New Hosur Facility And JV With Korea Circuit Will Unlock Advanced PCB Manufacturing Opportunities

Key Takeaways

• Strategic expansion and joint ventures in PCB manufacturing could unlock new revenue streams and bolster long-term earnings.
  
• Anticipated growth from government schemes and capex plans positions Amber Enterprises to capitalize on future industry trends.
  
• Strategic risks, including inventory strategies, reliance on government incentives, and supply chain vulnerabilities, could impact Amber's revenue and margins amid economic uncertainties.

Catalysts

Provides room air conditioner solutions in India.

• The Consumer Durable division exhibited robust growth, with an anticipated positive summer season driving inventory buildup, which could lead to increased revenues and improved net margins.
  
• The Electronics division revised its revenue growth guidance upwards to 55% for FY '25, fueled by expansion in PCBA and bare board verticals, which is expected to significantly enhance earnings.
  
• The strategic expansion at the new Hosur facility and the joint venture with Korea Circuit for advanced PCB manufacturing could unlock new revenue streams and bolster long-term revenue and earnings.
  
• The Railway Subsystem and Defense division, despite current off-take delays, expects a return to normalized profitability by H2 FY '26, supported by a strong order book and expansion projects, which could stabilize net margins.
  
• The impending finalization of the government’s electronic component scheme, along with a robust capex plan, positions Amber Enterprises to capitalize on industry growth trends, potentially boosting future revenues and improving return on capital employed.

Amber Enterprises India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amber Enterprises India's revenue will grow by 21.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 4.0% in 3 years time.
• Analysts expect earnings to reach ₹6.5 billion (and earnings per share of ₹193.19) by about March 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 62.3x on those 2028 earnings, down from 104.5x today. This future PE is greater than the current PE for the IN Consumer Durables industry at 41.3x.
• 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 16.15%, as per the Simply Wall St company report.

Amber Enterprises India Future Earnings Per Share Growth

Risks

• The Railway Subsystem and Defense division reported a muted quarter due to delays in product offtake and expansion expenses, which could affect the division's future revenue and margin projections until they normalize by H2 FY '26.
  
• The company's reliance on inventory buildup strategies in anticipation of strong seasonal demand carries risk if consumer demand does not materialize due to macroeconomic factors, potentially impacting revenue and margins.
  
• Exchange rate fluctuations and commodity price increases, such as for refrigerants and gas, although managed, still pose challenges to maintaining stable gross margins across product divisions.
  
• The dependency on government incentives and approvals for strategic expansions, such as the JV with Korea Circuit for PCB manufacturing, may introduce delays and uncertainties affecting long-term revenue generation plans.
  
• Capacity constraints and potential supply chain disruptions, particularly in the compressor supply for air conditioners, could limit the ability to meet demand and affect revenue in peak seasons if not proactively managed.

Valuation

• The analysts have a consensus price target of ₹7599.136 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 ₹161.2 billion, earnings will come to ₹6.5 billion, and it would be trading on a PE ratio of 62.3x, assuming you use a discount rate of 16.1%.
• Given the current share price of ₹6861.9, the analyst price target of ₹7599.14 is 9.7% 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.