    • Bus: Original Equipment Manufacturers (OEMs)

 

  • The capital expenditures done in FY19 was at Rs 103.75 Cr.

 

  • The growth in revenue segments is as follows:
    • AC:                 13% YoY (63% of total revenues)
    • AC Components:                 39% YoY (15% of total revenues)
    • Non AC Components: 106% YoY (22% of total Revenues)

 

  • The company entered into a joint development agreement with Infineon, Singapore to develop new invertor technologies.

 

Subsidiaries

The company has a total of 5 subsidiaries. The details of these subsidiaries is as follows:

  1. PICL Pvt Ltd

PICL is an electronics maker based out of Faridabad Haryana. The company is one of the leading manufacturers of AC motors for air conditioners and HVACs. Its leading product occupies 55% of the segment market. The company has been one of the top players in the fractional horsepower motor industry for more than a decade.

The company boasts of many marquee customers in the AC industry like Daikin, Panasonic, Carrier, Blue Star, Voltas, Whirlpool, Amber, etc.

In FY19, PICL reported total revenues of Rs 137.92 Cr and a net loss of Rs 1.61 Cr.

 

  1. IL JIN Electronics Pvt Ltd

IL JIN is PCB (Printed Circuit Board) Maker with manufacturing facilities in Noida and Pune. It is involved in the business of manufacturing, assembling, dealing, importing and exporting PCBs for all kinds of white goods like ACs, washing machines, refrigerators and microwave ovens. They also make high precision PCBs for cars.

Amber owns 70% of IL JIN. In FY19, IL JIN had a total revenue of Rs 335 Cr and a profit of 5.76 Cr.

 

  1. EVER Electronics Pvt Ltd

EVER is a private limited company operating out of Pune. It is involved in the business of assembly of PCBs for white goods like ACs, washing machines, refrigerators and cars.

Amber holds 19% of the company and they plan to bring their stake up to 70% in FY20.

In FY19, EVER had total revenue of Rs 272.24 Cr and a profit of Rs 3.14 Cr.

 

  1. Sidwal Refrigeration Industries Pvt Ltd

Sidwal manufactures HVACs for railways, metros and buses. This shall enable the company to address cooling solutions in new institutional sectors like railways, coach cars, defence, telecom and departmental stores. The company has been in this sector for more than 4 decades and have supplied more than 15,000 HVAC units for railway coaches and more than 2000 HVAC units for metro coaches in India.

 

Advantages Gained from SIdwal Acquisition

The Chairman identifies the following advantages from the Sidwal acquisition:

  • It gives Amber entry into the product segment which has a high entry barrier of up to 6-7 years. Besides this, setting up a pan-India service network for maintenance of the coaches makes the entry for any new player even more challenging.
  • It provides Amber with access to proprietary technology for commercial ACs, air handling units and fan coil units.
  • It adds a new business vertical in the form of mobile application and commercial application of air-conditioners.
  • It will reduce the seasonal dependency of RAC business up to a certain extent
  • With raw materials being common for both the companies, it will allow Amber to leverage its procurement capabilities in bringing down the raw material costs.
  • The funding for Sidwal was done using internal accruals and partial debt which saw the rise in debt to equity in FY19.
  • This acquisition is strategically important because of a few factors:
    • The Government of India has planned to build a metro railway system across cities with a population of over 2 million.
    • With urbanization and long summer months, more commuters are preferring air-conditioned travel in trains or busses. As a result, there is an increasing number of air-conditioned passenger coaches in the railways in recent years. Even the intercity local trains are expected to be converted into air-conditioned coaches in the near future.

Analyst’s View

Amber Enterprises is an important emerging player in the Indian AC industry. The company has made some good acquisitions to bring down their overall costs through vertical integration and expand its product portfolio to achieve higher margins and reduce dependence on RACs. Amber has shown good performance in the recent past and has the inherent advantage of operating in the fast-rising RAC industry which is still in its nascent penetration stage in India and has a lot of room to grow and expand. At Rs 840 at roughly 30% below its IPO issue price 1180, the company looks interesting. If the company continues to maintain its growth rate, valuation at 22 times price to earnings looks reasonable. However, the working capital cycle has got stretched in recent times which we believe we should monitor closely. ROE of the company for the past three years show an increasing trend but is still not very attractive. Hence it remains to be seen if future growth can lift the ROE. Nonetheless, Amber Enterprises is a company worth tracking.

 


Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 1000.73 603.14 65.92% 976.13 2.52%
PBT 76.17 41.14 85.15% 89.04 -14.45%
PAT 48.58 28.87 68.27% 61.37 -20.84%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 1242.06 709.33 75.10% 1201.39 3.39%
PBT 91.53 38.69 136.57% 93.89 -2.51%
PAT 64.32 26.49 142.81% 66.83 -3.76%

Detailed Results

    1. The company delivered a phenomenal YoY growth of 75% in consolidated revenues while consolidated profits grew 1.4 times YoY in the same period.
    2. EBITDA rose 85% YoY while EBITDA margins improved 51 bps to 9.4% in Q1FY20. PAT margins also improved 146 bps YoY to 5.2% currently.
    3. The company credited their huge revenue growth to addition of new customers, increasing wallet share of existing customers and industry growth.
    4. The revenue growth (and current revenue contributions) across operational segments is:
      • RAC (Room Air Conditioner):  Up 79% YoY (69% of total revenues)
      • RAC Components:                      Up 43% YoY (12% of total revenues)
      • Others:                                          Up 86% YoY (19% of total revenues)
    5. In standalone terms, RAC sales volumes grew 89% YoY to 1,039,000 units in Q1FY20.
    6. In standalone terms, EBITDA margins fell 66 bps YoY to 9.4% currently. PAT margins improved marginally to 4.9%.

Investor Conference Call Highlights

  1. The company has completed the acquisition of Sidwal Refrigeration Industries Pvt Ltd and has made it a subsidiary on 2nd May 2019.
  2. The company has identified good cross-selling opportunities, operational efficiency and margin enhancement arising from synergies of this acquisition. They also see good potential in Sidwal due to the various metro systems being constructed in the country and the increase in demand for AC passenger coaches in railways over the years.
  3. The company has benefitted from the rise in customs duty and addition of energy-efficient models which has helped shift industry players to domestic procurement from imports. This has resulted in growth for not only the RAC division but also in the AC and non-AC components have seen rising momentum and greater penetration in their markets.
  4. The company expects this growth and penetration to persist for the next 2 quarters.
  5. The net debt for in standalone basis as of 30th June 2019 was Rs 270 Cr while the working capital days came in at 41 days.
  6. The revenue contribution of the company’s subsidiaries in Q1 is:
    • PICL: Rs 50 Cr (Rs 30 Cr in Q1FY19)
    • IL JIN: Rs 91 Cr (Rs 83 Cr in Q1FY19)
    • Ever: Rs 89 Cr
    • Sidwal: Rs 31 Cr (for 2 months of May and June)
  7. The net debt on a consolidated basis was Rs 381 Cr.
  8. The company expects high growth from IL JIN and Ever in the rest of the financial year due to the addition of many new customers in Q4FY19 and Q1FY20.
  9. The management has stated that the fall in standalone gross margins of 66 bps was mainly due to the product mix where they sold more of the low margin indoor units which resulted in the current number.
  10. The channel inventory levels have bottomed out for the company and without any drastic negative surprises, the company expects the next 2 quarters to be very good for the industry.
  11. The current level of outsourcing for major AC sellers in the country is around 35-36%. The company does not see a big threat if major industry players start a new manufacturing line and this outsourcing % goes down. This is because it would be very positive for the company’s RAC components division as all major manufacturers will still require these components and thus new manufacturing lines will result in higher demand for AC components.
  12. The company has seen the above phenomenon happen with LG which has been a major customer of the company and still remains so.
  13. The company’s focus is on acting as a one-stop solutions providers for any and every player in the air conditioning and ventilation industry. Thus it does not matter whether any client is turning down outsourcing as long as the overall wallet share for the client does not drop.
  14. The management has explained that volumes in Q2 and Q3 will depend on overall inventory levels and online players without any manufacturing facilities of their own may bring up volumes given less demand from marquee clients in these quarters.
  15. The company has maintained that its bottom lines in prices is independent of the final sellers’ bottom line. The company has received good price increase from customers who were previously importing these products from China.
  16. The management has refrained from providing any absolute volumes guidance and has maintained that they will try and stay ahead of the industry. They also do not know how the current economic slowdown shall affect their industry but they believe that industry should decent growth in the next few quarters.
  17. The consolidated net working capital days for the company has reduced to 38 days from 49 days a year ago.
  18. The company has taken around Rs 150 Cr to fund the Sidwal acquisition. Sidwal has added Rs 55 cr of additional debt of itself to the consolidated balance sheet.
  19. Currently, the capacity utilization of the company was at 80%.
  20. The company has recently added Toshiba, Samsung, Sansui, Flipkart and Amazon Basics as customers. The top three customers for the company remain LG, Panasonic, and Voltas. These three contribute around 16%-17% of revenues each.
  21. Indoor Unit Volumes have grown more than 100% QoQ to 4,80,000 units. The window AC volumes have risen to 1,70,000 from 1,40,000 and there was small growth in outdoor unit volumes.
  22. This was mainly because the majority of imports for the industry were in indoor units which went down due to the hike in customs duty.
  23. The company expects this growth trend to continue as the industry grows and more and more sellers turn to domestic manufacturers.
  24. The company is focusing on adding new customers to lower the large concentration from a single customer. They have also initiated an R&D process for developing higher-margin products in IL JIN which should benefit both subsidiaries in the future.
  25. The company has worked hard in Sidwal and reduced the working capital days from 180 days on the acquisition date to 128 days currently. The management thinks that they can bring it down further to 90-100 days in the next 2 years.
  26. On a consolidated basis, the company has Rs 125 Cr lined for Capex in FY20 out of which almost Rs 25 cr has already been spent. Most of this CAPEX is to be in ramping up R&D facilities in the parent and subsidiary companies.
  27. This CAPEX plan is to be done solely using internal accruals.
  28. The company has confirmed that they have an order book of Rs 185-190 Cr for Sidwal this year given no changes in their product delivery schedule.
  29. The management has said that they expect the energy ratings to change in the year 2021 at least.
  30. The company is expecting an industry growth of 20% for the AC industry while the refrigerator industry should be growing 8-9% in the year.
  31. The management has said that they have seen the current economic slowdown affect TV sales and other home appliances but ACs and refrigerators have remained immune to this so far.

Analyst’s View

Amber Enterprises has cemented its position as a prime AC and AC components manufacturer in India. They have achieved phenomenal growth in the recent path and are expected to stay on course for the next few quarters. The company has done well to establish themselves as a one-stop solutions provider for the AC industry and has thus managed to mitigate any drop in outsourcing from the components supplying business. The company guides that more than 20% growth is expected for the entire industry. So far the industry has not been adversely affected by the current economic slowdown like other home appliances like TV. It remains to be seen whether the industry and the company shall be able to stay immune from the economic conditions in the country and whether the projected growth rate of the industry is sustainable for the next few years. Return on equity for the company is not very attractive at the moment. Hence, it remains to be seen if the ratios improve in the coming years. Nonetheless, being a market leader in AC & AC component market in India, it should be tracked closely.

 

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