Amber Enterprises' Q3FY20 results (Outperformer) - Another strong quarter led by subsidiaries
Q3FY20 consolidated result highlights
- Cons. adj. PAT +6x yoy at Rs248mn: led by strong operational performance and reversal of deferred tax liabilities (~Rs77m).
- Revenues jump 52% yoy to Rs7.9bn: led by 37% yoy increase in AC revenues to Rs4.3bn on 35% yoy volume growth led by ramp up of existing customers, shift from imports to indigenous sourcing as also addition of new clients such as Amazon, Flipkart, Samsung, etc. Component revenues too grew by 76% yoy to Rs3.6bn. Consolidation of subsidiaries - Ever (Rs580m) & Sidwal (Rs680m) also boosted revs.
- Strong subsidiary performance aid margin expansion: by 129bps yoy to 6.9%. The margin expansion was restricted in standalone (-92bps yoy to 4.8%) led by adverse product mix towards higher share of low margin IDUs. Margin improvement was led by consolidation of Sidwal which saw margins of 26.5% in 3Q20 as also improved margin profile of PICL (motors) and Iljin. Hence, EBITDA +87% yoy to Rs543mn.
Conference call highlights: (1) Amber delivered +35% yoy volume growth to 572k units in 3QFY20, ahead of industry growth led by increased wallet share from customers & new customers (2) Management’s focus on R&D, higher operating leverage & cost efficiencies to enhance margins of IDUs and subsidiaries (3) Started component export to Sri Lanka, US, Nigeria and Bangladesh; (4) Sidwal has strong order book of Rs4.2bn and outlook of another Rs6bn; (5) Tirupati plant capex is being delayed to next year as the customers are revisiting the South strategy and Amber will take a call in tandem with the customers; Accordingly, capex to be at Rs1.2bn for FY20E; (6) Working capital improved led by strong improvement in Sidwal and also new customers with shorter receivable cycle; (7) Net Debt at Rs3.34bn and RoCE has improved to 19.5% for 9MFY20; (8) Inventory sorted till Mar-19 but if holidays in China extend further due to Coronavirus, supplies would be impacted.
Impact on financials: Upgrade FY20/FY21 EPS by 26% and 21% to Rs56/60
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. We expect focus on margins, efficient working capital and lower debt to drive 42% earnings CAGR over FY19-21E. Accordingly, we believe valuations at 25x FY21E earnings are attractive. Outperformer.
Amber Enterprises India Ltd Formerly known as Amber Enterprises India Pvt Ltd. Amber Enterprises India Ltd., formerly Amber Enterprises (India) Pvt. Ltd, is an India-based original equipment manufacturer. The Company offers products, including air conditioners, microwave ovens, refrigerators, washing machines, heat exchangers, multi flow condensers, luminaries, plastic extrusion sheets, vacuum forming components, injection molding components, sheet metal stamping and auto parts. It manufactures heating, ventilation and air conditioning (HVAC) coils for air conditioners. It offers Fin & Tube Type Heat Exchanger Coils. It produces tube bending fixtures, swage up or swage down toolings, capillary forming tools, spinning machines, deburring tools and brazing fixtures. It offers luminaries that are used various places, including offices, hospitals and clinics, schools and colleges, malls and shops. The Company's sheet metal components are used in various industries, including white goods, switchgears, automobiles and lighting.
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