Buy Amber Enterprises India: target of Rs 2600: ICICI Direct

ICICI Direct's research report on Amber Enterprises India

In Q2FY21, Amber Enterprises reached ~65% of pre-Covid level revenue on a YoY basis. The delay in recovery is attributable to lower volume offtake by its key clients, as their major focus remained on inventory liquidation at dealer level. However, according to the management, pent up demand post ease in lockdown restriction would help bring inventory at normal levels in Q2FY21. Inventory at the channel level was at ~6 lakh units in Q2FY21 vs ~10 lakh & 25 lakh units in Q1FY21 & Q4FY20, respectively. We believe normalised inventory would result in accelerated recovery in Q3FY21 and a strong season in Q4FY21 for Amber. Under the component & mobility business, we believe component business recovery was faster at 90% YoY, leading component and mobility business reaching at 84% of pre-Covid level YoY. According to management, Amber has added four new clients during Q2FY21 and is in discussion with another four clients for supply of RACs and components post government ban on import of RACs. We believe Amber is more of a long term play on major business opportunities for contract manufacturers due to ban on import of RACs and increase local sourcing of components. We tweak our revenue, earnings estimate for FY21 considering current quarter performance and model revenue, earning CAGR of 19%, 23% for FY20-23E led by improvement in EBITDA margin.

Outlook

We continue to like Amber for its focus on acquiring new business opportunities either through government’s Atmanirbhar scheme or shift in focus on China+1 strategy by key clients post Covid-19. We reiterate our BUY rating on the stock with an unchanged target price of Rs 2600 valuing the company at 35xFY22 earnings.

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