Amber Enterprises India's Q4FY19 results (Outperformer) - Strong quarter; Wider product portfolio to drive growth

Q4FY19 standalone result highlights

• Std. adj. PAT at Rs616mn: led by higher revenues and margins
• Revenues increased 40% yoy to Rs9.7bn: AC revenues increased 43% yoy to Rs8.1bn on 45% volume growth as OEMs placed orders for upcoming summer season, shift from imports to indigenous sourcing as also addition of new clients such as Carrier, Amazon, Flipkart, etc. Components too grew by 27% yoy to Rs1.6bn in 4Q19.
• Positive operating leverage aid margin expansion: by 73bps yoy to 10.5%. Further, ~3% price hikes in 4QFY19 to pass on higher input costs aided margins.  Hence, EBITDA grew 51% yoy to Rs1bn.
• FY19 consolidated PAT at Rs937m (+50% yoy): led by 11% AC volume growth and consolidation of subsidiaries acquired in FY18 end (Iljin and Ever; see page 3 for details). Hence, revenues +29% yoy to Rs27.5bn and EBITDA +16% yoy to Rs2.13bn. Further, lower interest cost (-54% yoy; debt repayment via IPO funds) boosted FY19 PAT. 

Conference call highlights: (1) Amber delivered +11%/+45%yoy volume growth to 2.12mn/0.96mn units in FY19/4Q19, ahead of industry growth (2) New customer additions in 4Q19 and scale up of IDU models to sustain volume growth inFY20E (3) Summer season progressing well with 35%+ volume growth in April-May (4) Management is focused on product R&D, exploring new geographies (5) higher operating leverage & cost efficiencies to enhance margins of IDUs and subsidiaries (6) FY20E capex plan is ~Rs1-1.1bn towards plant in Tirupati to cater to south mkt, R&D and de-bottlenecking (7) Working capital expanded due to higher sales in Feb-Mar-19, adverse payment terms of new clients and lower payable days for IDU vendors. These are likely to normalise going forward & mgmt. expects working capital to ease (8) Sidwal acquisition (80% stake) completed at Rs2.02bn (Rs1.47bn via Amber and Rs550mn debt on Sidwal books).

Impact on financials: Upgrade FY20/FY21 EPS by 23/24% to Rs37.7/45.5

Valuations & view

Amber has emerged as one of the leading design-focussed outsourced manufacturing companies with 55%+ market share, led by its cost-effective manufacturing, scale, backward integration, strong design capabilities and wide product portfolio. Accordingly, Amber with its strong value proposition is seeing benefits from recent import duty hikes as brands are localising vs China outsourcing of RAC production. We expect the margin and working capital issues to resolve in FY20 driven by higher demand. Accordingly, we believe valuations at 18x FY21E earnings are attractive in view of 24% earnings CAGR over FY18-21E. Outperformer.​