Amber Enterprises IPO Review: Well Positioned

Apollo Micro IPO

Amber Enterprises IPO comprises fresh issue of equity shares worth Rs. 450 crore and sale of scrips to the tune of Rs. 105 crore by promoters Jasbir Singh and Daljit Singh. Punjab based Amber Enterprises India Limited is engaged in manufacturing of air conditioners and its components and is a market leader in the Rac (Room Air Conditioner) OEM/ODM industry in India with a market share of 55.4% in terms of volume in Fiscal 2017.  Amber Enterprises India Limited has evolved as  a one-stop solutions provider for the major brands in the RAC industry and currently serves eight out of the ten top RAC brands in the country.

Amber Enterprises  IPO Details
Issue Period  Wed, Jan 17, 2018 – Fri, Jan 19, 2018
Issue Details Fresh Issue of Equity Shares up to Rs.475 Cr  & Offer for sale for 125 cr
Issue Size  6,984,866^– 7,017,544~ Equity Shares ( Rs.600 Cr )
Employee Reservation 50,000 Equity Shares (Rs.3.87 Cr)
Price Band Rs.855 – 859
Bid Lot 17 Equity Shares and multiple thereof
Employee Discount Rs.85/- per Equity Shares
Issue Structure :  
QIB 50% of the Net offer-3,467,433 Equity Shares -Rs.297.85 Cr
NIB 15% of the Net offer-1,040,230 Equity Shares-Rs.89.36 Cr
Retail 35% of the Net offer- 2,427,203 Equity Shares-Rs.208.50 Cr
Applications for 1x Retail subscription 1,42,777
BRLMs Edelweiss Financial, IDFC Bank, SBI Capital Market, BNP Paribas
Registrar Karvy Computershare Pvt. Ltd.
About Amber Enterprises India Limited
  • Amber Enterprises India Limited manufactures air-conditioners, microwave ovens and refrigerators components, besides other consumer durable products.
  • Amber Enterprises India Limited caters to services both global and domestic players which include names like Videocon, John Deere, Swaraj Mazda, Godrej, Whirpool, Blue Star, Philips and Voltas. Amber serves eight of the top 10 room air-conditioner brands in India and counts Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool as its key customers. It claims a market share of 55.4% in this category by volume for the year ended March 2017.
  • The company was founded in 1994 by by Kartar Singh, a prodcution engineer at Punjab Tractors  and is now managed by his sons Jasbir Singh and Daljit Singh. Starting from  one factory in Punjab, today, it operates nine manufacturing units across seven locations.
  • The group also runs Amber Aviation, which operates aircraft charters and provides commercial pilot training. The promoters also started  off-grid solar power generation sector in partnership with Silicon Valley-based Twin Creeks Technologies in 2015.
  • In 2012-13, Fairwinds Pvt Equity,picked 34% equity stake in Amber for Rs. 110 crore. Thereafter in  January 2017, ADV Partners bought picked up the entire stake of Fairwinds.
Amber Enterprises India Limited: Financials:

Rs. In crore
Particulars Hyfy18 fy17 fy16 fy15 fy14
Revenue from Operations 938.16 1,644.40 1,089.03 1,230.27 973.38
Revenue Growth (%) 51.00% -11.48% 26.39%
EBITDA 87.13 136.44 116.82 108.76 81.2
EBITDA (%) 9.29% 8.30% 10.73% 8.84% 8.34%
Profit Before Tax 37.55 38.4 32.71 40.4 30.52
Net Profit 27.31 27.9 24.1 28.77 21.62
NPM % 2.91% 1.70% 2.21% 2.34% 2.22%
Equity Share Capital 23.81 23.81 21.7 21.7 21.7
Reserves 338.82 311.12 240.93 216.83 187.78
Net worth 362.63 334.93 262.63 238.53 209.48
Long Term Borrowings 183.31 251.5 161.42 147.04 117.61
Short Term Borrowings 245.46 93.39 165.2 159.65 139.67
EPS (Rs.) 11.47^ 12.8 11.11 13.26 10.84
RoNW (%) 7.53% 8.33% 9.18% 12.06% 10.32%
Net Asset Value (Rs.) HYFy18 140.67 121.01 109.91 96.52
IPO price 859        
Face Value 10
Price/Book Value 6.11        
EPS  (Pre IPO) 11.72
Post Issue Equity 31.45
EPS (Post IPO) 8.87
PE (post IPO) fy17 96.83
CAGR Sales 3 Yrs 19.10%
CAGR Net Profit 3 Yrs 13.60%
Market Cap 2701.56
Market cap / Sales 1.64
Objectives of Amber Enterprises  IPO

 Repayment/pre-payment, in full or in part, of certain borrowings availed by
the company ( Rs. 345 cr)
 General corporate purpose

Amber Enterprises  IPO: Rationale for Investment
  • Amber Enterprises India Limited has grown from a single factory in Rajpura, Punjab,set up in 1994  to 11 manufacturing facilities across seven strategic locations  in proximity to its customers’ facilities.
  • Company has seen three rounds of private capital infusion from IFCI Venture Capital Funds Limited, Reliance Alternative Investments Fund through Fairwinds Trustees Services Private Limited and ADV Opportunities Fund LLP. 
  • Amber Enterprises India Limited has evolved into a One stop solutions provider for the RAC (Room Air Conditioner) industry with high degree of backward integration
  • The company has strong and established relationships with customers, which includes eight out of the 10 top RAC brands in India. Their key customers include leading RAC brands such as Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool. 
  • The company ejoys economies of scale due to its dominant market share, has  multiple manufacturing locations which allow it in  optimal utilisation of facilities company’s assembly lines are flexible which enable it to handle changes in market demands in an efficient manner.
  • The company intends to add new products for the RAC industry to their offerings. They are also working on developing new models of fan coil unit and IOT based Inverter RACs.
  • The company intends to leverage the low cost advantages of manufacturing in India and aim to initiate RACs exports into others countries in Middle East, South and South East Asia as well as Europe.
  • Company intends to strengthen its R&D process through virtual validation and computer aided engineering analyses, rapid prototyping, accelerated testing and improved problem solving efficiency.
Risks & Concerns:
  • Substantial portion of revenue of Amber Enterprises India Limited comes  from top 10 customers. Sales to their top five and top 10 customers contributed 74.77% and 92.52%, respectively, of their revenue from operations in Fiscal 2017. 
  • The company faces the risk that its customers may choose to enhance their  share of in house manufactured goods.
  • Amber Enterprises India Limited faces competition from imports from low cost manufacturing destinations such as China. 
  • The company business is Seasonal as sales of AC and AC components are significantly higher in the summer months.
Amber Enterprises IPO: Assessment
  • Amber Enterprises India Ltd. (Amber) is the market leader in the room air conditioner (RAC) outsourced manufacturing space in the country and enjoys  a market share of 55.4%.  The company has transformed from original equipment manufacturing (OEM) better margin Original Design Manufacturing (ODM) in RACs.
  • RAC industry is growing at 12%+ and in the RAC industry, the share of ODM is expected to  reach 56% of the RAC market by 2022 (from current 34%).
  • Amber could benefit from the current low penetration of about  Indian RAC market which stands at meager 4%. 
  • Amber has posted revenue CAGR of 19% in the period FY14-17, which would could further improve as the compnay is eyeing exports now. 
  • At Rs. 859/- per share, Amber Enterprises IPO is valued at a P/E multiple of 96.8 x (to its  FY17 EPS of Rs. 8.87 on Post issue diluted Share capital of 31.45). Performance of company in H1FY18 is better but cannot be extrapolated to full year due to seasonably of business. 
  • Despite steep valuation being demanded,  I intend to  apply in the Amber Enterprises IPO due to Company’s technological and manufacturing prowess and demonstrated leadership traits and growth rates and expect it to give good listing as well as long term gains. 

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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