Motilal Oswal has reaffirmed its BUY recommendation on Amber Enterprises, assigning a target price (TP) of Rs 5,500, which represents a 12% upside potential from the current market price of Rs 4,919. Amber Enterprises, a leader in the Indian room air conditioner (RAC) and components industry, is well-positioned to benefit from growing demand in the consumer durables, electronics, and railway sectors. Despite some challenges in specific segments, the company's strong financial outlook, diversified growth opportunities, and strategic investments support a positive long-term trajectory for investors.

Rising Demand in the Consumer Durables Sector

Robust growth in RAC market
Amber Enterprises has maintained its market share of 25-26% in the RAC market, with the industry witnessing rapid growth of 40% in FY24. The company is poised to capitalize on this momentum by catering to both indoor units (IDUs) and outdoor units (ODUs) as well as key components. Despite some pressure on margins due to OEM insourcing, Amber's ability to cater to the full spectrum of RAC components positions it for sustained volume growth.

Expanding market share in components
As Amber continues to focus on components, which yield higher margins compared to finished products, the company is expected to benefit from the rising share of components in consumer durable sales. This strategy is likely to drive improved profitability over the coming years, particularly as the RAC market continues to expand.

Electronics Segment Poised for High Growth

Significant growth opportunities in PCB manufacturing
India's electronics market is projected to grow from USD 115 billion to USD 300 billion by FY30, presenting a substantial opportunity for Amber's electronics division. The company has been expanding its presence in printed circuit board (PCB) manufacturing, a critical component in various industries such as automotive, defense, and telecom. Amber currently holds a 20% market share in India's PCB manufacturing and aims to grow this segment to Rs 18-20 billion in FY25, with a 35% compound annual growth rate (CAGR) over the next few years.

Diversified customer base across industries
Amber's electronics division caters to a wide range of industries, including aerospace, defense, healthcare, and consumer durables. The company has also entered into an MoU with Korea Circuit to manufacture advanced PCBs, including flex and semiconductor substrate PCBs, further enhancing its value proposition. This diversification is expected to boost margins and drive long-term growth in the electronics segment.

Railways Segment Facing Slower Growth

Expansion into mobility solutions
Amber has increased its addressable market in the railway sector, expanding from 3-4% to 18-20% of the bill of materials (BoM) per coach through its joint venture with Titagarh. However, ordering in this segment has been slower than anticipated, with significant growth expected to commence only from FY27, when Amber's greenfield and brownfield plants begin full-scale production.

Focus on new sub-segments
To mitigate the cyclicality of railway orders, Amber’s subsidiary, Sidwal, has expanded into new sub-segments, such as air-conditioning solutions for data centers, buses, and defense applications. This diversification, coupled with an order book of Rs 20 billion, including Rs 8.5 billion from Vande Bharat orders, is expected to support steady growth in the mobility division over the medium term.

Financial Outlook and Valuation

Strong revenue growth across segments
Motilal Oswal expects Amber’s revenue to grow at a 21% CAGR over FY24-FY27, driven by a 17% CAGR in consumer durables, 36% CAGR in electronics, and 26% CAGR in the mobility segment. The company’s EBITDA margin is projected to improve from 7.4% in FY25 to 8.4% in FY27, supported by higher-margin segments such as electronics and railway subsystems.

Improved profitability outlook
Amber’s adjusted profit after tax (PAT) is expected to grow at a 52% CAGR over FY24-FY27, driven by increased revenues and margin expansion. The company’s return on equity (RoE) and return on capital employed (RoCE) are also projected to improve significantly, reaching 16.6% and 13.9%, respectively, by FY27. This improved profitability profile makes Amber an attractive investment for long-term investors.

Key Risks and Concerns

Potential headwinds in the RAC industry
The primary risk facing Amber is a potential slowdown in demand growth within the RAC industry. Changes in Bureau of Energy Efficiency (BEE) norms, which could make products more expensive, and increased competition from other manufacturers could impact the company’s market share and margins.

Railway segment delays
Delays in orders from the railway segment and slower-than-expected growth in the mobility division could impact Amber’s revenue projections. The company’s ability to ramp up production in its new facilities will be crucial to its success in this segment.

Valuation and Target Price

Attractive valuation with 12% upside potential
Amber Enterprises is currently trading at a price-to-earnings (P/E) ratio of 72.2x for FY25, 51.7x for FY26, and 35.1x for FY27. Motilal Oswal has reiterated its BUY recommendation, assigning a DCF-based target price of Rs 5,500, which implies a 12% upside potential from the current market price. This valuation is supported by Amber’s strong growth outlook across its core segments, improving profitability, and strategic investments in high-growth areas.