Amber Enterprises IPO – Add this Cool Quotient
We may be blissfully unaware that we could be using this little known company’s products to seek respite from the sweltering heat.Amber Enterprises India Ltd is a Punjab based contract manufacturer of room air-conditioners and its components for most of the Indian AC brands. Below are the investment arguments.
- Leadership position in Room AC (RAC) to further strengthen
Amber commands a lion’s share of ~55% in the outsourced AC industry in India & 19% share in total RAC market. The company caters to 8 of the top 10 customers with marquee names like Voltas, LG, Hitachi, Blue Star, Panasonic, Whirlpool, Godrej, Carrier, Daikin which together constitute 75% market share in India.
While 51% brands are still manufacturing in-house, the trend is expected to shift in favour of OEM/ODM so that brands can focus on their core of marketing and distribution. The company is trying to move up the value chain by transitioning from being an outsourced manufacturer for OEMs to an Original Design Manufacturer (ODM).
- Industry tailwind & geographic expansion provide decent growth visibility
In India, AC penetration is sub 5%, amongst the lowest in the world and is expected to rise on the back of bourgeoning urbanization, disposable income, shorter replacement cycles& easy consumer financing options. The room industry has grown at a CAGR of 9.6% in FY12-17 but is expected to grow at ~16% CAGR in FY17-22E courtesy of the above macro drivers.
Amber is currently exporting to 9 countries but has aims to ramp up its exports share which would also aid the company in improving its capacity utilizations as peak summer season in export markets may coincide with non-peak season in India. The company is already working with the leading global brands in Indian market and needs to leverage its relationship with them to get a share of their export markets too.
Valuation & GreenEdge View
At the upper price band of Rs. 859 per share, the company will trade at 49x based on annualized earnings of H1FY18. Though valuations are not cheap, we recommend investors to subscribe to the issue given the growth opportunity in the AC segment & its leadership position.