17 March 2021

INDIA | INDUSTRIALS | COVERAGE INITIATION

AMBER ENTERPRISES
THE LINCHPIN OF INDIA'S AC INDUSTRY

Dominant player in the Key beneficiary of Initiate with BUY & TP

underpenetrated government policies such as of INR 4,000, implying
AC industry PLI and import substitution 16% upside
17 March 2021

INDIA | INDUSTRIALS | COVERAGE INITIATION

TABLE OF CONTENTS

Introduction 3
Key charts 4
Investment thesis 6
Financials 16
Valuations & Peer Comparison 19
Business Overview 21
Company Background 24
Key Risks 26
Financial Tables 27

Amber Enterprises is a dominant EMS player in the underpenetrated

Indian RAC industry with c.24% market share. We believe it is poised
for exponential growth over the next 5 years led by a strong
customer base catering to the top 10 brands, wide range of ODM
products, favourable government policies such as PLI, PMP and
import substitution initiatives and expansion of offerings in mobile
ACs and consumer electronics segments.

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17 March 2021

INDIA | INDUSTRIALS | COVERAGE INITIATION

Amber Enterprises
The linchpin of India’s AC industry
Amber Enterprises (Amber) is a dominant EMS player in the
underpenetrated Indian RAC industry with c.24% market share.
This has been led by a combination of intense backward
integration through acquisitions in motors and PCBA, increasing
ODM product range (which offers higher margins/RoICs) and
sticky client relationships with its top 10 customers holding a
75%+ market share (15 plants, located close to customers).
Over the past 5 years, Amber has delivered 26%/25% CAGR in
sales/EBITDA, led by increased outsourcing by brands and
improving market share in the EMS space. We believe it is
poised for exponential growth over the next 5 years on a) its
dominant market share of 24% in the underpenetrated RAC
market; b) its strong customer base (catering to the top 10 AC
brands) and wide ODM range of products; c) favourable
government policies such as production linked incentives (PLIs),
phased manufacturing programme and import substitution
initiatives; d) addressing product gaps through acquisitions
(PICL, Ever and IL Jin); and e) expansion of product offerings in
mobile ACs and consumer electronics. Effective implementation
of the PLI scheme is likely to increase domestic value addition
and creation of an export base, which could improve asset turns.
Over FY20-23E, we forecast sales and EPS to clock 17% and
26% CAGR, respectively. Upon addressing issues of lower asset
turns and reduced import dependence, we anticipate that RoICs
can expand to 17% by FY23E.
We initiate coverage on Amber with a BUY rating and TP of INR
4,000 (40x FY23E EPS), implying 16% upside. Key risks: Seasonal
nature of sales, insourcing by brands and forex/tax uncertainty
on high import content.
Structural trends to drive room AC growth in India: India’s RAC
segment continues to remain the most underpenetrated category
with penetration of 7% vs. 14% for washing machines and 32%
for refrigerators; this offers a multi-decade growth opportunity to
EMS manufacturers. Increasing power availability, rising
temperatures, improving affordability and better credit availability
are key enablers that could push the RAC industry market size up
from 7 million units at end-FY21 to 12 million units by FY25.
Dominant market share of 24% and sticky customer relationships:
Amber has upped its market share over the past 5 years from
15% to 24%, led by increased outsourcing by brands (40% vs.
34% in the past 2 years) and higher wallet share from key
customers. Amber caters to the top 10 AC brands that command
a more than 75% market share. It also has sticky relationships
with these customers as the ‘on boarding to ramp up’ cycle takes
3-4 years, which increases switch-out costs for customers.
Favourable government policies and consistent import
substitution: Import content in RACs remains high at 55-60% and
this offers vast scope for indigenisation. These schemes
announced include PLI (INR 5.1bn outlay), phased manufacturing
programme in RACs and components (roadmap for BCD increase)
and restriction on imports (from FTA countries). Industry bodies
estimate that domestic value addition would increase from 25%
to 75% on successful implementation of the PLI scheme.
Addressing product gaps through acquisitions and expansion in non-
RAC space: With focus on cooling, Amber has addressed product
gaps in RACs through acquisitions of PICL (BLDC motors), IL Jin
and Ever (PCB manufacturing). Further, the company is
expanding its TAM by a) the acquisition of Sidwal in mobile ACs,
now commands a 51% market share, b) the extension of sheet
metal and PCB capabilities to WMs, refrigerators and microwave
ovens and c) entry in the commercial HVAC space (by Mar’21).

Recommendation and Price Target Financial Summary (INR mn)

Current Reco BUY Y/E March FY19A FY20A FY21E FY22E FY23E
Current Price Target 4,000 Sales 27,520 39,628 34,691 49,698 63,668
Upside/(Downside) 16.4% Sales growth (%) 30.0 44.0 -12.5 43.3 28.1
EBITDA 2,129 3,093 2,504 3,880 5,528
EBITDA (%) 7.7 7.8 7.2 7.8 8.7
Key Data – AMBER IN Adjusted net profit 937 1,584 1,068 2,055 3,370
Current Market Price INR3,435 Diluted EPS (INR) 29.8 50.4 31.7 61.0 100.0
Market cap (bn) INR115.7/US$1.6 Diluted EPS Growth (%) 50.3 69.1 -37.1 92.5 64.0
Free Float 60% ROIC (%) 10.3 15.1 8.3 13.5 18.1
Shares in issue (mn) 33.7 ROE (%) 10.0 15.0 7.8 11.9 17.1
Diluted share (mn) 33.7 PE (x) 115.3 68.2 108.4 56.3 34.3
3-mon avg daily val (mn) INR530.5/US$7.3 Price/Book Value (x) 11.0 9.6 7.1 6.4 5.4
52-week range 3,668/921 EV/EBITDA (x) 55.8 38.5 46.0 29.8 20.8
Sensex/Nifty 50,364/14,910 Dividend Yield (%) 0.0 0.0 0.1 0.1 0.2
INR/US 72.6 Source: Company data, JM Financial. Note: Valuations as of 16/Mar/2021

Price Performance JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters, S&P Capital IQ,
FactSet & Visible Alpha. You can also access our portal: www.jmflresearch.com
% 1M 6M 12M
Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst
Absolute 6.8 70.2 180.5 Certification.
Relative* 10.5 32.8 74.8
*To the BSE Sensex Sandeep Tulsiyan We acknowledge the support services of
sandeep.tulsiyan@jmfl.com Harses Kampani in the preparation of this report.
Tel: (91 22) 66303085

JM Financial Institutional Securities Limited Page 3

Amber Enterprises 17 March 2021

Key focus charts

Exhibit 1. Underpenetrated AC industry in India is poised for a strong growth over next decade
Among consumer durables, RAC penetration in India is the lowest India has the lowest RAC penetration compared with other countries

Consumer Durables Industry Pentration - India RACs - India Penetration vs Asian countries
70%
60.0% 100%
90% 91%
60%
90%
80%
50%
70%
40% 60% 54% 53%
31.5% 50%
30% 40%
30% 30%
30%
20% 17.0%
14.1% 17%
20%
7%
10% 7.4% 10%
0%

India

Indoneesia

Thailand

Taiwan
Japan

Malaysia
Global

China
0%
Room AC Washing Air cooler Refrigerator FPD TV
Machine

Break-down of RAC sourcing (%) RAC industry volume growth is likely to accelerate

Break-down of RAC sourrcing %) RAC - mn units

14.0
11.9
12.0
11% CAGR
10.0

OEM/ODM
In-house brands 8.0
38% 6.8
40% 10% CAGR
6.0

4.0
2.6

2.0
Imports
22%
0.0
FY10 FY20 FY25E

Outsourcing share in RAC industry to reach 52-53% over FY23E Amber has a dominant share of c.71% in the outsourcing industry

RAC Industry (mn units) Outsourcing Share (%) Other Outsourced AC players Amber's share

10 60.0% 100.0%
53.4%
51.5% 51.5% 90.0%
9
29.3%
50.0% 80.0%
8 44.6%
41.0% 41.2% 52.7%
7 70.0%
40.0%
34.0% 34.5%
6 60.0%
29.4% 30.8%
5 30.0% 50.0%

4 40.0%
20.0% 70.7%
3 30.0%
55.4%
47.3%
2 20.0%
10.0%
1 10.0%
3.4 3.9 4.7 5.5 6.1 6.8 6.8 8.5 9.5
0 0.0% 0.0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY15 FY17 FY20

Source: Company, JM Financial

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Amber Enterprises 17 March 2021

Exhibit 2. Amber appears favourably placed to capitalise on this decadal growth trend
Amber has a 24% market share in the Indian RAC Industry India’s share in global AC market to significantly rise

Amber's Market share in RAC Industry Global AC market - mn units India's share

160 18.0%
30.0% 16%
140 16.0%
25.0% 24%
14.0%
120
19.1%
20.0% 12.0%
100
14.7% 10.0%
15.0% 80
140 8.0%
10.0% 60
6.0%
90
40
5.0% 4.0%

20 2.0%
0.3%
0.0%
FY15 FY17 FY20 0 0.0%
2019 2029

Revenue and EBITDA to report 17% and 21% CAGR over FY20-23E PAT to report 29% CAGR over FY20-23E

Revenue OPM (%) PAT (adjusted) YoY (%)

70,000 12.0% 4,000 181% 200%
10.4%
60,000 3,500
10.0%
8.7% 8.7% 150%
7.9% 7.8% 7.8% 3,000
50,000 7.7%
7.2% 8.0%
2,500 92%
40,000 100%
INR mn

INR mn
69% 64%
6.0% 2,000
30,000 50%
50%
4.0%
1,500
20,000
1,000 -8%
2.0% 0%
10,000 -33%
500
10,890 16,519 21,176 27,520 39,628 34,691 49,698 63,668 221 623 937 1,584 1,068 2,055 3,370
0 0.0%
0 -50%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

Exhibit 3. Domestic Peer comps

CMP Mcap EV/E (x) P/E (x) EPS CAGR % RoE (%)

Companies INR INR bn FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20-23E FY20 FY21E FY22E FY23E

Amber Enterprises 3,435 116 44.4 57.7 37.4 25.7 68.2 108.4 56.3 34.3 26% 14.2 7.4 11.5 16.5

Voltas 1,031 341 51.9 59.3 38.8 30.1 61.8 63.3 44.9 35.7 20% 13.2 12.0 15.2 16.8

Blue Star 896 86 31.1 32.7 20.2 16.7 58.6 79.0 35.4 27.7 28% 17.8 13.8 27.7 29.6

Johnson Controls Hitachi 2,709 74 33.0 49.6 31.7 23.9 88.2 128.1 59.1 39.9 30% 12.8 8.0 15.2 19.0

Whirlpool India 2,398 304 31.7 52.3 34.7 29.2 62.1 83.3 50.1 41.3 15% 20.8 12.9 18.9 19.8

Havells India 1,088 681 28.5 45.9 41.0 34.7 92.6 69.4 60.8 50.4 23% 17.3 21.4 21.1 22.1

Dixon Technologies 20,725 240 107.4 79.3 43.1 33.0 199.0 139.9 69.7 53.2 55% 25.4 27.0 38.9 35.1

Average ex- Amber (x) 47.3 53.2 34.9 27.9 93.7 93.8 53.3 41.4 29% 17.9 15.8 22.8 23.7
Source: Bloomberg, JM Financial

JM Financial Institutional Securities Limited Page 5

Amber Enterprises 17 March 2021

Investment Thesis
Underpenetrated RAC market provides a high growth opportunity
 India’s RAC secondary market accounted for 6.8 million units in FY20 and was valued at
INR 198bn. Over the last decade, the RAC industry has reported a 15% CAGR. While
growth in FY21E would be stunted, it clouds the fact that long-term growth drivers
remain intact. This is because category penetration for room ACs remains substantially
lower than other consumer durables in India. In fact, we would like to highlight that RAC
companies clocked 25% YoY growth in 3QFY21. We expect the RAC industry to touch
INR 424bn in by FY25, posting a 13% CAGR and volumes are expected to reach c.12
million units, led by a) improved power availability in Tier2/3 cities, b) rising disposable
incomes, c) ease in availability of credit financing, d) lifestyle changes as a wider younger
earning class population emerges and e) increase in the number of nuclear families.

 Given conflicting data from various sources, we analysed the room AC penetration rates
using our own framework. We estimate India’s room AC penetration at 7%, which is
significantly lower than 14% for washing machines and 32% for refrigerators, as per our
proprietary framework. Various factors such as frequent power cuts, low disposable
income and emergence of competing electronic items (eg. smartphones) contributed to
this low penetration rate, as room ACs are still perceived as a luxury item, while washing
machines and refrigerators are perceived as utility products. Even compared with other
Asian countries with similar demographics, RAC penetration in India is rather low at just
6%, compared with 91% in Malaysia, 53% in China, 30% in Thailand and 8% in
Indonesia. Thus, we believe the penetration story in room air conditioners is likely to
remain intact over a long period, sustaining double-digit volume growth over the next
decade.

Exhibit 4. RAC Industry dynamics

Among consumer durables, RAC penetration in India is the lowest India has the lowest RAC penetration compared with other countries

Consumer Durables Industry Pentration - India RACs - India Penetration vs Asian countries
70%
60.0% 100%
90% 91%
60%
90%
80%
50%
70%
40% 60% 54% 53%
31.5% 50%
30% 40%
30% 30%
30%
20% 17.0%
14.1% 17%
20%
7%
10% 7.4% 10%
0%
India

Indoneesia

Thailand

Taiwan
Japan

Malaysia
Global

China

0%
Room AC Washing Air cooler Refrigerator FPD TV
Machine

RAC industry volume growth is likely to accelerate Realisations to witness a faster increase due to cost inflation

RAC - mn units RAC (INR bn)

14.0 450 424
11.9 400
12.0
11% CAGR 350 13% CAGR
10.0
300
8.0 250
6.8
10% CAGR 198
200 15% CAGR
6.0
150
4.0
2.6 100
50
2.0 50

0
0.0
FY10 FY20 FY25E FY10 FY20 FY25E

Source: Company, JM Financial

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Amber Enterprises 17 March 2021
th
Amber addresses 1/4 of total AC demand in the country
 The Indian AC industry comprises in-house brand manufacturing (40%), outsourced
(38%) and imports (22%). While underlying AC volumes are posting a 10-12% CAGR,
the outsourced portion is likely to grow much faster (15-17% CAGR) as the share of
outsourcing continues to increase consistently.

 The OEM/ODM industry comprises c.5.2 million units, 38-40% of the overall RAC industry
size (outdoor + indoor units); this is likely to increase to 52-53% by FY23E. Amber is the
market leader in the outsourced RAC market with a 70% share. We note that Amber
dominates the ODM market as it increased its market share from 55% to 70% in the last
3 years, while the second largest player only holds a meagre 10% market share.

 Amber caters to c.70% of the total cost of manufacturing a RAC. The remaining 30%
mainly comes from compressors (20%) and other smaller items, which are imported from
primarily from China as capital costs of setting up a plant are prohibitive due to low
volumes. China’s annual AC production stood at 45 million in 2019 vs. 7 million in India.
However, favourable government policies are driving indigenisation as global majors are
setting up plants for compressors and other components in India.

 Being a one-stop shop solutions provider and offering wide range of components to RAC
brands, with 15 manufacturing units across 6 states, gives Amber an edge over its peers.
By setting up manufacturing facilities close to its clients, Amber has been able to reduce
logistic and operating costs as well as minimise delivery time. Also, its large-scale flexible
production units help it compete with Chinese imports in terms of cost. We note that
despite a sharp 35% decline in volumes in 2QFY21, Amber reported operating margins of
5.3%, merely 60 bps lower YoY.

Exhibit 5. Outsourcing share of ACs and Amber’s market share

Outsourcing share in RAC industry to reach 52-53% over FY23E Amber has a dominant share of c.71% in the outsourcing industry

RAC Industry (mn units) Outsourcing Share (%) Other Outsourced AC players Amber's share

10 60.0% 100.0%
53.4%
51.5% 51.5% 90.0%
9
29.3%
50.0% 80.0%
8 44.6%
41.0% 41.2% 52.7%
7 70.0%
40.0%
34.0% 34.5% 60.0%
6
29.4% 30.8%
5 30.0% 50.0%

4 40.0%
70.7%
20.0% 30.0%
3 55.4%
47.3%
2 20.0%
10.0%
1 10.0%
3.4 3.9 4.7 5.5 6.1 6.8 6.8 8.5 9.5
0.0%
0 0.0%
FY15 FY17 FY20
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Break-down of RAC sourcing (%) Amber has a 24% market share in the Indian RAC Industry

Break-down of RAC sourrcing %) Amber's Market share in RAC Industry

30.0%

25.0% 24%

19.1%
20.0%
OEM/ODM
38% In-house brands 14.7%
40% 15.0%

10.0%

5.0%

Imports
22% 0.0%
FY15 FY17 FY20

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 7

Amber Enterprises 17 March 2021

Exhibit 6. Amber’s sales are 4x its nearest

FY20 - INR mn Amber Enterprises PG Electroplast E-Pack Durables
Revenue 39,628 6,390 10,410
EBITDA 3,093 400 696
EBITDA M (%) 7.8% 6.3% 6.7%
PAT 1,584 30 200
Source: Company, JM Financial

Strong clientele with growing wallet share

 Amber’s key customers include leading RAC brands such as Daikin, Hitachi, LG,
Panasonic, Voltas and Whirlpool, who cumulatively control more than c.75-80% of the
RAC market in India. The product approval cycle, especially for leading brands, can be as
long as 3-4 years for certain critical components and Amber has been supplying to all the
major brands since over 5 years. Amber has been able to increase its client base on
several factors such as a) customising and improving its product portfolio as per client
requirements, b) providing end-to-end product solutions and c) shorter delivery times due
to proximity of its units from client’s plant locations. Further, Amber’s philosophy of
“never compete with customers” is reassuring to its OEM clients. We note in the past
Lloyd Electricals launched its own brand, leading to a decline in business from larger
OEMs. In our view, such factors would help Amber sustain client relationships in the long
run.

 The company has purchased 10 acres of land in Pune, adjoining to Toshiba and Carrier
Midea’s manufacturing plants. It plans to develop 250,000 sq ft in Phase-1 and start
production by 4QFY22. The plant is slated to commence with initial manufacturing
capacity of 1 million units and this would be ramped up at a later stage.

 Amber also has proven qualities of increasing its wallet-share with its existing customers.
For instance, it LG reduced share of ODM purchases from Amber since 2013, but overall
business from LG has more than doubled in past 7 years, due to ramp up in component
supplies. Also, it helps the company to cross sell its components across other product
categories of umbrella brands.

Exhibit 7. RAC Industry market share and Amber’s clientele

6-7 players control c.85-90% of the RAC industry in India Amber’s clientele dominates c.75-80% share in RAC Industry in India

India RAC industry- Market share

Samsung
5% Others
7%
Voltas
24%
Hitachi
8%

Blue Star
10%

Daikin
Lloyd 18%
11%

LG
17%

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 8

Amber Enterprises 17 March 2021

Government impetus on curbing imports opens a large opportunity

 Government focus on “Atma Nirbhar India” has led to special focus on the RAC Industry.
The total import of RACs in India stands at INR 40bn, c.30% of the industry. Apart from
this, RAC component imports stand at INR 70bn, thus taking the total RAC and
component imports to INR 110bn. Of this, c.70% flows in from China and Thailand.

 We believe the Oct’20 DGFT notification opens up a significant immediate opportunity for
the outsourcing industry. Imports of CBUs are estimated at c.2 million units (INR 40bn),
representing 30% of industry volumes of c.7 million units (INR 140bn). Of this, 75-80%
comprises CBUs pre-filled with refrigerants, forming a near-term opportunity of INR 30bn-
32bn. Mitsubishi, O General, Toshiba are some key players with high CBU imports; they
have a combined market share of just under 15%.

 While all import business may not immediately shift to local players, the move is well
thought out. Some AC manufacturers have increased in-house manufacturing capacity,
but many fringe players do not have local manufacturing facilities. Outsourced players like
Amber could help them set up an assembly line to meet near-term demand, as they
progress to set up local production units over 18-24 months. We believe this would
increase the share of outsourcing of ACs from 40% to 50-53%. Management
highlighted in recent interactions that it has acquired 7-8 new ODMs due to this policy
change.

Exhibit 8. Import of RACs and AC components

Import of RAC CBU’s Import of AC Components –ex compressors (HS Code: 841590)

Import of AC units % of industry size Import of AC Components (INR mn) - ex compressors

45,000 45%
30,000
39%
40,000 40%
34% 25,000
35,000 32% 35%
30%
30,000 27% 27% 30% 20,000
25% 26% 26%
25,000 25%
INR mn

INR mn

21%
18% 15,000
20,000 20%

15,000 15% 10,000

10,000 10%
5,000
5,000 5%

- 0% -

2016-17

2017-18
2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2018-19

2019-20
2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

Source: Company, JM Financial

Exhibit 9. Amber’s import content as % of COGS

Amber's Imports (%) of COGS

9,000 25.7% 26.0%

8,000 25.5%

7,000 25.0%

24.1% 24.5%
6,000
24.0%
5,000
INR mn

23.5%
4,000 7,961
22.7% 23.0%
3,000
5,240 22.5%
4,489
2,000 22.0%
1,000 21.5%

0 21.0%
FY18 FY19 FY20

Source: Company, JM Financial

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Amber Enterprises 17 March 2021

PMP for ACs to drive increased localisation

 The PMP (Phased Manufacturing Programme), which was successfully implemented in the
mobile phone category, is set to be implemented for ACs. Under PMP, the government
plans to restrict imports of components/equipment in the 1st phase by raising duties and
introducing import restrictions on motors, compressors, PCBs, etc. to 20-30% over a 5-
year period. Under Phase 2, raw materials such as copper and aluminium will be
indigenised. The government aims to create wide-scale manufacturing infrastructure for
RAC components in India, which would help curb imports and provide export
opportunities.

 The total value of imports of RACs and RAC components is INR 110bn, of which INR
40bn comes from CBUs, while the remaining comprises aluminium, copper, motors, PCB
and compressors.

Exhibit 10. Import duty increase and other non-trade barriers timeline
Timeline Events
Import duty on AC was increased from 10% to 20%; Import duty on RAC compressor was increased from
Sep-18
7.5% to 10%
Jul-19 Import duty on AC (outdoor unit and indoor unit) was increased from 10% to 20%

Jan-20 Import duty on RAC compressor was increased from 10% to 12.5%

Oct-20 GoI has banned the import of completely built units of air-conditioners with refrigerants
Source: Industry, JM Financial

Exhibit 11. Increase in import duty on RACs and AC compressors

2018 2020 2025

35.0%
30%
30.0%

25.0%
20.0% 20% 20%
20.0%

15.0% 12.5%
10.0% 10%
10.0% 7.5%

5.0%
0%
0.0%
Import Duty on RACs Import Duty on AC Import Duty on other
compressor AC components

Source: Company, JM Financial

PLI scheme to incentivise large-scale production

 India’s disability factor (gap in manufacturing cost) against China stands at 9-10%.
Hence, the government recently extended the PLI scheme to ACs, thus making it one of
the 12 champion sectors identified to make India a global manufacturing hub. The
scheme is targeted at substituting imports, which currently stand at INR 110bn by
reducing the disability factor by c.5%.

 The incentive amount proposed for room ACs under the PLI scheme stands at c.INR 50bn,
of which INR 30bn is for RACs and INR 20bn is for AC components. Assuming the
incentive rate is 4-6%, the planned output over the FY23-28 (5 years) could be almost
INR 1.25tn (INR 750bn in ACs and INR 500bn in AC components). At the end of 10 years,
industry bodies such as CEAMA and RAMA expect annual sales to reach INR 1tn vs. INR
198bn currently.

 The scheme is likely to be launched in Apr’21 and is expected to increase domestic value
addition from 25% to 75%. This is also likely to open up opportunities for exports from
India, which are currently negligible. As per CEAMA, India’s AC industry can be ramped
up to INR 1tn in value over the next 10 years; of this, exports would form 35%. This could
JM Financial Institutional Securities Limited Page 10
Amber Enterprises 17 March 2021

help India compete in export markets with countries such as China, which - along with
Thailand - controls 75% of the global export market.

 We compare the PLI scheme for ACs with the PLI for mobile phones, which was launched
in Apr’20 and provided 4-6% incentives on incremental sales (over the base year) of
goods manufactured. Mobile phones priced <USD 200 (70% of the Indian market) can be
catered to only by domestic companies who can avail the PLI Scheme. Under the domestic
phone manufacturing segment, the government approved Lava, Bhagwati (Micromax),
Padget Electronics (Dixon), UTL Neolyncs and Optiemus Electronics. These domestic
companies have proposed a production output of INR 1,250bn over the next 5 years.

 While cumulative sales over FY23-28 are expected to reach INR 1.25tn, both brands and
ODM players such as Amber are likely to compete for PLIs. Of the 16 popular AC brands
in India, the majority market share is controlled by 11 large brands. If Amber loses the PLI,
it would still continue to supply components to these brands, keeping its wallet share
relevant.

Exhibit 12. PLI scheme for RACs and Mobile phones

PLI Scheme RACs RAC Components Mobile Phones

Proposed incentive (INR bn) 30 20 410

Incentive Rate (%) – assumed for RACs/components 4-6% 4-6% 4-6%

Total production over FY23-28 (INR bn) 750 500 10,500

Source: Company, JM Financial

Variety of factors augur well for increased outsourcing

 The geographical expanse of India as well as the complexity of its target markets has
pushed consumer durable brands to restrict focus to their core competence areas of
innovation, differentiation, marketing and distribution. This leads to brands focusing on
outsourcing for manufacturing. Economies of scale provided by outsourced players -
along with management of logistics and warehousing - help maintain lower costs for the
brand and its reduce working capital cycle. Flexibility of providing multiple models with
quick turnaround times and the outsourcing company’s capability to maintain technology
and product dynamism also plays a key role.

Exhibit 13. Advantages of outsourcing

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 11

Amber Enterprises 17 March 2021

Exhibit 14. Key advantages of ODM player

Key characteristics ODM

Design ODM undertakes the design and leads to faster product development along with manufacturing
RAC brands avoid manufacturing challenges and save on cost and time. ODM player invests in
RM procurement
RM procurement.
ODM is an attractive option since it allows faster market penetration along with option to have
New entrants
multiple SKUs (higher number of model launches)
R&D Lower investments by brand due to reliance on ODM
ODM can command higher pricing and increase wallet share in the long run since association
Pricing
with ODM is strategic and not transactional
Source: Company, JM Financial

Increasing backward integration, localisation and economies of scale to be margin

accretive
 Amber currently manufactures 60% of the components for WAC; for split ACs, it
manufactures 80% of the indoor unit and 65% in the outdoor unit,. We note that
barring compressors, which require high value capital investments and packaging (non-
core and non-margin accretive to the portfolio), Amber manufactures the entire range of
products needed for RAC manufacturing. Currently, Amber has a capacity of 4 million
motors per annum through its subsidiary PICL and 10.5 million PCBs per annum through
IL JIN and Ever Electronics. It plans to increase its capacity for motors, PCBs, as 50-70% of
these products are imported.

 We believe Amber has scope to increase localisation for its key components where the
import content is high. Motors, PCBs and cross-flow fans have import content of c.70%,
c.65% and 50-60%, respectively. Increasing localised content of these components
should drive margin expansion for the company.

 Amber distributes manufacturing across 15 of its facilities to achieve optimal utilisation,

which aids in reduction of the impact of seasonality and helps it efficiently manage
customer demand schedules. Its assembly lines are flexible and can shift from WACs to
SACs within a short period of time.

 Amber has undertaken various initiatives to reduce costs and aid its margin expansion.
These initiatives include implementation of SLE 50 (Safety Improvement and Loss
Elimination by 50%) and COI (Cost of inefficiency), to bring efficiency in its processes
with objectives such as reduction of cost of input material, optimisation of tool
consumption by using designated tools for designated processes, reduction of waste,
reduction of power and utilities costs and loss elimination.

Exhibit 15. Components in Inverter AC

Components in AC ODU IDU Inverter AC Amber
Heat exchanger 9% 9% 18% Yes
ODU + IDU Motor 4% 5% 9% Yes
Copper tubing 4% 2% 6% Yes
Sheet Metal components 7% 0% 7% Yes
Plastic - Injection moulting components 3% 7% 10% Yes
PCB 20% 4% 23% Yes
Compressor 20% 0% 20% NA
Cross flow fan 0% 1% 1% NA
Packaging and Misc 0% 7% 7% NA
Share in Inverter AC 65% 35% 100%
Amber's share 66% 77% 70%
Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 12

Amber Enterprises 17 March 2021

Exhibit 16. Components for Window AC

Cost of components in WAC (%) WAC Amber
Heat exchanger 20 Yes
Motors 8 Yes
Copper tubing 8 Yes
Sheet Metal components 13 Yes
Plastic - Injection moulting components 5 Yes
PCB 5 Yes
Packaging and Misc 6 NA
Compressor 35 NA
Total 100 59
Source: Company, JM Financial

Exhibit 17. Import content in key AC components

Import content in key AC components

75%

70%

65%

60%

55%

50%

45%
55% 65% 70%
40%
Cross Flow-fan PCBs Motors

Source: Company, JM Financial

Share of AC components to grow rapidly

 With the government’s increasing focus on localisation, both domestic and global brands
are looking at outsourcing to Indian companies. Even if large brands attain economies of
scale in in-house assembly operations, they are still likely to locally source components.
Amber has a robust component and product range and caters to the major requirements
of domestic and global OEMs. In our view, Amber should continue to maintain wallet
share through AC component sales, as it has already cleared the product approval phase
with leading and smaller players in the Indian RAC Industry.

 Revenue from AC components stands at INR 5bn (14% of sales) and is expected to grow
faster than Amber’s RAC revenues, in our view.

 Amber acquired PICL in 2010. PICL is the largest induction motor manufacturer for the
HVAC industry in India, with 200+ models; it caters to both RAC and non-RAC
customers. It has a capacity to manufacture 4 million motors per annum with 7 lines of
manufacturing. In FY20, PICL clocked revenues of INR 1.85bn with margins of 5.6%.

 Amber acquired a 70% stake in both IL JIN (2017) and Ever Electronics (2018) to
strengthen its PCB manufacturing base. Both companies possess 2 decades of experience
and have a cumulative capacity to manufacture 10.5 million PCBs per annum. As these
companies scale up operations, we expect both IL JIN and Ever to sustain 5-6% EBITDA
margins going forward vs. 2-5% currently.

Exhibit 18. Details of subsidiaries

Subsidiary Stake Sales EBITDA PAT Products
PICL India 100% stake 1,850 104 21 Motors
IL JIN Electronics 70% stake 3,247 168 85 PCBs
Ever Electronics 70% stake 2,971 102 28 PCBs
Sidwal 100% stake 2,390 542 347 Mobile applications
Source: Company, JM Financial. Note: All figures in INR mn

JM Financial Institutional Securities Limited Page 13

Amber Enterprises 17 March 2021

Ocean of opportunity for global sourcing

 The room AC (RAC) market currently stands at INR 198bn, of which exports are negligible.
Industry bodies such as CEAMA and RAMA believe that the total domestic production of
RACs will reach INR 1tn in the next 10 years, led by PLI schemes, implementation of the
phased manufacturing programme and other trade barriers. Of this, exports are likely to
form INR 350bn (35%) as the disability factor of 9-10% is overcome by these various
schemes and on the development of large-scale manufacturing. Overall, global AC demand
is currently 110-115 million units per annum, of which RACs constitute 95-99 million. China
is the largest market with volumes of 42-45 million units per annum, followed by Japan at
9-10 million. Overall, Asia is the largest market with a c.70% share in overall AC demand.
Ex-China and Japan, Asia’s share stands c.17%. The Americas, EU and Middle East
contribute c.15%, c.6% and c.4%, respectively.

 China produces c.70% of the world’s RACs while India continues to import 20-25% of its
domestic demand. We believe that government initiatives to boost manufacturing in India
and the global China+1 strategy can lead to various MNC and domestic companies
setting up export-oriented plants in India. This would drive robust growth in outsourcing
as companies may outsource a wide range of products from components to CBUs since
each component cannot be manufactured cost-effectively by every OEM. Also, Amber can
directly target global customers with its in-house SKUs and supply components directly.

 This creates an ocean of opportunities for Amber. We exclude Asia volumes from the
opportunity as we believe existing facilities in China, Indonesia and Japan would be able
to cater to this demand. Barring Asia, the opportunity stands at 26-28 million units per
annum, almost 15x-18x Amber’s current annual volumes.

Exhibit 19. RAC Industry market share and Amber’s clientele

Global RAC volumes China vs India volume market share (%)

Global RAC - volumes - mn units China volume market share (%)

India volume market share (%)
120.0
50% 45% 45% 44%
43% 43%
96.4 96.1 45% 40% 41%
100.0
88.8 39% 40% 40%
84.6 83.8 82.9 86.2 40%
78.0
80.0 73.4 35%
61.3 30%
60.0 25%
20%
40.0
15%
10% 5% 6% 6%
20.0 4% 4% 4% 4% 4% 4% 5%
5%
0.0 0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: JRAIA

Exhibit 20. India’s share in Global AC market to significantly rise

Global AC market - mn units India's share

160 18.0%
16%
140 16.0%

14.0%
120
12.0%
100
10.0%
80
140 8.0%
60
6.0%
90
40
4.0%

20 2.0%
0.3%
0 0.0%
2019 2029

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 14

Amber Enterprises 17 March 2021

Growing footprint in non-RAC components

 Amber also manufactures non-RAC components such as washing machine tubs, Printed
Circuit Boards (PCBs), case liners for refrigerators, washing machines, microwave oven
and extruded sheets for refrigerators and sheet metal parts for various application
including automobiles. Amber leverages its ability to innovate and manufacture products
providing an edge to diversify into related business verticals. Although, revenue
contribution is c.INR 8bn which is relatively low (20% of revenue), we believe that this is a
strategic opportunity to grow aggressively in the non-RAC components which is a huge
opportunity by it-self.

 Amber is an early entrant in the ODM market for central air conditioners (CAC). The
company has ventured in the category with offerings of 5.5 ton and 8.5 ton models and
will also be launching cassette ACs soon. While the overall CAC industry size is much
smaller at INR60-70bn vs INR200bn for RACs, absence of ODM players in this space will
provide an early mover advantage to Amber.

Venturing into industrials through the Sidwal buyout

 Amber acquired 100% stake in Sidwal in 2 phases, where in Phase-1 it acquired 80% of
Sidwal (including Sidwal Technologies, which would be merged prior to the acquisition) in
Apr’19 for an EV of INR 2.5bn, while balance 20% stake was acquired in Sep’20. Sidwal
is the market leader in railway/metro AC components with a 50% market share; it has a
track record of supplying over 15,000 HVAC units for mainline coaches and over 2,000
HVAC units for metro coaches. It also has a dominant 80% market share in the Defence
segment.

 This acquisition gives Amber entry into high-entry barrier and long-approval-cycle
industries such as Railways, Defence, Buses and Commercial ACs. Amber has secured
mandatory pre-qualifications with leading entities of the Indian Railways such as ICF, RCF,
DLW, CLW, BEML, Rotem, CRRC, etc. Other OEMs with which Amber would be
empanelled are Tata Motors, Swaraj Mazda, BEL, etc. Sidwal also bags annual
maintenance contracts from clients and hence O&M makes a healthy contribution to
revenues.

 We believe this acquisition is a step in the right direction as it a) provides entry in a new
vertical of the HVAC industry (with high entry barriers and long product approval cycles),
b) allows for existing pre-qualifications with leading entities, c) reduces seasonality with
margins almost 2.5x the core business and d) is margin accretive.

 In FY20, Sidwal clocked revenue of INR 2.4bn with EBITDA and PAT of INR 526mn and
INR 347mn, respectively. We expect Sidwal to report revenue CAGR of 16% over the next
3 years with margins of c.22%.

Exhibit 21. Sidwal Revenue share and key end-user industries market share
Sidwal revenue share – FY18 Sidwal market share in end-user segments (%)

Sidwal Revenue share (%) Sidwal market share in key segment's

Telecom 90%
80%
4% 80%
Others
6% 70%
Bus 60%
9% 50%
50%
Defence 40%
9%
30%

Railways and 20%

metro
72% 10%

0%
Metro Segment Defence segment

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 15

Amber Enterprises 17 March 2021

Financials
 Unabated growth to continue: Amber reported sales CAGR of 48% during FY15-20
driven by robust growth in both its segments i.e. RACs (28% CAGR) and components
and mobile applications (24% CAGR); this was led by increasing wallet share with clients
and adding more to its range of components. Over FY20-23E, we forecast 18% and 15%
CAGR in RAC and components, respectively. Overall, we forecast revenues to report 17%
CAGR over FY20-23E.

Exhibit 22. Revenue and revenue growth trend

Revenue YoY (%)
70,000 60%
52%

60,000 44% 43% 50%

40%
50,000 30%
28% 28%
30%
40,000
INR mn

20%
30,000
10%
20,000
0%
-11% -12%
10,000 -10%
10,890 16,519 21,176 27,520 39,628 34,691 49,698 63,668
0 -20%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

 Scale benefits to accelerate Amber’s earnings: Amber clocked strong revenue growth in
past 5 years, led by continued penetration in room AC segment, increased share of
outsourcing and market share gains. However, margins have declined over the same
period by 50bps to 7.8% as worsening scale benefits were offset by weakening currency
and faster growth in component sales vs. complete RAC units. We forecast a strong
17%/26% CAGR in sales/EPS over FY20-23E, as we believe margins are likely to rise on
scale benefits vs. peers (Amber’s sales are 4 times its next competitor), incremental
domestic sourcing and new categories are likely to accelerate Amber’s earnings trajectory.

Exhibit 23. EBITDA and operating margin (%)

EBIDTA OPM (%)
6,000 12.0%
10.4%

5,000 10.0%
8.7% 8.7%
7.9% 7.7% 7.8% 7.8%
4,000 7.2% 8.0%
INR mn

3,000 6.0%

2,000 4.0%

1,000 2.0%

1,137 1,309 1,839 2,129 3,093 2,504 3,880 5,528

0 0.0%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 16

Amber Enterprises 17 March 2021

 Robust PAT growth expected: We estimate adjusted net profit CAGR of 29% during
FY20-23E (vs. 41% CAGR during FY15-20) on the back of improvement in operating
margins to 8.7% in FY23 and benefits of increased indigenisation.

Exhibit 24. Adj profit and PAT growth YoY (%)

PAT (adjusted) YoY (%)
4,000 181% 200%

3,500
150%
3,000

2,500 92%
100%
INR mn

69% 64%
2,000
50%
50%
1,500

1,000 -8%
0%
500 -33%
221 623 937 1,584 1,068 2,055 3,370
0 -50%
FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

 Healthy return ratios to continue: Amber’s RoIC profile over the past 5 years hovered at
10-11% since its operations in a seasonal industry keep fixed asset turns low at 2.3x-2.6x.
However, management’s strategy to target export customers and category extension to
non-seasonal products such as refrigerators, HVAC and mobile refrigeration should help
improve the fixed asset turnover ratio. We expect Amber’s RoIC to improve to 15-17%
range, as we expect fixed asset turns to increase from average of 2.3x during FY16-20 to
2.9x during FY22-23E. Net margins are also expected to improve from 4% to 5% due to
economies of scale benefits; reduced debt (through utilisation of QIP funds) and lower tax
rate (25% vs. 31%). High RoE/RoCE in FY20 are outliers due to substantially lower tax
rate of 14%, as PICL had benefits of carried forward losses.

Exhibit 25. Return ratios and fixed asset turns

Return ratios to inch higher as margins pick up Asset turns remains stable led by higher capex towards new plants

RoE (%) RoIC (%) Capex (INR mn) Fixed Asset Turns (x)
18.0 20.0 3500 3.5
17.4 3.1
16.0 18.0 2.9
16.5 3000 2.8 3.0
14.0 14.5 16.0 2.6
14.2 12.9 14.0 2500 2.3 2.5
12.0 2.2
11.3
12.0
10.0 9.8 9.8 11.5 2000 2.0
INR mn

INR mn

10.0
8.0 8.0 9.6 7.9
9.3
8.0 1500 1.5
6.0 8.6 7.4
6.0
6.2 1000 1.0
4.0 4.0
2.0 2.0 500 0.5

1520 1117 3266 1768 2500 2500

0.0 0.0
0 0.0
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

 Fund raising completed for future planned capital expenditure: Amber completed its QIP
in Sep’21, issuing 2.25mn shares, at a price of INR1,780 per share. The company raised
INR4bn through the QIP issue, which will help achieve twin objectives of meeting its
working capital requirement for future growth as well as provide funds to opportunistic
acquisitions in allied segments. We foresee capital expenditure of 6-7bn and working
capital requirement of INR2-2.5bn over FY21-23E, while current fund raise of INR4bn and
internal accruals of INR9-10bn, is likely to keep the balance sheet healthy.

JM Financial Institutional Securities Limited Page 17

Amber Enterprises 17 March 2021

 ODM revenues lead to higher NWC; OCF generation strong: While cash flow generation
at Amber was healthy over the past 8 years, the balance sheet continued to remain
levered until end-FY20, as the bulk of cash generation was deployed in expansion of
manufacturing capacities through greenfield investments and acquisition of PCIL, IL Jin,
Ever and Sidwal. The operating cash flow-to-EBIT ratio was healthy at an average of 54%
during FY16-20, but is likely to accelerate to 80% over FY21-23E, in our view. As we
forecast more than a 50% jump over FY20-23E, we expect continued investments in the
company’s fixed asset base. The recent QIP issue, where Amber raised INR 4bn, is likely to
ease out funding requirements.

 Amber has managed to maintain an average working capital cycle of 35 days, despite
sales posting a 48% CAGR over FY15-20. We understand that Amber’s NWC days are
higher than Dixon’s since 94% of Amber’s revenue comes through ODM, where NWC
investment is required.

 Its cumulative OCF/EBIT has remained strong at 67% over the last 5 years while FCF
generation remains negative since the company continues to invest in organic expansion
and acquisitions.

 We expect NWC to remain steady at 30 days. We forecast average annual capex of

around INR 2.3bn per annum over FY21-23E.

Exhibit 26. NWC days and FCF

NWC days to remain fairly stable at around 30 days Cumulative OCF to be INR 7.5bn during FY21-23E

NWC (INR mn) NWC days OCF/EBIT (%) FCF/EBIT (%)

6,000 60 150%
52

5,000 50 100%
62%
4,000 35 40 50%
33 33 17% 18%
29 30 30 111% 88% 124% 2%
95% 75% 71%
INR mn

INR mn

3,000 26 30 0%
-3% -15% -39% -5%
2,000 20 -50%

1,000 10 -100%
-98%
992 1,504 1,536 3,918 3,137 3,327 4,085 5,233 -114%
0 0 -150%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 18

Amber Enterprises 17 March 2021

Valuations
Relative valuations underestimate intrinsic value and growth potential; Reverse DCF
pricing in 15% CAGR in FCF over FY25-35E
 Amber’s stock is currently trading at PE of 56x/34x FY22E/FY23E earnings. Valuations are
fairly similar to its peer group’s average multiple of 53x/42x EPS. Headline valuations,
however, ignore the underlying growth potential, in our view.

 We evaluate the reverse DCF to understand underlying growth being priced in over the
next decade. We used explicit forecasts until FY25 and then analysed the growth rate
being factored at the CMP. After FY25, CMP factors in CAGR of 6.6% in revenue, 6.6%
in EBIT and 15% in FCF over FY25-35E; this, in our view, looks comfortably achievable
given the long runway for growth in an underpenetrated market. Keeping aside the
domestic prospects, we also note that the export opportunity can be 30 million units per
annum, which is almost 20x Amber’s current volumes. In this context, relative valuation
multiples based on near-term earnings probably underestimate the intrinsic value and
growth potential of the business. Hence, we do not expect any significant de-rating for
the stock, notwithstanding the steep headline multiples that the stock is currently trading
at.

 Thus, we value the stock at 40x FY23E EPS, arriving at TP of INR4,000. Our target
multiple is in-line with median multiple of peer group companies.

 Our Reverse DCF analysis is based on the following assumptions:

a) Revenue, EBIT and FCF CAGR of 19%, 25% and 40% respectively over the explicit
forecast period covering FY20-25E, followed by Revenue, EBIT and FCF CAGR of 9%, 9%
and 18% respectively during the fading out phase (FY25-35E).

b) Weighted average cost of capital of 9.1%.

c) Terminal growth rate of 5%, which we believe is reasonable for the business,
considering the growth opportunity that the AC outsourcing space presents in India.

Exhibit 27. What is the implied growth at CMP and our TP?
Implied growth at CMP of INR 3,400 Implied growth at our TP of INR 4,000

Revenue EBIT FCF Revenue EBIT FCF

45.0% 45.0%
40.0% 40.0%
40.0% 40.0%

35.0% 35.0%

30.0% 30.0%
25.4% 24.7% 25.4%
25.0% 22.9% 25.0%
18.9% 18.9%
20.0% 20.0% 17.7%
15.2% 14.1%
15.0% 12.5% 15.0% 12.1%
10.5%
8.9% 8.9%
10.0% 10.0%
6.6% 6.6%
5.0% 5.0%

0.0% 0.0%
FY20-35 CAGR FY20-25 CAGR FY25-35 CAGR FY20-35 CAGR FY20-25 CAGR FY25-35 CAGR

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 19

Amber Enterprises 17 March 2021

Peer Comparison
Exhibit 28. Global peer comps
Mcap EV/E (x) P/E (x) EPS CAGR % RoE (%)

Companies USD bn CY19 CY20E CY21E CY22E CY19 CY20E CY21E CY22E CY19-22E CY19 CY20E CY21E CY22E

Midea 89.1 13.6 18.6 16.1 14.3 22.8 22.5 19.5 17.2 12% 23.6 22.5 22.8 22.9

Haier 39.6 10.0 19.0 15.4 13.3 28.3 26.4 21.3 17.3 11% 14.1 15.0 17.3 18.0

Gree 53.5 9.9 11.0 8.5 7.5 21.3 18.0 13.8 12.1 7% 15.1 16.3 19.0 19.2

Whirlpool 13.0 6.2 6.7 6.8 6.6 11.2 10.4 10.4 9.7 8% 30.9 27.3 NM NM

Electrolux 8.6 5.1 6.6 5.9 5.6 17.1 16.2 13.8 13.0 12% 31.9 22.5 23.3 22.9

Carrier 34.4 28.4 14.5 13.0 12.1 45.3 20.7 17.8 15.9 3% NM 24.4 24.4 26.5

Average (x) 12.2 12.7 10.9 9.9 24.3 19.0 16.1 14.2 9% 23.1 21.3 21.4 21.9
Source: Company, JM Financial

Exhibit 29. Domestic Peer comps

CMP Mcap EV/E (x) P/E (x) EPS CAGR % RoE (%)

Companies INR INR bn FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20-23E FY20 FY21E FY22E FY23E

Amber Enterprises 3,435 116 44.4 57.7 37.4 25.7 68.2 108.4 56.3 34.3 26% 14.2 7.4 11.5 16.5

Voltas 1,031 341 51.9 59.3 38.8 30.1 61.8 63.3 44.9 35.7 20% 13.2 12.0 15.2 16.8

Blue Star 896 86 31.1 32.7 20.2 16.7 58.6 79.0 35.4 27.7 28% 17.8 13.8 27.7 29.6

Johnson Controls Hitachi 2,709 74 33.0 49.6 31.7 23.9 88.2 128.1 59.1 39.9 30% 12.8 8.0 15.2 19.0

Whirlpool India 2,398 304 31.7 52.3 34.7 29.2 62.1 83.3 50.1 41.3 15% 20.8 12.9 18.9 19.8

Havells India 1,088 681 28.5 45.9 41.0 34.7 92.6 69.4 60.8 50.4 23% 17.3 21.4 21.1 22.1

Dixon Technologies 20,725 240 107.4 79.3 43.1 33.0 199.0 139.9 69.7 53.2 55% 25.4 27.0 38.9 35.1

Average ex- Amber (x) 47.3 53.2 34.9 27.9 93.7 93.8 53.3 41.4 29% 17.9 15.8 22.8 23.7
Source: Bloomberg, JM Financial

JM Financial Institutional Securities Limited Page 20

Amber Enterprises 17 March 2021

Room Air-conditioners (Revenue share - 61%)

 This division provides the outdoor, indoor unit and CBU (Complete built unit) of split ACs
(Fixed speed and Inverter) and Window ACs. Products range from 1 ton to 2 ton ACs and
2-5 star energy ratings. This segment has clocked 28% revenue CAGR over FY15-20 and
is expected to report 18% CAGR over FY20-23. The share of ODM revenues in this
segment stands at 94%.

Exhibit 30. Products offered in the RAC division

Source: Company, JM Financial

Exhibit 31. Amber’s key clients

Source: Company, JM Financial

Exhibit 32. RAC Segment revenues

RAC Segment YoY (%)
45,000 100.0%

40,000 79.0%
80.0%
35,000

30,000 50.0% 60.0%

25,000 39.3%
INR mn

30.0% 40.0%
20,000 23.1%
15,000 13.0% 20.0%

10,000 0.0%
0.0%
5,000 -15.0%
6,995 12,518 15,404 17,408 24,250 20,613 30,919 40,194
0 -20.0%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 21

Amber Enterprises 17 March 2021

Components and mobile applications (Revenue share - 39%)

 This division provides AC components such as heat exchangers, PCBs, system tubing,
sheet metal parts, motors and plastic injection moulding parts. It also provides non-AC
components such as washing machine tubs, PCBs for non-AC requirements, case-liner
and plastic excluder sheet and sheet metal parts. Revenue for mobile applications such as
HVAC products for railways, metro systems, bus air conditioners and defence applications
also falls under this division.

 This segment has clocked 24% revenue CAGR over FY15-20 including inorganic
acquisitions and is expected to report 15% CAGR over FY20-23.

Exhibit 33. AC and Non-AC components

Source: Company, JM Financial

Exhibit 34. Products for mobility applications

Source: Company, JM Financial

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Amber Enterprises 17 March 2021

Exhibit 35. Sidwal’s segments and its offerings

Source: Company, JM Financial

Exhibit 36. Key OEMs

Segment OEMs
Components
Heat-exchangers LG, Daikin, Panasonic and captive
Metal and plastic parts LG, CMI, Panasonic, Bluestar and captive
PCBA Home appliances LG, IFB, Panasonic, Hitachi, Bluestar,Voltas, Carrier Midea and captive
Daikin, Panasonic, Hitachi, Bluestar, Carrier,Voltas,
Electric Motors
Carrier Midea and captive
Subsidiaries
PICL Whirlpool, Hitachi, Daikin, Carrier, Voltas, Panasonic, BLSTR, Eastwest (USA), Samco (KSA)
IL JIN & Ever IFB, LG, Hitachi, Hyundai, BlueStar, Bajaj, Panasonic, LS Automotive
Sidwal Indian Railways, BEML, Siemens, DMRC Ltd, CAF, Hyundai Rotem, Alstom
Source: Company, JM Financial

Exhibit 37. Components and mobile applications revenue

Components and mobile application YoY (%)
25,000 72.1% 80.0%

52.1% 60.0%
20,000 46.9%

33.4% 40.0%
15,000 25.0%
INR mn

20.0%

10,000 2.7%
-8.5% 0.0%

5,000 -26.6% -20.0%

3,896 4,000 5,876 10,112 15,380 14,079 18,779 23,474

0 -40.0%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Source: Company, JM Financial

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Amber Enterprises 17 March 2021

Company Background
 Amber, incorporated in 1994 by Mr. Jasbir Singh, has now evolved into a complete RAC
solution provider with products ranging from CBU units to basket of components for
RACs and HVAC industry. The company has 15 state-of-the-art manufacturing units
across 6 states in India, equipped with latest and advanced technologies and 4 R&D
facilities. It caters to all the top-10 AC brands in the country. It currently has 24% share in
the overall RAC industry and 70% share in the AC outsourcing market.

 Amber has increased its back-end capabilities over the last decade. It successfully acquired
PICL, an electric motors company in 2010, followed by IL JIN in 2017 and Ever Electronics
in 2018, which manufacture PCBs in India.

 It acquired Sidwal in Apr’19, giving Amber access to the mobility-HVAC industry such as
railways, defence, buses, metros, telecom and commercial ACs. Sidwal was founded in
1975 and currently is the market leader with c.50% market share in the railway and
metro segments and c.80% share in the Defence Segment. It is headquartered in NCR
and operates 3 fully integrated facilities in Northern India with the capability to undertake
the entire HVAC manufacturing process in-house.

 It has 2 sub-segments a) RACs – 61% of revenues – where revenue from sale of complete
CBUs is booked b) Components and Mobile applications – 39% of revenues – where it
supplies all RAC, Non-RAC components and Industrials ACs (Sidwal). Amber has
consolidated revenues of INR 39bn with operating margin of 7.8% and net profit margin
of 4%.

Exhibit 38. Timeline

Source: Company

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Amber Enterprises 17 March 2021

Exhibit 39. Manufacturing Capabilities of Amber

Source: Company

Exhibit 40. Management team

Experience
Management Role Qualifications
(Years)
He holds Bachelor’s degree in Engineering (industrial production) from Karnataka University and Master’s degree in
Business Administration from the University of Hull, United Kingdom. He has successfully established over seven
factories in past ten years and established relationships with various large brands. Under his guidance, Amber has
initiated the concept of additive manufacturing solutions. He has played an instrumental role in successful
Mr. Jasbir Singh Chairman and CEO 15
acquisition of PICL (India) Private Limited in 2012, the wholly owned subsidiary and two PCB Board manufacturers
i.e. IL JIN Electronics (India) Private Limited and Ever Electronics Private Limited, the subsidiaries. He also played a
crucial rule in raising funds through three private equity (“PE”) from IFCI Ventures, Reliance Private Equity and ADV
Partners, Singapore and helped in successful exit of all the PE partners within the stipulated time period
He holds Bachelor’s degree in Electronic Engineering from Nagpur University and Master’s degree in Information
Technology from the Rochester Institute of Technology. He has 12 years’ experience in finance services and ten years
of experience in the RAC manufacturing sector. He was also associated with Morgan Stanley in New York as an
Mr. Daljit Singh Managing Director 22 analyst in the infrastructure track of their information technology analyst training program. He has provided keen
and commendable services and significant contribution to the overall growth of the Company and successful
completion of Initial Public Offering (“IPO”) of the Company and getting the equity shares listed on both the stock
exchanges on January 30, 2018.
He holds a diploma degree in electrical engineering with specialisation in electronics & television technology from
YMCA Institute of Engineering, Faridabad. He has been associated with our Company since July 23, 2012 and has 34
Mr. Sanjay Arora Director - Operations 34
years of experience in the manufacturing industry. He is responsible for the operations of our Company. He is also
responsible for heading innovation, security and legal matters of our Company.
He holds a diploma in mechanical engineering from Board of Technical Education U.P. He has been associated with
Mr Udaiveer Singh President - RAC 22 our Company since December 15, 2003 and has 22 years of experience manufacturing industry. He is responsible for
the planning and operation of the RAC manufacturing facilities of our Company.
He holds a bachelor’s degree in electrical engineering from Punjab Technical University and a post graduate diploma
degree in business administration from All India Institute of Management Studies, Chennai. He has been associated
Mr. Sachin Gupta Vice President - RAC 14
with our Company since November 1, 2014 and has more than 14 years of experience in manufacturing industry. He
is responsible for business development in our Company.
He holds a bachelor’s degree in commerce (Hons.) from University of Delhi. He is an associate member of the
Institute of Chartered Accountants of India. He has been associated with our Company since October 23, 2012. He is
Mr. Sudhir Goyal CFO 13 the head of the finance and accounts department of our Company. Prior to joining Amber, he was associated with
Hythro Power Corporation Limited, Altima Systems Private Limited, ETA Ascon group of Companies, Jamshedpur
Mineral Wood Manufacturing Co. (P) Limited.
She holds a bachelor degree in Commerce from Maharshi Dayanand University, Rohtak. She is an associate member
of Institute of Company Secretaries of India and Institute of Chartered Secretaries and Administrators, London. She
Ms. Konica Yadav CS & Compliance 5 has been associated with our Company since September 27, 2014. She is responsible for the legal and secretarial
work of the Company. Prior to joining our Company, she was associated with DLF Hotel Holding Limited, Green Infra
Wind Farm Assets Limited and Adlakha & Adlakha Associates.
Source: Company, JM Financial

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Amber Enterprises 17 March 2021

Key risks
 Seasonality and general slowdown: Amber’s sales are directly co-related to the
performance of the RAC industry. Any slowdown in the industry because of general
economic conditions, seasonal trends, evolving regulatory requirements, government
initiatives, trade agreements and other factors can impact top-line for Amber.

 In-house sourcing by large brands: Top 5 brands continue to dominate the RAC industry
with c.70% market share. If RAC brands discontinue outsourcing of manufacturing of
their products or reduce the number of components outsourced by them or if customers
decide to perform these functions internally, then Amber’s future growth will be limited
thereby impacting sales and profitability.

 Setting up of local shop by large Chinese manufacturers: Large Chinese manufacturers

such as Gree, Midea and others can set-up large plants for various components which can
increase competition for Amber. Chinese companies can setup large plants with high level
of automation, thus achieving economies of scale that can reduce price points of
components, thereby reducing industry attractiveness.

 Pricing pressure from customers, commodity and currency fluctuations: Clients often
pursue price reduction negotiations with suppliers as their volumes increase. Hence, if
continuous market share gains and wide spread client base is essential to improve
profitability. Also, sharp fluctuations in commodity prices and currency can impact gross
margins for Amber.

JM Financial Institutional Securities Limited Page 26

Amber Enterprises 17 March 2021

Financial Tables (Consolidated)

Income Statement (INR mn) Balance Sheet (INR mn)
Y/E March FY19A FY20A FY21E FY22E FY23E Y/E March FY19A FY20A FY21E FY22E FY23E
Net Sales 27,520 39,628 34,691 49,698 63,668 Shareholders’ Fund 9,861 11,284 16,245 18,156 21,291
Sales Growth 30.0% 44.0% -12.5% 43.3% 28.1% Share Capital 314 314 337 337 337
Other Operating Income 0 0 0 0 0 Reserves & Surplus 9,547 10,970 15,908 17,819 20,954
Total Revenue 27,520 39,628 34,691 49,698 63,668 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp 23,132 33,017 28,794 41,498 52,845 Minority Interest 190 348 394 451 520
Personnel Cost 588 1,063 1,138 1,339 1,476 Total Loans 2,307 3,205 3,405 1,405 405
Other Expenses 1,672 2,455 2,255 2,982 3,820 Def. Tax Liab. / Assets (-) 438 678 678 678 678
EBITDA 2,129 3,093 2,504 3,880 5,528 Total - Equity & Liab. 12,796 15,515 20,722 20,691 22,894
EBITDA Margin 7.7% 7.8% 7.2% 7.8% 8.7% Net Fixed Assets 8,431 11,176 12,008 13,472 14,833
EBITDA Growth 15.8% 45.3% -19.0% 54.9% 42.5% Gross Fixed Assets 10,476 13,551 15,351 17,851 20,351
Depn. & Amort. 623 848 936 1,035 1,140 Intangible Assets 669 1,223 1,223 1,223 1,223
EBIT 1,506 2,245 1,568 2,844 4,388 Less: Depn. & Amort. 2,803 3,630 4,566 5,601 6,741
Other Income 99 82 351 281 323 Capital WIP 89 32 0 0 0
Finance Cost 246 419 430 301 113 Investments 0 0 0 0 0
PBT before Excep. & Forex 1,359 1,907 1,489 2,824 4,598 Current Assets 15,276 17,833 20,595 24,239 29,866
Excep. & Forex Inc./Loss(-) 0 0 0 0 0 Inventories 5,606 6,557 6,178 8,850 11,338
PBT 1,359 1,907 1,489 2,824 4,598 Sundry Debtors 7,872 8,542 7,604 10,212 13,083
Taxes 412 266 375 712 1,159 Cash & Bank Balances 447 1,203 5,388 3,134 2,829
Extraordinary Inc./Loss(-) 0 0 0 0 0 Loans & Advances 817 971 1,426 2,042 2,617
Assoc. Profit/Min. Int.(-) 11 57 46 57 69 Other Current Assets 534 561 0 0 0
Reported Net Profit 937 1,584 1,068 2,055 3,370 Current Liab. & Prov. 10,911 13,494 11,881 17,020 21,804
Adjusted Net Profit 937 1,584 1,068 2,055 3,370 Current Liabilities 9,407 11,068 10,455 14,977 19,188
Net Margin 3.4% 4.0% 3.1% 4.1% 5.3% Provisions & Others 1,504 2,426 1,426 2,042 2,617
Diluted Share Cap. (mn) 31.4 31.4 33.7 33.7 33.7 Net Current Assets 4,365 4,339 8,715 7,219 8,062
Diluted EPS (INR) 29.8 50.4 31.7 61.0 100.0 Total – Assets 12,796 15,515 20,722 20,691 22,894
Diluted EPS Growth 50.3% 69.1% -37.1% 92.5% 64.0% Source: Company, JM Financial
Total Dividend + Tax 0 21 107 144 236
Dividend Per Share (INR) 0.0 0.0 3.2 4.3 7.0
Source: Company, JM Financial

Cash Flow Statement (INR mn) Dupont Analysis

Y/E March FY19A FY20A FY21E FY22E FY23E Y/E March FY19A FY20A FY21E FY22E FY23E
Profit before Tax 1,359 1,907 1,489 2,824 4,598 Net Margin 3.4% 4.0% 3.1% 4.1% 5.3%
Depn. & Amort. 623 848 936 1,035 1,140 Asset Turnover (x) 2.4 2.8 1.9 2.4 2.9
Net Interest Exp. / Inc. (-) 232 -398 0 0 0 Leverage Factor (x) 1.2 1.3 1.3 1.2 1.1
Inc (-) / Dec in WCap. -2,477 45 -190 -758 -1,148
RoE 10.0% 15.0% 7.8% 11.9% 17.1%
Others -68 968 -46 -57 -69
Taxes Paid -299 -488 -375 -712 -1,159
Key Ratios
Operating Cash Flow -631 2,882 1,814 2,332 3,362
Y/E March FY19A FY20A FY21E FY22E FY23E
Capex -1,204 -1,449 -1,768 -2,500 -2,500
BV/Share (INR) 313.6 358.8 482.1 538.9 631.9
Free Cash Flow -1,835 1,433 46 -168 862
ROIC 10.3% 15.1% 8.3% 13.5% 18.1%
Inc (-) / Dec in Investments 87 -1,817 0 0 0
ROE 10.0% 15.0% 7.8% 11.9% 17.1%
Others 0 0 0 0 0
Net Debt/Equity (x) 0.2 0.2 -0.1 -0.1 -0.1
Investing Cash Flow -1,117 -3,266 -1,768 -2,500 -2,500
P/E (x) 115.3 68.2 108.4 56.3 34.3
Inc / Dec (-) in Capital 0 0 4,000 0 0
P/B (x) 11.0 9.6 7.1 6.4 5.4
Dividend + Tax thereon 0 -121 -107 -144 -236
EV/EBITDA (x) 55.8 38.5 46.0 29.8 20.8
Inc / Dec (-) in Loans 932 795 200 -2,000 -1,000
EV/Sales (x) 4.3 3.0 3.3 2.3 1.8
Others -75 466 46 57 69
Debtor days 104 79 80 75 75
Financing Cash Flow 856 1,140 4,139 -2,086 -1,167
Inventory days 74 60 65 65 65
Inc / Dec (-) in Cash -891 756 4,185 -2,254 -305
Creditor days 135 111 119 119 120
Opening Cash Balance 1,338 447 1,203 5,388 3,134
Source: Company, JM Financial
Closing Cash Balance 447 1,203 5,388 3,134 2,829
Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 27

Amber Enterprises 17 March 2021

APPENDIX I

JM Financial Inst itut ional Secur ities Lim ited

Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com

Definition of ratings
Rating Meaning
Buy Total expected returns of more than 10% for large-cap stocks* and REITs and more than 15% for all other stocks, over the next twelve
months. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 10% upside from the current market price for large-cap* stocks and REITs and
in the range of 10% downside to 15% upside from the current market price for all other stocks, over the next twelve months.
Sell Price expected to move downwards by more than 10% from the current market price over the next twelve months.
* Large-cap stocks refer to securities with market capitalisation in excess of INR200bn. REIT refers to Real Estate Investment Trusts.
Research Analyst(s) Certification

The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.

Important Disclosures

This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary
action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the
investor.

JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
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the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell
the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
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The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
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The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations,
2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered
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report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This
report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.

JM Financial Institutional Securities Limited Page 28

Amber Enterprises 17 March 2021

The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of
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JM Financial Institutional Securities Limited Page 29