Initiating Coverage: Amber Enterprises - BUY - TP Rs.1145 - Kotak

Amber Enterprises (AEL) is the leading OEM/ODM for several room AC (RAC) brands in India, with a ~55.4% market share. Notwithstanding weather-induced minor blips, we expect Room AC OEM/ ODM (outsourcing) industry to continue to grow at a brisk pace, driven by low penetration of Room ACs (RAC), increasing preference of brand owners to outsource production and rising wages in China. Being the market leader, we see Amber as a significant beneficiary, thanks to a) its established relationship with 8 out of top 10 RAC companies, b) high level of backward integration, c) scale of manufacturing and testing facilities & d) impressive R&D capabilities. Given the strong demand dynamics of room AC industry, we expect AEL to post consolidated sales/PAT CAGR of ~22%/53% over FY18-FY20E. AEL in our view is a good play on India's growing OEM/ODM RAC market. Initiate coverage with BUY rating and target price of Rs 1145 (25x standalone FY20E EPS of Rs 42.6 + Rs 80 per share for value of subsidiaries).

Source : Equity Bulls

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