Reblog: Amber Enterprises India Limited IPO Review

Amber Enterprises India Ltd. (AEIL) is a niche player in functional component manufacturing segment that is used widely by Room Air Conditioner (RAC) manufacturers. The company enjoys preference of eight out of 10 mega players in the field and is getting more new customers that are entering in this field as under While Goods penetration among users has vide difference as far as ACs are concerned. While TV, Fridge and Washing Machines enjoys penetration of over 10% to 60% in India, AC penetration is as low as around 4% and thus this segment has vide scope of advancement going forward.RAC penetration in neighboring countries ranges from 30 to 100%. Its customer includes Panasonic, LG, Daikin, Hitachi, Whirlpool, Voltas, Blue Star and Godrej. The company is a market leader in Indian RAC, OEM/ODM segments and has comprehensive product portfolio to suit the requirements of its customers. AEIL has 11 manufacturing facilities at 7 strategic locations and thus enjoys proximity of its prime customers. To stay tuned with the futuristic requirements, it keeps spending on R&D and backward integration. In last five years, it made two acquisitions i.e. PICL in 2012 and IL Jin in 2017 and is now able to offer maximum solutions under one roof. It enjoys “Make in India” status and helps India in reducing imports from China and other countries. While increasing temperature will bring more demand, adequacy of power supply help for the faster advancement of RAC markets domestically. As per Frost and Sullivan report, RAC and OEM/ODM markets are set to post CAGR of 12.4% and 25.1% respectively by 2022. AEIL enjoys a market share of 19.1% in RAC and 55.4% in OEM/ODM segments respectively. AEIL’s customers command around 75% of the Indian RAC market share.

To part finance its debt repayment/prepayment plans and general corpus fund needs, AEIL is coming out with a maiden IPO of around 6984865 equity shares of Rs. 10 each via book building route with a price band of Rs. 855-859 to mobilize Rs. 597.21 cr. – Rs. 600 cr. (based on lower and upper price bands). The issue opens for subscription on 17.01.18 and will close on 19.01.18. It has reserved 50000 shares for eligible employees and offering them a discount of Rs. 85 per share. Minimum application is to be made for 17 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE/NSE. BRLMs to this issue are Edelweiss Financial Services Ltd., IDFC Bank Ltd., SBI Capital Markets Ltd. and BNP Paribas. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Issue constitutes 22.2% of its post-issue paid-up equity capital. Having issued initial equity since inception till May 2011 at par, it raised further equity in the price range of Rs. 125.66 to Rs. 237.30 between July 2012 and December 2017. It has also issued bonus shares in the ratio of 7 to 1 in July 2011. The average cost of acquisition of shares by the promoters is Rs. 38.73 and Rs. 43.71 per share. Post issue AEIL’s current paid up equity capital of Rs. 25.92 crore will stand enhanced to Rs. 31.45 crore.

On the performance front, AEIL has (on a consolidated basis) posted turnover/net profits of Rs. 979.70 cr. / Rs. 22.20 (FY14), Rs. 1236.47 cr. / Rs. 28.77 cr. (FY15), Rs. 1092.11 cr. / Rs. 24.10 cr. (FY16) and Rs. 1652.26 cr. / Rs. 27.90 cr. It suffered a setback for FY16 on account of realigning its business strategy with hiving off of non-core and non-profitable businesses. For H1 of current fiscal, it has reported a net profit of Rs. 27.31 crore on a turnover of Rs. 941.55 crore. According to management, although RAC market has no longer a seasonal business, last five years pattern of financial performance indicated 40% revenues for first half and 60% revenues in the second half. Considering this, AEIL is expected to outperform. For last three fiscals, it has shown an average EPS of Rs. 12.31 and average RoNW of around 9.24. Asking price is at a P/BV of 5.64 based on its NAV of Rs. 152.30 as on 30.09.17. If we annualize its performance on its financial pattern, asking price is at a P/E of around 40.

On BRLM’s front, 4 BRLMs associated with this offer have handled 35 public issues in past three financial years out of which 9 public issues closed below the issue price on listing date.

Conclusion: Although issue appears fully priced, considering bright prospects for RAC segment, investment in this offer may be considered for short to long term. (Subscribe).