Hem Securities Picks Small Cap Consumer Durable Stock To Invest, Recommends Buy, Sees High Returns

Hem Securities has placed a "Buy" on Amber Enterprises Ltd for 18% potential returns with a target price of ₹2,350 per share. Amber Enterprises is a small cap Consumer Durable sector company engaged in AC Conditioners industry. It is a prominent solution provider for the Air conditioner OEM/ODM Industry in India. It has a market cap of ₹6,759.13 crore.

Stock Outlook & Returns on investment

The stock of the company last traded at ₹ 2,006.05 per share on NSE, up 0.36% from its previous close. The current market price is 4.48% up from its 52 week low, which it recorded on 30 November 2022 at ₹ 1,920. Its 52-week high is ₹ 4.025.95 recorded on 2 May 2022.

The stock in the last 1 week has fallen 2.09% and in the last 1 month, it has fallen 1.54%, respectively.  Over the past 1 year, it has given 38.61% negative return. In the past 3 years, it has given a 97.75% positive return. It was listed on 30 January 2018 and since its listing, it has given 61.1% positive returns.

Result Overview

Amber Enterprises Ltd Q2 FY23 consolidated revenues came in at ₹750 Cr, up by 27.7% YoY and down by 58.89% QoQ. Op Profit for Q2FY23 stood at ₹36.67 Cr, up by 6.87% YoY. Op margins for Q2FY23 came at 4.89%, -95bps YoY and -55bps QoQ. Net Loss for Q2FY23 stood at ₹-2.29Cr. 

 

Management Commentary 

Room Air Conditioner industry witnessed a dull period from July 22 to mid-September 22 due to BEE rating change in July 22. Untimely rains in the month of August 22 and September 22 also affected the business. Mobility, motors and electronics division witnessed good growth owing to addition of new customers, products and new geographies. Management expects industry to touch 8.5 million units this year and then grow at a CAGR of 12%-15% from next year onwards. 

Concall Summary

Revenue saw a sharp decline due to channel destocking owing to change in BEE star rating change. Company plans to incur INR 600 crore capex in FY23. New Greenfield facility i.e. Sricity will be operational by Q3FY23. Management has given more than 30% growth guidance for FY23 on the back of strong order book, new products and geographical expansion. Company has started delivering smart wearable and hearable to boAt and have also added few new customers in this segment. Finance cost has increased to INR 24 cr from INR 6 cr in Q2FY22 due to increase in capex and rise in interest cost. Management is confident of improving ROCE by 200 bps to 300 bps in FY23 and further expansion of 300 bps in FY24. 

Other Developments

Company aims to maintains their market share at 26% and above in RAC segment. It expects to receive the PLI (Production Linked Incentive) scheme benefit for the first year. In FY23, it expects to get a benefit of ₹15 crore and ₹20 crore in FY24. 

Valuation & outlook

The brokerage has said, "We believe company will continue to post good results in the coming few quarters on the back of seasonal demand. Margins are also expected to improve as the company has successfully passed on the increase in commodity prices." 

According to the brokerage, Management is confident of increasing their ROCE to 17%-20% in the next 2-3 years. Component division is expected to drive future growth of the company. New acquisitions and expectations of large export orders next year will reap benefits for the company. 

It added, "We give a "BUY" rating on the stock and value the stock at 35x of FY24E earnings to arrive at a target price of ₹2350." 

Disclaimer

The stock has been picked from the brokerage report of Hem Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.