Amber Enterprises IPO – Should you Invest in this IPO or not?

Amber Enterprises IPO - Should you Invest in this IPO-minAmber Enterprises IPO – Should you Invest in this IPO?


Punjab based, Amber Enterprises IPO would open for subscription on 17th January, 2018. Amber Enterprises IPO Ltd is a niche player in functional component manufacturing segment that is used widely by Room Air Conditioner (RAC) manufacturers. Its revenues grew at 37% CAGR in last 5 years. It earned profits of 1.7% to 3% in the last 5 years. What are the positive factors in Amber Enterprises IPO? What are the hidden factors in Amber Enterprises Ltd IPO which an investor should know?  How is Amber Enterprises IPO Priced? In this article, I would provide some insights and and provide Amber Enterprises IPO Review.

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About Amber Enterprises India Ltd


They are a market leader in the RAC OEM/ODM industry in India with a market share of 55.4% in terms of volume in Fiscal 2017. They are a one-stop solutions provider for the major brands in the RAC industry and currently serve eight out of the 10 top RAC brands in India. They have a diversified product portfolio of RAC and RAC Components. Company key customers include leading RAC brands such as Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool. Its customers command around 75% share in the Indian RAC market in Fiscal 2017. They have built strong and longstanding relationships with company customers by aligning company offerings with their business needs. They provide them with a range of additive manufacturing solutions at their doorsteps by supplying them components and RACs through OEM/ODM models. In recognition of company efficient services and products, they have received several awards from company customers such as ‘Best of Best Performance Award’ from LG for 2015 and 2016 and ‘Leadership Business Innovation Award’ from Panasonic for 2015-2016.

Issue details of Amber Enterprises IPO


Amber Enterprises IPO open date: 17-Jan-2018

Close date: 19-Jan-2018

Face Value: Rs 10 per share

Issue price band: Rs 855 to Rs 859 per share

Issue size: Rs 600 Crores

Amber Enterprises IPO Lot size: 17 shares and in multiples of 17 shares there-of.

Minimum investment: Rs 14,603 on lower price band

Leading Managers: Edelweiss Financial Services, IDFC Bank and SBI Capital Markets

Listing: NSE / BSE

Download Amber Enterprises IPO RHP Prospectus at this link

Objects of the Amber Enterprises India Ltd IPO issue


Here are the objectives of the issue.

1) The Offer for Sale: The Selling Shareholders will be entitled to the proceeds of the Offer for Sale of their respective portion of the Equity Shares. Company will not receive any proceeds from the Offer for Sale.

2) Fresh Issue: Company intends to utilize the Net Proceeds from the Fresh Issue towards the following:

a) Prepayment or repayment of all or a portion of certain borrowings availed by the Company.

b) General corporate purposes.

Company Financials (reinstated-consolidated)


1) The company generated revenue of Rs 882.3 Crores for the year ended Mar-13 and Rs 1,652.2 Crores for the year ended Mar-17.

2) The company posted a profit of Rs 19.4 Crores for the year ended Mar-15 and profit of Rs 27.8 Crores for the year ended Mar-17.

3) Its restated basic EPS for FY ending Mar-17 is Rs 12.8 and last 3 years EPS was Rs 12.3.

Amber Enterprises India Ltd IPO - Consolidated Financial Summary FY2013-2017-min

Company Financials (reinstated-Standalone)


1) The company generated revenue of Rs 826.2 Crores for the year ended Mar-13 and Rs 1,561.6 Crores for the year ended Mar-17.

2) The company posted a profit of Rs 18.5 Crores for the year ended Mar-15 and profit of Rs 30 Crores for the year ended Mar-17.

3) Its restated basic EPS for FY ending Mar-17 is Rs 13.8 and last 3 years EPS was Rs 11.98.

Amber Enterprises India Ltd IPO - Standalone Financial Summary FY2013-2017-min

What are Amber Enterprises India Key Strengths?


Here are Amber Enterprises India strengths.

1) Market leadership in the RAC OEM/ODM industry in India

2) One stop solutions provider for the RAC industry with high degree of backward integration

3) Strong customer relationships with the majority of leading RAC brands in IndiaR&D and product design capabilities leading to high proportion of ODM business.

4) Track record of financial performance.

5) Economies of Scale.

6) Culture of innovation and highly experienced management.

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What are its Key Strategies?


Company is focusing on few key strategies.

1) Expansion of existing product portfolio with a focus on ODM.

2) Expand domestic customer base and grow export sales.

3) Continuing innovation and strengthening the R&D capacity.

4) Pursue selective acquisitions, partnership opportunities and inorganic growth.

5) Continue to focus on increasing efficiency and profitability.

Reasons to invest in Amber Enterprises IPO


1) Company revenues grew at 37% CAGR in last 5 years.

2) Niche player in manufacturing of RAC and RAC components makes it unique.

Reasons not to invest in Amber Enterprises IPO


1) Earned low margins of 1.7% to 3% in the last 5 years. However with the kind of business it does, one cannot expect high profits.

2) Company business is dependent on certain principal customers and the loss of, or a significant reduction in purchases by, such customers could adversely affect company business, financial condition, results of operations and future prospects.

3) If company customers do not continue to outsource manufacturing, or if there is a downward trend in OEM/ODM business, company sales could be adversely affected.

4) Any slowdown in the RAC industry may adversely impact company business, results of operations, financial condition and cash flows.

5) They do not have firm commitment agreements with company customers. If company customers choose not to source their requirements from us, company business and results of operations may be adversely affected

6) They have experienced growth in the past few years and if they are unable to sustain or manage company growth, company business and results of operations may be adversely affected. Company failure to compete effectively in the highly competitive RAC and equipment manufacturing industry could result in the loss of customers, which could have an adverse effect on company business, results of operations, financial condition and future prospects.

7) Company and its Subsidiaries are involved in certain legal proceedings, which, if determined against them could have a material adverse effect on company financial condition, results of operations and company reputation.

8) Company Statutory Auditors have included certain reservations, qualifications, adverse remarks and comments on some of the matters in company Restated Financial Statements.

9) They had negative cash flows from investing and financing activities in the past and a consequent net decrease in cash and cash equivalents in some of the recent years.

10) Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – Amber Enterprises IPO


On the upper price band of Rs 859 and on consolidated FY17 EPS of Rs 12.8, P/E ratio works out to 67x. Even based on last 3 years consolidated EPS of Rs 12.31, P/E ratio works out to 69.7x. Even on standalone EPS basis, the P/E ratio is 62x to 71.7x. Means, company is asking higher price band of Rs 859 in the P/E ratio of 62x to 71x. There are no listed peers to compare in similar business. However, P/E ratio of 62x to 71x is very high.

Company revenues grew at 37% CAGR in last 5 years. It earns low margins. Its issue price is highly priced. However company, is a niche player in RAC and RAC components, hence catching attention of the investors. I would have been excited if the issue price would have been low. High risk investors can invest in this IPO. Alternatively one can wait and check if such IPO would be available at discounted price post listing and subscribe.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

Amber Enterprises IPO – Should you Invest in this IPO or not

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