Amber Enterprises Ltd. - IPO Note
Price Band: Rs. 855– Rs. 859
Issue Date: 17 – 19 Jan
Recommendation: Subscribe with Long Term View
Amber Enterprises Limited (AEL) is a market leader in the RAC OEM/ODM industry in India with a market share of 55.4% in terms of volume in FY17. Over the years the company has become 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. From a single factory in Rajpura, Punjab, that commenced operations in 1994, it has today grown to 11 manufacturing facilities across seven locations in India.
a) Market Leader in RAC OEM/ODM industry
b) Backward Integration
c) Healthy Customer Base
Objects of the Issue:
The issue comprises of Rs 475cr of OFS and Rs 125 cr of fresh issue which would be utilized to repay the debt.
Valuation and Recommendation:
AEL has shown consistent growth in sales as well as profitability. Sales have grown at 17% CAGR between FY13-17 as compared to industry’s growth of 10%. EBITDA growth has been in-line with revenue growth at 16.6% however as the company was in investing mode to create a base, the depreciation and interest have been higher, dragging the overall PAT growth to 9%.
With the IPO funds, the company intends to repay most of the debt, which would trickle down the growth benefits to bottom-line as well.
Moving away from the conventional comparison, we are putting Amber in the same bracket as auto ancillary companies. We believe Amber’s is working as an ancillary to RAC market. Also, in our comparison we have found similar parameters between them like mid-teens ROEs, high single digit margins etc. At upper band, it is commanding 10% premium to auto ancillaries’ valuation which we believe is justifiable considering it is a leader in its space.
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We like the industry and the backward integrated business model of the company. We believe the investment phase of the company is now coming to end and hence the benefits would stat reflecting on the numbers along with the healthier balance sheet status. We recommend investors to subscribe the issue for long term gains.