INSUBCONTINENT EXCLUSIVE:
Elara Capital has a buy call on Amber Enterprises India with a target price of Rs 975.
The current market price of Amber Enterprises India
is Rs 706.70.
Time period given by the brokerage is one year when Amber Enterprises India price can reach the defined target
Investment rationale by the brokerage-AC segment posts 15 per cent volume growth: Amber Enterprise reported revenue growth of nearly 15 per
cent, largely driven by 19 per cent growth in air conditioners (15 per cent volume growth and 3.5 per cent hike in average realization)
Key drag was 1) 23 per cent revenue contraction in AC components business due to loss of customers, and 2) EBITDA decline by 20 per cent,
dragging margin by nearly 220 bp from 7.1 per cent to 4.9 per cent YoY, primarily due to cost inflation
The company has been successful in passing cost inflation to customers, thereby protecting margin
The company reported a profit of Rs 38.5mn vs 1.1mn in Q3FY18.
FY19 guidance maintained, implying 41 per cent volume growth in Q4: The
company is confident of delivering on its earlier FY19 guidance of 10 per cent volume growth of 2.1mn units vs 1.9mn units in FY18, implying
41 per cent volume growth in Q4FY19 (0.95mn units vs 0.67mn units in Q4FY18) due to strong order book and new customer additions (Carrier
Midea, Havells and Flipkart)
However, we expect 5 per cent volume growth 2.0mn units in FY19E, implying 25 per cent volume growth in Q4FY19E at 0.84mn units
Planning to
set up new unit in South India: In FY19, the company incurred capital expenditure of Rs 750-800mn (higher than earlier guided Rs 550mn) on
RD and additional manufacturing line, considering strong orderbook
The company also intends to set up a manufacturing line in South India (incur Rs 300-400 mn in FY20 on land building Rs 550mn in FY21 on
assembly line components) and geographically expand its operations.
Valuation: retain Buy; cut FY18-21E EPS CAGR by 5.4 per cent: We reduce
our FY18-21E EPS CAGR by 5.4 per cent from 37.3 per cent to 31.9 per cent, primarily due to a 30bp EBITDA margin contraction and higher
depreciation finance expenses in subsidiaries
We roll forward our earnings to December 2020E and revise down our target price to Rs 975 from Rs 1,225 based on 20x (from 24x) December
