Amber Enterprises Ltd - Short Analysis | Yadnya Investment Academy
In this blog, we will be discussing briefly and will conduct a short analysis on Amber Enterprises Limited. What Should Investor do with this stock? Should they Invest or Not?
Introduction: Amber Enterprises Stock Review
Amber Enterprise is one of the largest contract manufacturers in India. They are having a healthy market share in this business. Amber Enterprises is a market leader in Room Air Conditioner (RAC) original equipment Manufacturer/ Original Design Manufacturer (ODM) in India.
Demand Outlook: Amber Enterprises Products Overview
- Top Management has reported the robust demand for Air Conditioners in the summer in recent conferences and interviews.
- The reason behind the robust demand for AC is because the March month of the Year 2021 was one of the hottest March Months. Also, the Indian Meteorological Department (IMD) forecasted scorching summer for India this year.
- This will create a favourable outlook for Air Conditioning Companies.
- Specifically, Amber Enterprises is a prominent solution provider in Air Conditioner OEM Industry in India in this AC business segment.
- Amber Enterprises is having a 23%-24% market share in Room Air Conditioner Market.
- Being a market leader in RAC and ODM in India and having big MNCs clients, Amber Enterprises will benefit from this demand outlook.
Concern: Amber Enterprises Business Challenges
- The recent rise in the price of the commodity will impact the cost structure of the company.
- Due to component shortage, Supply-bottle necks are expected in April.
- One thing which goes well with Amber Enterprises is that Company is having a Price Variation Clause Applicability with End-Customers. If the prices of raw material increase, then the company can also increase the final product price.
- The interesting thing to look at here is Will the company pass on the cost to their end-customers such as MNCs, as they are the dominant player in the industry compared to Amber Enterprises competitors.
- Further, in coming quarters, Margins needed to be observed as well. The increased commodity prices might outlay the margins of the company.
Capacity & Capex Plans:
- The company is planning to set up 2 new manufacturing facilities to increase capacity. One of the facilities will be set up in South India and another in Pune Region.
- Each of these manufacturing facilities is expected to have a capacity of 1 million units and collectively add 2 million capacity to the total current capacity.
- The company’s Current Capacity is 4.8 million, and with the addition of this new capacity expansion, the Total Capacity of Amber Enterprises would be 6.8 million.
- These new manufacturing facilities can increase the capacity of the company by 25% in the coming year.
- As of now, a Total of 15 Plants are operating at different capacity utilization.
- Current Average Capacity Utilization is around 75%-80%.
Capital Raise to Fund Capex Plans:
- Recently, Amber Enterprises launched a Qualified Institutional Placement (QIP) in September 2020 to raise Rs. 400 Cr.
- The money raised can be used for capital expansion.
- Capex will be financed through Internal Accruals as well as current Cash Reserves.
- The company is at Positive Net Cash Flow.
Amber Enterprises- Big Boost by PLI Scheme:
Valuation: Amber Enterprises Financials
- To boost domestic manufacturing Rs. 3 Lakh Cr. of PLI Scheme is announced for 10 sectors including Air Conditioners.
- PLI Scheme will be very supportive for Amber Enterprises.
- This Scheme might help in the growth of revenue, operating margins, and profitability of Amber Enterprises.
- The company is applying the PLI scheme under both components as well as Finished Goods Space.
As per the Amber Enterprises quarterly results, the stock of Amber Enterprises is currently trading at a PE ratio of 150-160. The sustainability of this PE will be an essential thing to look at.
Q1FY21 of the company was quite awful due to the lockdown in the country. But the Q1FY22, can be pleasing for the company on account of possible reasons aforementioned and also due to low base effect of last quarter.
Amber Enterprises is another company with higher growth potential, but there are severe concerns concerning higher valuations. There are good times ahead for the company with present favouring demand outlook, support from Government PLI scheme and Capex Plan. The major concern for the stock only lies in its valuation. Investors looking for investment in this stock should minutely assess the business’s earning and growing visibility over the longer horizon.
Invest Yadnya offers numerous resources for a detailed analysis of Amber Enterprises Limited. The investors can access the latest financials, report, Amber Enterprises results & Amber Enterprises share price on the stock-o-meter feature of our website.