Buy Amber Enterprises India; target of Rs 4,100: Sharekhan

Sharekhan's research report on Amber Enterprises India

The Amber Group has acquired a 60% stake in Ascent Circuits Private Limited, a manufacturer of printed circuit boards for various industries. The company has also signed an MoU with Korea Circuit, which has potential to make Amber leading electronic EMS player. Amber has also partnered with Titagarh Rail Systems Limited to establish a new facility for manufacturing railway components. The management anticipates exponential growth in the railway segment as company’s addressable market size is expected to grow exponentially to Rs. 75,000-80,000 crore in the next 5-6 years. The company plans to incur capex of Rs 200-225 crores over next 2 years in setting up new Greenfield facility in Faridabad in the railway segment. While in RAC segment company plans to maintain its market share 28-29% in value terms by supplying various component of RAC to its customers who are building their in-house RAC capacities.

Outlook

Despite a structural change in the RAC industry, wherein brands are resorting to in-house manufacturing of finished goods, Amber is well-placed to capture incremental demand accruing from components ecosystem development. Management remains optimistic about growth in components (including mobility, electronics, and non-RAC components), customer additions as well as exports in the next 3-4 years. Further, traction in the high growth sectors such as railways could augur well. We build in a revenue/PAT CAGR of 15%/37% (FY2023-FY2026E) along with healthy FY26 RoE/ RoCE of 16.2%/17.8%. At the CMP, the company is trading at the valuation of 30x its FY2026E EPS. We believe the recent weakness in Amber’s stock price (corrected sharply by 23% from its 52-week high of Rs. 4,615) is a good opportunity to accumulate the stock. Hence, we maintain a Buy rating with a revised price target (PT) of Rs. 4,100, based on FY2026E EPS (an increase in the PT reflects higher valuation of the business given a strong growth outlook).

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