Shares of Amber Enterprises India Ltd hit a new lifetime high of ₹5,361 on Tuesday before ending the day 4% lower. The company is known for its contract manufacturing of consumer durable products, particularly air conditioners (AC).
As Amber Enterprises looks to increase its revenue from the electronics manufacturing services (EMS) sector, it is possible that the Street is comparing Amber’s valuation to companies like Dixon Technologies (India) Ltd. However, Amber’s EMS revenue remains relatively small, contributing just 19% to its FY24 revenue of ₹6,729 crore. The bulk of its revenue—75%—still comes from consumer durables, with the remainder from its railway subsystem and mobility businesses.
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The company expects the AC industry to grow 30% in FY25 and anticipates a compound annual growth rate (CAGR) of 17% in AC sales over the next seven years, driven by increasing market penetration and rising temperatures. In the June quarter (Q1FY25), Amber’s consumer durables revenue grew 44%, compared to a 30-40% growth in the domestic AC industry, according to estimates from the Consumer Electronics and Appliances Manufacturers Association (CEAMA).
Amber’s EMS division has been attracting new customers after the imposition of anti-dumping duty on printed circuit boards. EMS revenue growth was 45% in Q1FY25. Amber acquired a 60% stake in Ascent Circuits in January, which helped strengthen its EMS portfolio with backward integration. As such, EMS revenue growth can be strong for the full year, too. Over time, solid EMS revenue growth should help the management in increasing the segment’s contribution in overall revenue to 25-30% in the near future. Amber is optimistic of maintaining EMS operating profit margin at 7.5-8%, a substantial improvement from 4% two years ago.
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In its railway subsystem business, Amber is pursuing a different growth strategy through a special purpose vehicle with Titagarh Rail Systems Ltd.
Jefferies India Ltd estimates Amber’s return on capital employed (RoCE) to nearly double by FY26 from about 10% in FY24. Typically, an increase in return ratio helps in re-rating of valuation multiple. Jefferies has a positive view on the stock with a target price of ₹5,200.
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Meanwhile, Amber’s high valuation is a deterrent for ICICI Securities. While ICICI also expects strong earnings growth for FY25 and FY26 at 82% and 25%, respectively, its target price is far lower at ₹3,850 based on discounted cashflow. On a price-to-earnings basis, it is 42x ICICI’s FY26 estimated earnings per share. Investors should watch how the EMS business evolves for before taking a bet.
