Amber Enterprises - AC Contract Manufacturer

Hi All,

Starting thread on Amber Enterprise.

Amber basically manufactures RACs and components for eight out of the top 10 RAC brands in India.

IPO came @859 in Jan 2018 at PE = ~70
Current Price: 830, Current PE = 27 , as earning grew.
Market Cap: 2,554cr, sales: 2,718

WHO WE ARE

A ONE-STOP SHOP FOR AIR CONDITIONERS AND ITS COMPONENTS FOR CONSUMERS.

Amber Enterprises India Ltd is a prominent solution provider for Air conditioner OEM/ODM Industry in India. It has a dominant presence in RACs complete unit and deals in major RAC components with 10 manufacturing facilities across India focusing in on different product segments.

With expertise in components like heat exchangers, sheet metal components, injection molding components, and system tubing and motors, Amber is strongly positioned with its backward integration to derive the core deliverable’s in terms of quality, cost & delivery.

We offer higher energy efficiency and expertise in indoor, outdoor, split and window AC units. We deal in AC components as well as non-AC components.

We have a Diversified Product portfolio which includes:

  • 1
RACs

WE DESIGN AND MANUFACTURE COMPLETE RACS INCLUDING WINDOW AIR CONDITIONERS(“WACS”) AND INDOOR UNITS (“IDUS”) AND OUTDOOR UNITS (“ODUS”) OF SPLIT AIR CONDITIONERS ("SAC"S) WITH SPECIFICATIONS RANGING FROM 0.75 TON TO 2 TONS, ACROSS ENERGY RATINGS AND TYPES OF REFRIGERANT.WE DESIGN AND MANUFACTURE INVERTER RACS TOO.

  • 2
RAC Components:

WE MANUFACTURE RELIABLE FUNCTIONAL COMPONENTS OF RACS THAT INCLUDES HEAT EXCHANGERS, MOTORS AND MULTI-FLOW CONDENSERS WITH OTHER COMPONENTS SUCH AS SHEET METAL COMPONENTS, COPPER TUBING AND INCLUDING PLASTIC EXTRUSION, VACUUM FORMING AND INJECTION MOLDING PROCESSES TOO.

  • 3
Non AC Components:

WE MANUFACTURE COMPONENTS OTHER DURABLES AND AUTOMOBILES SUCH AS CASE LINERS FOR REFRIGERATOR, PLASTIC EXTRUSION SHEETS, SHEET METAL COMPONENTS FOR MICROWAVE, WASHING MACHINE TUB ASSEMBLIES WITH OTHER SHEET METAL AND PLASTIC INJECTION MOLDING AND EXTRUSION COMPONENTS FOR AUTOMOBILES AND METAL CEILING INDUSTRIES.

History:


Capex plans

In tandem with the growth in its order book, capex of Rs 75-80 crore was incurred in FY19 on R&D and an additional manufacturing line. Amber plans to set up a new manufacturing facility in south India. For this, the company will invest in land and building (worth Rs 30-40 crore) in FY20 and Rs 55-60 crore on a new assembly line in FY21.

Valuation:

Currently stock is valued at PEG Ratio: 0.79, Market Cap to Sales: 0.94, which looks reasonable for decently growing business.

Investment Rational:

  • Long Runway: The penetration of room ACs in Indian households is just 4%, hence long runway ahead, and AC is not luxury item anymore, at-least in north India its becoming necessity, and i don’t see any reason why the whole AC market wont grow in next 10 years, there might be temporary slowdowns, but not permanent one.

  • Decently growing company: In last 6 years sales has grown 3x where as profit has grown 4-5x.

  • Consolidating market: Most of the AC brands are their customers, and some competition is going away as LEEL almost collapsed due to fraud, so Amber is able to consolidate market, they also acquired Sidwal (Market leader in Railway & Metro AC), IL Jin and Ever electronics(AC Parts maker) recently.

  • Focused approach: till date all the acquisition and expansion Amber did are majorly focused on AC market, which i think is good as manufacturing is game of scale & efficiency.

  • To promote ‘Make in India’ initiatives, the government has imposed steep custom duties on imported RACs and its components. This should help Amber bag new contracts.

  • Recently they added both Amazon India & Flipkart as there customers and decent growth from digital market.

Risks/Concerns:

  • Technological disruption in AC tech: although i think it’s low probability, still it can happen.

  • Customer Concentration: 75% of sales is from top 5 customer only, which is quite concentrated.

  • Stiff competition in the consumer durables business, RAC brands are forced to take price cuts in a bid to gain market share, This could put Amber’s margin under pressure since its contracts are B2B (business-to-business) in nature.

  • Demand slowdown: as in current scenario demand of even food products is effected, and of-course consumer discretionary items can experience bigger slowdown like auto’s.

  • Company looks aggressive in acquisitions as in last 2-3 years they acquired 3 companies, acquisitions are usually considered risky way for expanding business, one wrong acquisition can plague the company.

References:

Disc: Still Evaluating and its work in progress and have a initial position @ 825.

Appreciate members feedback, point of view on Amber business and Quality of Management as someone said, in India, Management is multiplicative factor if management is zero everything goes to Zero.

10 Likes

All three directors are seems to be dressing on the salad … But how they add value to the company don’t know . all three became director on same day (this is HAJMOLA TIME to take pill to digest this ) MAY be this made during IPO …
Dr. Girish Kumar Ahuja became Director of your Company on 20 September 2017. He is a qualified and practicing Chartered Accountant for the past 49 years consultancy experience

Ms. Sudha Pillai became Director of your Company on 20 September 2017. Ms. Pillai joined the Indian Administrative Service in 1972 at the age of 22 with Second Rank on all India basis

Mr. Satwinder Singh became a Director of the Company on 20 September 2017. Mr. Satwinder Singh heads Vaish Associates Advocates (“Firm”) corporate practice at New Delhi and has over 25 years of experience

High raw material cost average 82% production cost 4% employee cost 3% SO TAKE TIME TO ANALYSE HOW THEY WILL GROW , but they certainly can COOKED THE BOOKS I MAY BE 100% WRONG
now Sales Growth % 2015 2016 2017 2018 2019 26.39->-11.48%->51.68%->28.19%->28.33% One need to find the ALLADIN GIN they found in IN 2017( DIG for the source of growth and check is this sustainable or not

you need to check at what valuation they acquire Ever Electronics private limited .

there are various opportunities of steady compounders are available in this short meltdown of market . PROTECTION of CPTIAL must be the AIM than to heading for GROWTH or MULTIBAGGERS
regards
there are lots of related party transaction you must be well aware of these

disc: I am not SEBi approved Analyst This is not an recommendation to buy sell or hold

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Sidwal is the best thing happened to them…may support lean q3 and q4. Dixon has diverse business compare too much depend upon AC.
Climate change,rising temp. is blessing in disguise for the co.

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Can you please elaborate on this point?

@nityanandparab ji Sorry to respond you late this is the snip from screener


HOW THEY WILL GROW: they can take either organic or inorganic path for growth .But in march 2018 they shows income from shares as 474.68 Crs

COOKED THE BOOKS ( My intent is not that they had cooked the books but there MIGHT be chances i haven’t gone to deep as i was not interested in the company so didn’t dive deep that’s the reason i wrote i might be 100% wrong )
There are many ways that a company can inflate the earning specially during the BULL run .It gave them good chance to raise more money

regards

updates on the company

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I recently presented Amber enterprises as a stock idea in Bangalore Investors group.Sharing the Presentation.
Disclaimer: have a tracking position; please do your due diligence.Info gathered from multiple sources.Amber enterprises.pdf (1.5 MB)

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Mar 2018 they did the IPO wherein they raised 475 cr in fresh issue.

I was going thru the RHP and came across the following Related Parties where the promoters have/had shareholding/directorship
image
Q1. Though of the above in most of the entities the existing promoters have given up their directorship, is there a chance of any indirect control, etc? Does any 1 have any idea?
Q2. If one looks at Amber Infracon Systems Pvt. Ltd. - This company is involved in HVAC business in the commercial space. It is headed by Mr. Prabhakaran Singh who was also nominated as the Independent Director in Ever Electronics Pvt. Ltd. (Amber’s Subsi). Moreover, if one looks at the company’s website (http://amberinfra.com/), the registered address of the company and Amber Enterprises is same. The current Promoters were directors in this company at some point in the past.
Are there any conflicting situations occuring? Any competitive businesses being run in Private?

As being very new in the exchange there are lot of things which are not clear yet, also so many big broking agency and big agents are attending concall and asking questions, but yet there are no research report on this company. may they are getting their business model, working culture. May be they are waiting 2-3 years to be the picture clear.

There are a few research reports by Axis Direct. Emkay, Prabhudas, ICICI Securities. All the target prices have already been exceeded. The stock is showing more than unusual strength. Market knows something which is not there in balance sheet, or in research reports. We need to dig deeper.

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excellent results; aquisition of Sidwal result paying off.
RAC was earlier 76% which is 60% now.
RAC is low margin business around 4%, while Sidwal business in enterprise space is 13-14% margin.
So good times ahead for this company. In contract manufacturing they are the sole player/leader.
Expansion to South India(plant at Tirupathi) will reduce the logistics and supply chain cost while transporting from current North based plants to South.
Import duty increase on AC imports is another factor thats benefitting them.

Disclosure: invested with a low percentage

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Amber Q320 jan 20 call . rough notes

big jump in room AC…new customer added.

Room AC was 74%…2 years back…versus COMPONENTS

now 64% AC’ss…rest components

we want 50:50

Standalone growth 22%

Opertaing EBITDA 19 cr to 25 cr…30% growth. Other expenses jump…jhajhar plant…expenses up…new plant…low capacity utilization as just started

if Coronovisurs continues…China led supplies could be affected if continues till Feb 10th…

IDU’s 25% imported…used to be 40%…we are a major supplier of IDU’s…LG makes inhouse…we sell components to LG to make IDUs. Panasonic…also…makes in house…but we supply components

Sidwall (100 cr for h1 revenues) 420 cr orderbok in hand

Working on solar AC’s : prepared model…and in testing…its high cost……uptake is low…from customers…slow response.

IOT AC products : AI…based…seeing lot of traction

IDU : is lower priced…affecting margins overall mix detoriating. Endevaour is to improve mix…higher margins…which products getting substituted from China ….(we are late entrant)

1 ton AC ODU …vs 1 AC ton IDU : 1% margin difference…which will get converged when we do 2 mn sales.

2 capacities : Components : 65-70% range ; in ROOM AC”s : peak seasonal capacity util ; 85-90%…sub shops : 75-80%,; CAPEX : no large requirement…we don’t need 100 acre land…we set up small factories…green field new facility…need 100 cr ; but no green field capacity requirement…now…we will doing some brownfield…

NON AC components :

CAPACITY : what will drive growth with no greenfield expansion ; we were planning to ; we will tag along …with customers…customer clusters….OEMs were planning to put in capacities in SOUTH INDIA…but now goings slow. In north and west we have capacity/land

COMPONENTS WE HAVE CAPACITY…components additional line capex is 15-20 cr…in existing factories also we can do that

20 lacs units

60 lacs Indian AC industry : we were 19% 2 years back now 21%…; components market share : 100 bills of materials : 30% goes to compressor ……rest 70%…we do 60%…

Outsourcing market is getting increase : we will outgrow the market…our share will gradually grow.

tax rate : MAT credit…in standalone…; consol…is 25%…this quarter…; next to next year…will be 25% tax rate…

SUBSIDARIES SIDWAL : 26% margins in q4…22% in 9 months…very high…we should be in 21-22% range

Engines : gone to 3% tto 5.5%…will go tto 6 -6.5% next year

PICL : also…will see positivity in margins…1-1.5% margin increase going forward

INHOUSE mfg…and IMPORTING : cost differential : LG is our largest customer…doesnt outsoucr ACs…but we sell components….we cannot comment on cost insourcing versus China imports….COMPENENTS we

OEMs talking of inhouse mfg…we will sell them COMPONENTS

new factory : 500 cr capex…and then we can sell semi finished and components…

IDU : indoor AC

Outdoor AC : 16% to 38%…now…will go to 52% in 2022-23……this is growth opportunity

commercials AC, large tonnage models…cassette ACs

We are increasing wallet share…start with 1 ton ACs…then 1.5 and 2 tons…and then components…and then import substitution also

Due to China overcapacity : China imports quite cheap….

Coronovirus : Amber’s ROOM AC standalone biz will be impacted…COMPONENTS WILL NOT BE impacted. China has extra inventories….20% import duty barrier has been put…some companies can shift to China…its volunuimous. rating coming….next year. If import surge happens from China…govt closely looking…

800-900 rs…india is competitive…OUTDOOR units…india manufacturing cost in India…is same…… 90 days lead time…only 400 units in 1 container…changin rating sticker; in Indoor we have to work on costing front

With AMBER’s 15 plants…our local competition is reducing

VOLTAS and Diaken looking to set up in south plant…we don’t want to move to new location before customer…takes us 5 months greenfield capacity…as we see OEM construction we will follow

INDOOR/OUTDOOR volumes… 20 lacs…manufactures…versus 11 lacs…(as some customers…tried to negotiate)

PAT margins for SIDWALL : 12.5 cr ; for ENGINE ; 1.7 cr ; EVER : 25 lacs ; PICL : 32 lacs

59 cr intersegment : 2000 cr standalone revenue…we don’t buy from ; SIDWALL doesn’t supply anything to AMBER….; AMBER buys motors from PICL…22% of requirement…rest we import ; 3% of subsidiaries…intersegment to AMBER… max can go to 10%…

planning to go to further components….; Wiring harness business, moulding…

CAPEX : 2020 : consol : 96 cr…done…35 cr maintaince…20 cr R&D…; will do 120 cr…2020 full year; 2021 : much lower incase we don’t put facility in South

INVERTER CONTROLLER : 2.5 mn inverter AC’s sold in Indi; BIOSQUARE …design house…INFINEON….chip maker…Opportunity : 55% industry is INVERTER…PCB board…is largest cost…3200 rupees….only 2 makers…DIAMOND, DIXON…and us (engine) is the LARGEST…inverter PCB…no one wants to import…everyone wants to buy here…import substitution make in india

6-7 mn market COMPRESSOR plant…break even 2 mn …COMPRESSOR. 30% of bill of materials

WHOLE ENERGY CONVERSIOn happens through PCB board…for inverter

want to launch heat exchangers

IMPORT SUBSTITUTIOn : new models every year…cost compettativeness increasing…; inverter PCB board largely been imported; 90% washing machine motors being imported in India……many items coming from China where large import substitution could come from

SIDWALL capex : 5 cr…from 120 cr overall capex. ; 180 WC days to 93 days to now 84 days in SIDWALL

STRATEGIC GROWTH Advisors : our IR advsiors

6 Likes

At a cursory glance I see one anomaly which I am not able to get a handle on -

Why does Amber need Gross Block of 1000 Cr to make revenue of less than 3000 Cr? Gross Asset Turns of < 3X appears way too low for this industry

Dixon has Gross Asset Turns of 9X+ (of course the product portfolio served is different here)
Blue Star Ltd works at Gross Asset Turns of 6X+ (primarily AC)
Johnson Hitachi is at 5X+

Amber appears to have the lowest Gross Asset Turns across the entire consumer durables pack

If AC making is that capital intensive, why does Amber operate at OPM of < 9%? All other businesses where gross asset turns is on the lower side OPM’s are almost always higher

Any insights on why it is this way?

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Probably has to do with seasonality of operations of the plant. This results in lower utilization during offseason. Below report probably provides the clue:

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-Amber_Enterprise_C_Update-_Sep_2019_20190916161241.pdf

“During the season (December to May) the plant operates at a utilisation of 70-75%; c.40% offseason”

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As per my understanding Dixon in majority of its business is more of an ‘Assembly Line’ manufacturer. Considering it’s more of assembling rather then manufacturing capex intensity is lower. With regards to brands like Blue Star, Voltas, JC-Hiachi, a lot of their business is outsourced to players like Amber/Dixon and others for either the IDU/ODU or specific components. Plastic extruded products, Compressors, motors, condensers are most probably outsourced or imported. So, the capex that brands would require is minimal restricted to Assembly Lines ++ as the case may be. Also, I would presume that the Gross Block of companies like Blue Star would be old & significantly depreciated compared to Amber’s much recent capex. This is my understanding. Pls correct me if wrong.

Disc: Invested at avg price of INR 1000

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a boon for companies like Amber who are into AC manufacturing

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Wouldn’t it increase competition for companies like Amber and Dixon ?

@zygo23554 @vivek_mashrani , senior members pls advice…

Also, recent Custom duty hike on compressors from 10% to 12.5% should push domestic manufacturing of compressors. Can Amber leverage on this opportunity to manufacture it and get contracts on the same ?