India’s major consumer durable appliance manufacturer, Amber Enterprises’ IPO to raise up to Rs 600 crore opens for subscription today. India’s largest air-conditioner equipment vendor, said that it raised Rs 178.71 crore from anchor investors ahead of its initial public offering. The Gurugram-based company allotted 20.8 lakh shares to 15 anchor investors at the upper end of the price band, according to a stock exchange filing. Amber Enterprises India is the market leader in the room air conditioner (RAC) outsourced manufacturing space in India with a market share greater than 54%. It serves eight out of the ten top RAC brands in India including Panasonic, LG, Daikin, Hitachi, Whirlpool, Voltas, Blue Star and Godrej. While investors may be mulling whether to subscribe to the issue, we take a look at four key details, and what brokerages have to say about the issue.
Amber Enterprises’ IPO comprises a fresh issue of equity shares aggregating up to Rs 475 crore and an offer for sale of up to Rs 125 crore by promoters Jasbir Singh aggregating up to Rs 62.5 crore and Daljit Singh up to Rs 62.5 crore. The issue will remain open till Friday, 19th January 2018. The company has set a price band of Rs 855-859 for the public offer. Bids can be made in minimum lot of 17 equity shares and in multiples of 17 shares thereafter. According to the company’s prospectus, objects of the offer include repayment/pre-payment, in full or in part, of certain borrowings availed by the company for Rs 345 crore and general corporate purpose.
About the Company
The company was incorporated as Amber Enterprises India Private Limited on April 2, 1990 at Jalandhar, Punjab, as a private limited company and was converted to a public limited company pursuant to a special resolution passed by its shareholders on September 20, 2017. From a single factory in Rajpura, Punjab, that commenced operations in 1994, it has grown to 11 manufacturing facilities across seven locations in India. According to a report by Angel Broking, the company’s manufacturing facilities have a high degree of backward integration and are strategically located in proximity to its customers’ facilities.
In in its note on Amber Enterprises’ IPO, Angel Broking points out that Amber Enterprises India commands 19% market share in Indian RAC (Room Air Conditioner) manufacturing through its 11 manufacturing facilities strategically located across India. Further, the company has evolved from being original equipment manufacturing (OEM) to high-margin Original Design Manufacturing (ODM) in RACs mainly led by high degree of backward integration and strong R&D capabilities, in a short span of nine years.
The company’s business is dependent on certain principal customers and the loss of or a significant reduction in purchases by such customers could adversely affect its business, financial condition, results of operations and future prospects, Angel Broking says in its Amber Enterprises’ IPO report. The research and brokerage firm observed that sales to its top five and top 10 customers contributed 74.8% and 92.5% respectively in FY17. Further, there has been a downward trend in OEM/ODM business. Angel Broking says that the company’s business is highly dependant on consumer preferences. “The markets in which company’s customers compete are characterized by consumers and their rapidly changing preferences, advancement in technology and other related factors including lower manufacturing costs,” says the report.
“At the upper end of the price band, the P/E multiple works out be 80x (pre issue equity base) of FY17 EPS which prima facie looks on the higher side. However, considering future earnings growth trajectory to be very robust (FY19 earnings expected to be 4x of FY17 earnings); we feel that the stock would trade at ~22-25x (post issue equity base) on our rough EPS for FY2020 which looks very attractive. Its closest peer – Dixon Technologies is trading at higher valuation of 30x FY20 earnings. We recommend ‘SUBSCRIBE’ on the issue for a mid-to-long term period,” says the report by Angel Broking.