Amber Enterprises IPO opens today, analysts say issue expensive

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Mumbai: Analysts are divided on Amber Enterprises India Ltd’s initial public offering (IPO) as it opens for subscription on Wednesday. The manufacturer of air-conditioners aims to raise Rs600 crore through the share sale which will close on 19 January. It has set a price band of Rs855-859 per share.

According to Centrum Broking Ltd, the issue appears expensive given weak set of financials. “At the higher end of the price band of Rs 859, the issue is valued at 96.8 times price to earnings (PE) on FY17 basis (post dilution) and 49.4 times on first half of FY18 (annualized) basis. While the company holds leadership position , it is difficult to justify its valuation due to lack of clarity of the growth trend in the financial performance,” it said in a note on 16 January.

It added that financials of Amber Enterprises have not been encouraging as over FY13-17, revenue and net profit registered a compounded annual growth rate (CAGR) of 17% and 12%, respectively, with no clear trend in growth rate. “Single digit earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, average of 8% for last 5 years and return on equity of 10%, do not provide comfort,” Centrum said.

However, it also said that as in the current market there is a lot of interest for IPOs, the same can happen with this issue despite weak financials and expensive valuation.

Angel Broking Pvt. Ltd also said that at the upper end of the price band, the PE multiple works out be 80 times of FY17 earnings per share (EPS) which is on the higher side. “However, considering future earnings growth trajectory to be very robust, we feel that the stock would trade at 22-25 times (post issue equity base) on our rough EPS for FY2020 which looks very attractive,” it said in a report on 15 January.

The brokerage firm said that Amber has been able to improve its margins to 9% in the first half of FY18 led by higher capacity utilization and robust demand in room air-conditioners.

“Further, current utilization at sub 50% is likely to grow in future, providing operating leverage and thereby enhance margins. Moreover, Amber has been generating positive cash flow from operations over the last five years and will have negligible debt post IPO. The company is not planning to undertake any major capex in the next 2-3 years,” it added.

The money raised through fresh issue will be used for prepayment or repayment of debt which stands at Rs400 crore and general corporate purposes.

Amber Enterprises India Ltd is the market leader in the room air conditioner outsourced manufacturing space in India with a market share of 55.4%. It is a one-stop solutions provider for major brands in the air conditioner industry and currently serves eight out of the 10 top brands in India, including Panasonic, LG, Daikin, Hitachi, Whirlpool, Voltas, Blue Star and Godrej.livemint