Amber Enterprises IPO: All You Need To Know

Amber Enterprises India Ltd. will sell shares in a three-day initial public offering that opens today as India’s largest air-conditioner equipment vendor looks to mop up funds to repay debt.

The supplier for companies like Hitachi and Daikin will sell shares at Rs 855-859 apiece to raise up to Rs Rs 600 crore. The company will mop up Rs 475 crore by issuing new stock while promoters Jasbir Singh and Daljit Singh will sell part of their stake to raise the remaining amount.

It will be the third IPO of 2018 after Apollo Micro Systems and Newgen Software, and follows a record year of maiden offerings 36 companies raised about Rs 67,000 crore.

Business

Amber Enterprises is the largest original equipment maker and designer for air-conditioners, with a market share of 55.4 percent as of March last year.

Among its clients are eight of the top 10 air-conditioner makers, including Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool which command around 75 percent of the market. Amber Enterprises got 93 percent of its revenue in the year ended March 2017 from its top 10 clients.

It designs and makes window and split ACs ranging from 0.75 tons to 2 tons and inverter ACs from 1 to 2 ton. The company has 11 manufacturing facilities across seven locations in India. Capacity utilisation levels are sub-50 percent, indicating not much capex in the immediate future.

Besides, it also makes parts for household appliances and automobiles. But it is highly dependent on the AC industry for its revenue.

Financial Highlights

• Amber Enterprises’ net worth, as of Sept. 30, was close to Rs 363 crore, translating into book value of Rs 115 a share after fresh issuance.
• Its revenue has been growing at an annualised rate of 17 percent, while net profit rose at 9 percent in five years to March 2017.
• For the first half ended September, revenue and net profit stood at Rs 938 crore and Rs 27 crore, respectively.
• Earnings before interest, tax and depreciation and amortisation grew at a CAGR of 23.5 percent, while Ebitda margins expanded 150 basis points in the last five years to 7.8 percent.
• For the first half ended September, Ebitda and margins stood at Rs 84 crore and 9 percent, respectively.
• The company has a total debt of close to Rs 554 crore, which would fall it looks to use Rs 400 crore from the IPO proceeds to pare debt.

Peer Comparison

Amber Enterprises has no listed competitors. Dixon Technologies Ltd. has a similar business model but caters to a different market—an equipment vendor for makers of washing machines, LED televisions, lighting products and mobile phones.

Amber’s debt-to-equity would come down to close to 0.4 times after the IPO.

The company has a longer working capital cycle than Dixon, which impacts its return ratios.

Dixon’s had return ratios than Amber Enterprises in the year ended March 2017.

Valuations

Earnings per share for the year ending March 2017, after issuing fresh shares, works out to Rs 8.87. At the upper end of the price band, shares will be priced at 96.8 times its earnings, according to BloombergQuint’s calculations.

Shareholding Pattern

After the share sale, promoter holding will fall to 44 percent from 59 percent.

Brokerage Take

Angel Broking

• Future earnings growth trajectory robust and the stock would trade at 22-25 times its earnings for FY2020, which is attractive
• Dixon Technologies is trading at higher valuations of 30x.
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ICICI Direct

• Outlook on the company is positive considering strong demand for white goods products in India.
• The company has a strong clientele base and its plant utilisation and return ratios would improve.
• All these factors provide sufficient margin of safety at the higher end of the subscription price.