Electronics And Consumer Durable Divisions Will Expand With New Projects And Market Demand

Key Takeaways

• Strong growth in the Consumer Durable and Electronics divisions, driven by rising demand, will boost revenue and operating earnings.
  
• Strategic expansions and joint ventures are set to enhance capabilities, positioning the company for long-term revenue and margin growth.
  
• Delays, capacity constraints, and significant CapEx in various divisions pose risks to revenue growth, cash flow, and profitability, amid reliance on favorable market conditions.

Catalysts

Provides room air conditioner solutions in India.

• The Consumer Durable division is set to benefit from strong growth in the Room Air Conditioner (RAC) industry and the commercial ACs space, along with new customer acquisitions and deepening relationships, which should positively impact revenue and operating earnings.
  
• The Electronics division is experiencing significant growth driven by increased demand for PCB applications in various sectors including renewable energy, automotive, defense, and smart meters, which is likely to boost revenue and earnings.
  
• The strategic expansion with the new facility at Hosur and the joint venture with Korea Circuit are expected to enhance the Electronics division's capability and market reach, potentially increasing revenue and net margins in the coming years.
  
• The Railway Subsystem and Defense division, despite short-term delays, is expected to bounce back with strong order book visibility and new projects, which should contribute positively to revenue and net margins by H2 of FY '26.
  
• The completion of multiple expansion projects, including Ascent facility and various joint ventures, positions Amber Enterprises for multifold growth across divisions, likely improving overall revenue and earnings in the long term.

Amber Enterprises India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amber Enterprises India's revenue will grow by 19.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 4.2% in 3 years time.
• Analysts expect earnings to reach ₹6.5 billion (and earnings per share of ₹193.16) by about February 2028, up from ₹2.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹7.4 billion in earnings, and the most bearish expecting ₹4.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.1x on those 2028 earnings, down from 91.7x today. This future PE is greater than the current PE for the IN Consumer Durables industry at 42.0x.
• Analysts expect the number of shares outstanding to grow by 0.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.07%, as per the Simply Wall St company report.

Amber Enterprises India Future Earnings Per Share Growth

Risks

• The Railway Subsystem and Defense division experienced a revenue decline of 13% due to delays in order fulfillment and product expansion expenses, which could impact profitability and margins until the issues are resolved.
  
• The company is navigating potential risks in the electronics division, such as capacity constraints at Ascent Circuits and ASP decline in hearables and wearables, which may affect revenue growth projections and margins.
  
• The exposure to ongoing and significant CapEx, especially in the electronics and PCB ventures, could strain cash flows and lead to financing challenges if government subsidies or market conditions are delayed.
  
• The reliance on positive summer seasons for the Consumer Durable division's growth introduces variability; unexpectedly poor weather could lead to inventory buildup and impact revenue growth adversely.
  
• The muted performance and margin pressure in the Railway Subsystem and Defense division due to unforeseen delays and project deferments could create risk for the company's overall revenue growth and profitability projections.

Valuation

• The analysts have a consensus price target of ₹7595.5 for Amber Enterprises India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹8845.0, and the most bearish reporting a price target of just ₹5192.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹154.3 billion, earnings will come to ₹6.5 billion, and it would be trading on a PE ratio of 62.1x, assuming you use a discount rate of 16.1%.
  
• Given the current share price of ₹6024.3, the analyst price target of ₹7595.5 is 20.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.