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Published on 29/06/2019 10:47:57 AM | Source: Equirus Securities Ltd

Update On Amber Enterprises Ltd By Equirus Securities

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FY19 ends on a strong note; encouraging growth prospects to drive FY20E — reiterate LONG

AEL posted a robust 40% yoy growth in its standalone 4Q sales at Rs 9.71bn (+8% vs. EE) led by strong demand from existing clients and new client acquisitions. EBITDA grew 51% yoy to Rs 1.0bn, beating EE by 10% on above-expected sales and gross margins. EBITDA margins improved 73bps yoy to 10.5%, 25bps above EE of 10.3%. With backlog inventories liquidated for most RAC brands and encouraging demand conditions in view of a favorable summer, AEL saw strong volume growth of 43% in 4Q. Along with robust growth in the core business, AEL’s acquisition of Sidwal Refrigeration Industries is expected to boost its operational performance ahead. Maintain LONG with a Mar’20 TP of Rs 1,087 (Rs 1,005 earlier) set at 26x standalone TTM EPS of Rs 38 and 15x subsidiary TTM EPS of Rs 6.5.

 

Volume momentum strong, traction to continue in 1QFY20:

AC volumes jumped 43%/ 11% in 4QFY19/FY19 to 0.96mn/2.12mn (4Q/FY18: 0.67mn/1.91mn) driven by robust demand from the AC industry. Further, AEL topped AC industry growth rates with (a) the addition of four new customers (Havells, Carrier-Midea, Flipkart, Amazon) and (b) new IDU models launched in late-3QFY19, leading to higher volumes from existing clients. With a robust growth outlook for 1QFY20E and new client acquisitions, we expect AEL to register above-RAC industry growth rates in FY20E. Post FY20E, we expect ~15% growth for the standalone business, in line with RAC industry growth rates.

 

Sidwal acquisition to boost growth:

AEL acquired Sidwal Refrigeration Industries in May’19 for a consideration of Rs 2.02bn, which is roughly valued at FY19 EV/EBITDA of 5.3x. Sidwal’s FY19 sales/EBITDA stood at Rs 1.8bn/Rs 380mn with an EBITDAM of ~21%. The acquisition helps AEL tap high entry-barrier customers like Indian Railways and Metros, while foraying into commercial refrigeration. Accordingly, the company can realize synergies by cross-selling Sidwal’s products to existing customers. With an OB of ~Rs 2bn and given higher govt. focus, especially on Indian Railways and Metros, we expect a robust operational performance from Sidwal in the near-to-mid-term.

 

AC, non-AC components set for healthy growth:

Components revenue grew from Rs 1.24bn/Rs 3.83bn in 4QFY18/FY18 to Rs 1.61bn/Rs 4.48bn in 4QFY19/FY19, up 30%/17%. Components contributed 37% of FY19 consolidated revenues vs. 28% in FY18; management aims to take this proportion to 50% in the medium term. Driven by the capabilities of its subsidiaries, we remain confident that this business is poised for healthy growth and offers scope for profitability improvement.

 

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With strong growth prospects for the core business, we expect a ~16% sales CAGR over FY19-22E. We have included Sidwal’s operational performance into our estimates, leading us to raise our consolidated sales/PAT estimates for both FY20E and FY21E by 15%/18%. Maintain LONG with a Mar’20 TP of Rs 1,087. 

 

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