The stock market can be unpredictable, and even the best-performing stocks can take a sudden turn for the worse. One such stock was Amber Enterprises, a consumer durable firm, which has lost 54% of its value in ten months.
Between April 2020 and April 2022, the stock had produced a staggering 300% return, rising from ₹1,007 apiece to an all-time high of ₹4,026, but since then, the stock has been falling. From its all-time high, it has fallen back to ₹1,855.
The fall in the stock pushed it back to where it was 29 months ago, wiping out all the gains made during that period. Overall, in CY22, the stock tumbled 43%, falling from ₹3,316 apiece to ₹1,891 apiece.
The steep drop in the company's stock price was ascribed to the company's poor financials. In the July-September quarter, the company posted a net loss of ₹2.3 crore as against a net profit of ₹8 crore in a similar quarter last year.
The growing finance costs have impacted the earnings. In the September 2021 quarter, the finance cost stood at ₹6 crore, and it increased to ₹29 crore in the December 2022 quarter.
Amber Enterprises is a small-cap firm and a one-stop solution provider for major brands (OEMs) in the room air conditioners (RAC) industry. It is a leader in the RAC outsourced manufacturing space. The company has a diversified portfolio that includes RAC, RAC components, and non-AC components.
The stock made its debut on the Indian stock exchanges on January 30, 2018 at a premium of 36.78% at ₹1,175 apiece over the IPO price of ₹859 and closed the first day at ₹1,237, a 44% premium over the issue price.
Stock price chart of Amber Enterprises.
In the recent December quarter, the company delivered a decent performance, in line with analyst estimates. It reported a consolidated net profit of ₹15 crore in Q3FY23, compared to a net profit of ₹33 crore in Q3FY22.
The company's revenue from operations during the quarter rose to ₹1,348 crore from ₹974 crore, an increase of 38.39%. The revenue growth was driven by a strong order book, new customer additions, and expansion in newer geographies in the RAC and components divisions.
However, the operating profit was impacted by the high expenses, which increased by 41% YoY to ₹1,270 crore in Q3 FY23. The operating margin came in at 6%, a drop of 200 bps YoY but an increase of 100 bps QoQ.
Following the company's Q3 performance, domestic brokerage Axis Securities has maintained its "buy" rating on the stock but trimmed its target price to ₹2,580 apiece from ₹3,000 earlier, implying an 39% upside from the stock's latest closing price.
The brokerage said the company's revenues in Q3 FY23 witnessed healthy growth amidst challenges posed by prevailing inflation. The RAC industry is expected to grow 30% YoY in FY23, led by a revival in the real estate industry, it says.
Amber has a large market share in RACs (on a bill of material basis), and it will benefit from the industry’s medium- to long-term growth.
The company’s long-term growth will be driven by increasing product offerings in the RAC components and Non-AC components segments, customer additions, a foray into the commercial AC space, and entry into exports, the brokerage added.
Axis Securities expects a gradual margin improvement by FY25E, led by higher scale, operating leverage benefits, and a contribution from exports.
Meanwhile, the company added three new plants in Chennai, for the production of components, PCBAs, electronics, copper tubing, injection moulding machines, and compressor parts for refrigerators. The capex for FY23/FY24 is expected to be ₹650 crore and ₹275 crore, respectively, according to the brokerage.
18 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
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First Published: 21 Feb 2023, 11:40 AM
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Now, let's delve into the concepts used in the provided article:
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Amber Enterprises Overview:
- Amber Enterprises is a consumer durable firm specializing in room air conditioners (RAC) and associated components. It operates as an outsourced manufacturing leader in the RAC industry.
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Stock Performance:
- The stock witnessed a remarkable 300% return between April 2020 and April 2022, soaring from ₹1,007 to an all-time high of ₹4,026. However, it later experienced a sharp decline, losing 54% of its value in ten months.
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Financial Performance:
- The stock's decline is attributed to poor financials, particularly a net loss of ₹2.3 crore in the July-September quarter of CY22, compared to a net profit of ₹8 crore in the same quarter the previous year.
- Finance costs rose from ₹6 crore in Q3 2021 to ₹29 crore in Q4 2022, contributing to the negative trend.
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Business Segments:
- Amber Enterprises operates in the RAC industry with a diversified portfolio, including RAC, RAC components, and non-AC components.
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IPO and Historical Performance:
- The company made its stock market debut on January 30, 2018, with a premium of 36.78% over the IPO price.
- The recent December quarter of FY23 showed a decent performance, with a consolidated net profit of ₹15 crore and revenue rising to ₹1,348 crore.
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Analyst Recommendations:
- Despite the recent challenges, Axis Securities maintained a "buy" rating on the stock after Q3 FY23 performance. They adjusted the target price to ₹2,580 apiece, indicating a 39% upside.
- The brokerage highlighted the healthy growth in revenues and expects gradual margin improvement by FY25E.
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Company Expansion and Capex:
- Amber Enterprises expanded with three new plants in Chennai for production purposes, reflecting a commitment to growth and diversification.
- The brokerage forecasts capex of ₹650 crore for FY23 and ₹275 crore for FY24.
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Market Outlook:
- The article mentions a positive outlook for the RAC industry, anticipating a 30% YoY growth in FY23, driven by a revival in the real estate industry.
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Analyst Consensus:
- According to MintGenie's poll of 18 analysts, the average recommendation for Amber Enterprises is a 'buy.'
In conclusion, the provided article offers insights into the stock market dynamics, the performance of Amber Enterprises, and expert opinions on its future prospects. Investors should consider the comprehensive analysis provided by analysts and brokers before making investment decisions.
