Amber Enterprises India IPO

IPO Rating – 41 (Risky)*

About the Issue 

The upcoming IPO of Amber Enterprises India will remain open for subscription from January 17-19, 2018. The issue size is Rs 600 crore, comprising of fresh issue of shares of Rs 475 crore and offer for sale (OFS) of Rs 125 crore. The price band for the issue is Rs 855-859 per equity share with face value of Rs 10. The lot size is of minimum 17 shares. The company will get listed on both BSE and NSE. 

Purpose of the issue 

The net offer proceeds from the fresh Issue will be utilised towards –

- Prepayment or repayment of all or a portion of certain borrowings availed by the company
- General corporate purposes.

The promoter selling shareholders will be entitled to the proceeds of the OFS of their respective portion of the equity shares, after deducting their portion of the offer related expenses and relevant taxes thereon. The company will not receive any proceeds from the OFS. 

The promoters of the company hold 14,588,550 equity shares, representing 56.29% of the pre-offer subscribed and paid-up equity share capital of the company. Post-issue, due to OFS, the promoters’ holding will reduce to 41.77%. 

Company Background 

Amber Enterprises India is a market leader in the room air conditioner (RAC) industry in India with market share of 55.4% in terms of volume in FY17. It is a one-stop solutions provider for the major brands in the RAC industry and serves 8 out of 10 top RAC brands in India. The company has a diversified product portfolio, consisting of –

- RACs – The company designs and manufactures complete RACs including window air conditioners (WAC) and indoor units (IDU) and outdoor units (ODU) of split air conditioners (SAC) with specifications ranging from 0.75 tonne to 2 tonnes, across energy ratings and types of refrigerant. It also designs and manufactures inverter RACs, ranging from 1 tonne to 2 tonnes capacity.

- RAC components – The company manufactures critical and reliability functional components of RACs such as heat exchangers, motors, inverters and non-inverter printed circuit boards and multi-flow condensers. It also manufactures other RAC components such as sheet metal components, copper tubing and injection moulding components.

- Other components – The company manufactures components for other consumer durables and automobiles, such as case liners for refrigerators, plastic extrusion sheets and printed circuit boards for consumer durables and automobile industry, sheet metal components for microwave, washing machine tub assemblies and for automobiles and metal ceiling industries.

The company’s key customers include Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool. Such customers command around 75% share in the Indian RAC market in FY17. It has a dedicated R&D centre located at its Rajpura facility. From a single factory in Rajpura, Punjab, that commenced operations in 1994, the company has today grown to 11 manufacturing facilities across seven locations in India. The company currently exports to Saudi Arabia, Oman, Sri Lanka, Nigeria and Maldives and plans to export to other countries like Middle East, South and South-East Asia as well as Europe. 

Industry Outlook 

The Indian RAC market has been witnessing robust growth trend in the past five years with growth of 9.4% CAGR by volumes. In the next five years, the market is expected to witness growth of 12.8% CAGR, reinforced by the surge in rural consumption, shorter replacement cycles, energy-efficient RACs and availability of multiple brands at various price points. The RAC volumes are expected to increase from 4.7 million units in FY2017 to reach 8.6 million units by FY2022. 

The growth of consumer durables market is driven by the increase in disposable incomes, including higher salaries of government employee post 7th Pay Commission, urbanisation and easy consumer financing. Due to the current low penetration at just 4%, the Indian RAC market presents huge opportunity for players to garner larger share of the market. Viewed as a luxury product in the recent past, the sweltering heat and longer summers in the country have led to creation of new demand for RACs, not only in the larger cities, but also in tier-II and tier-III cities, where heightened economic activity has resulted in greater affordability. Additionally, new product features and technological advancement in the RAC market has added to the increase in replacement demand of the product. 

Financial Performance  

For FY17, the company's total revenue and EBITDA were Rs 165.22 crore and Rs 13.64 crore, respectively, and for H1FY18, its total revenue and EBITDA were Rs 94.15 crore and Rs 8.71 crore, respectively. The total revenue has grown at 19.03% CAGR over FY14-17, in comparison with the average revenue of the consumer durable industry, which grew at a CAGR of 11.7% over the said period. Its EBITDA margin stood at 8.3% in FY17. The PAT margin was consistent at 2.2% from FY13 to FY16, but it declined further to 1.7% in FY17. The EPS for FY15, FY16 and FY17 was Rs 13.26, Rs 11.11 and Rs 12.80, respectively. The company’s RoNW too declined from 12.06% in FY15 to 8.33% in FY17. Its debt-equity ratio stood at 1.0x in FY17. 

Valuation 

On the upper price band of Rs 859 with EPS of Rs 12.80 for FY17, the company’s P/E works out at 67.12x. There are no listed peers for comparison in the industry, but as compared to the industry P/E, the company is over-valued and highly priced. 

Our View 

The company is in a market leader position in the RAC industry in India. The outlook of RAC and consumer durable industry is positive in the long run. Its growth in revenue and EBITDA has been decent, but the net profit margins are too low. As far as valuation is concerned, the company is demanding a high price and is thus over-valued. Also, promoters are reducing their stakes through the OFS. Investors may not get much returns and thus we find this issue to be risky. Investors can avoid this IPO.


*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment 

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