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Amber Enterprises Rs 600-crore IPO in progress: Should you subscribe to the issue?

The company plans to raise Rs 475 crore via fresh issue of shares and Rs 125 crore through offer for sale by promoters Jasbir Singh and Daljit Singh. The shares are available in a price band of Rs 855 to Rs 859 per share.  Retail investors will be allocated 35% of the issue.

Aseem Thapliyal        Last Updated: January 17, 2018  | 11:51 IST
Amber Enterprises IPO in progress: Should you subscribe to the issue?

Gurugram-based Amber Enterprises is coming up with its initial public offer (IPO) today.

The room air-conditioner manufacturer has expertise in indoor, outdoor, split and window AC units and has reputed clients such as Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool.

The company plans to raise Rs 475 crore via fresh issue of shares and Rs 125 crore through offer for sale by promoters Jasbir Singh and Daljit Singh. The shares are available in a price band of Rs 855 to Rs 859 per share.  Retail investors will be allocated 35% of the issue.

The firm was incorporated in 1990 and started with a single manufacturing facility in Rajpura Punjab in 1994.

The room air-conditioner manufacturer also makes room air-conditioner (RAC) components such as heat exchangers, motors, inverter and non-inverter printed circuit boards.

On Tuesday, the firm raised Rs 179 crore from anchor investors. The company's IPO committee has finalised allocation of 20,80,459 equity shares to 15 anchor investors at Rs 859 apiece, also the upper price band for the offer, Amber Enterprises informed the stock exchanges. Abu Dhabi Investment Authority - Behave, Blackrock India Equities Mauritius, Goldman Sachs India and Kuwait Investment Authority Fund 225 are among the anchor investors.

Amber Enterprises' initial public offer (IPO) will close on January 19. The company plans to use the proceeds for repayment and advance payment of certain loans and other general corporate purposes. Edelweiss Financial Services, IDFC Bank, SBI Capital Markets and BNP Paribas will manage the company's IPO. The IPO has recived mixed ratings from brokerages and  experts. Here are some of them.

Centrum Broking

Centrum Broking said the issue looks expensive with no clarity on growth in financial performance.

"At the higher end of the price band of Rs 859, the issue is valued at 96.8 times price to earnings (PE) on FY17 basis (post dilution) and 49.4 times on first half of FY18 (annualized) basis. While the company holds leadership position , it is difficult to justify its valuation due to lack of clarity of the growth trend in the financial performance," it said in a note on 16 January.

"Single digit earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, average of 8% for last 5 years and return on equity of 10%, do not provide comfort," Centrum said.

Geojit

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Amber Enterprises India Ltd (AIEL) is one of the most prominent company in the manufacturing of air conditioners and its components.  With a market share of 55.4%, Amber enjoys the leadership position as an outsourced manufacturer and designer of RAC (Room Air Conditioner). As a one-stop solution provider for major brands, Amber serves 8 out of top 10 brands in India.

Company's key customers include brands like Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool. During FY14-17, revenue grew at a CAGR of 19.1% higher than the industry average of listed consumer durables brands of 11.7%.

In FY17, EBITDA margins were healthy at 8.3% which is in line with the industry average. They have also managed to deleverage balance sheet and improve credit rating. The Indian RAC market has been witnessing robust growth trend in the past five years with a CAGR of 9.4% by volumes.

In the next five years, the market is expected to witness a CAGR of 12.8% reinforced by the surge in rural consumption, shorter replacement cycles, energy-efficient RACs and availability of multiple brands at various price points.

Moreover, with the current low penetration of 4%, the Indian RAC market presents huge opportunity for players to garner larger share of the market. Amber is perfectly aligned to take full advantage of this opportunity with its strong long standing relationships, widening customer base, range of additive manufacturing solutions, strengthening R&D capacity, strong revenue growth and continued market leadership position in the last few years. At an upper price band of Rs859, Amber is available at a valuation of 41x (non-diluted) on annualised HIFY18 EPS. We recommend 'Subscribe' to the issue, with a medium-to-long term perspective.

HEM Securities

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Amber Enterprises India is a market leader in the RAC OEM/ODM industry in India with a market share of 55.4% in terms of volume in Fiscal 2017 (Source: F&S Report). Co is a one-stop solutions provider for the major brands in the RAC industry and currently serves eight out of the 10 top RAC brands in India.

Valuation

The co is bringing the issue at p/e multiple of 49 on annualized H1FY18 eps at higher price band of Rs 855-859/share. Co be-ing market leader in RAC OEM/ODM industry in India have reputed clientele with strong track record of financial perfor-mance.Looking after strong future prospects of co with decent fundamentals, , we recommend "Subscribe" on issue.

Angel Broking

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Amber Enterprises India is the market leader in the room air conditioner (RAC) outsourced manufacturing space in India with a market share of 55.4%. It is a one-stop solutions provider for the major brands in the RAC industry and currently serves eight out of the ten top RAC brands in India including Panasonic, LG, Daikin, Hitachi, Whirlpool, Voltas, Blue Star and Godrej.

Outlook & Valuation: 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 22-25 times (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 30 times  FY20 earnings. We recommend 'SUBSCRIBE' on the issue for a mid-to-long term period.

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