Amber Enterprises: Timely diversification pays off

26 Jun 2023 , 10:57 AM

• Weak consumption and unseasonal rains across India, especially north, have severely impacted the offtake of RAC products in Q1FY24. Industry is likely to have declined by 20% vs 15-20% expected growth. Other durables like Refs and washers also remained muted. Channel inventory will take 1-2 quarters to clear and offtake will pick up only by Q3.
• Systemic shift towards solutions-based offerings in RAC and aggressive growth in non-RAC portfolio (motors, mobility, electronics) from early FY23 itself — have protected Amber, de-risking it from the structural reversal in outsourcing trends for finished goods amongst RAC brands.
• Electronics is targeted to be the key growth engine with increased share in BoM across Durable Goods and diversification in new product categories. Amber is eyeing entry in Automotive segment as well through an acquisition. New product applications and exports will be the growth engine for motor portfolio. With increasing share of AC trains and Sidwal’s PQ in place, mobility is poised for strong growth.
• With peak capex behind (Rs11bn in FY22-23), the company is now eyeing 19-21% RoCE with higher utilisation and asset turns. Valuations at 31x FY25 EPS are reasonable vs peers. While capital efficiency has been an area of concern for the stock, delivery on its RoCE targets will be closed monitored and a key re-rating catalyst.