AMBERNSEQ4 FY2023May 17, 2023

Amber Enterprises India Limited

8,673words

126turns

16analyst exchanges

4executives

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Management on call

Jasbir Singh

CHAIRMAN & CHIEF

Daljit Singh

MANAGING DIRECTOR – AMBER ENTERPRISES INDIA LIMITED

Sudhir Goyal

CHIEF FINANCIAL OFFICER

Sachin Gupta

CHIEF EXECUTIVE OFFICER

Key numbers — 40 extracted

8.4 million

I hope everybody had an opportunity to go through the same. Indian RAC market has grown to almost 8.4 million units in FY2022-FY2023 and poised to create healthy growth in the upcoming years owing to rise in

rs,

a market size of 8.4 million in FY2022-FY2023 and the continuous rising demand for air conditioners, Amber looks forward towards an optimistic and steady growth in coming quarters. This year we witne

29.4%

ear expanded its market share in RAC industry and manufacturing footprint level in value terms to 29.4% in financial year FY2023 vis-a-vis 26.6% in FY2022. In last five years, each division entered i

26.6%

stry and manufacturing footprint level in value terms to 29.4% in financial year FY2023 vis-a-vis 26.6% in FY2022. In last five years, each division entered into adjacent fees. I am glad to announce th

on investment while balancing growth profitability and improved return ratios witnessing a strong 4% jump in ROCE in FY2023 which improved from 11% to 15% and expected to improve further

11%

lity and improved return ratios witnessing a strong 4% jump in ROCE in FY2023 which improved from 11% to 15% and expected to improve further in the range of 19% to 21% in next two to thre

15%

eturn ratios witnessing a strong 4% jump in ROCE in FY2023 which improved from 11% to 15% and expected to improve further in the range of 19% to 21% in next two to three years time. Our n

19%

FY2023 which improved from 11% to 15% and expected to improve further in the range of 19% to 21% in next two to three years time. Our networking capital days has improved to 29 days from

21%

which improved from 11% to 15% and expected to improve further in the range of 19% to 21% in next two to three years time. Our networking capital days has improved to 29 days from 39 days

Rs.588 crore

due to better control on inventories. We closed our financial year 2023 at a net debt level of Rs.588 crores at consol level. During FY2023 we did a capex of 698 Crores at consol level that helped in incre

698 Crore

l year 2023 at a net debt level of Rs.588 crores at consol level. During FY2023 we did a capex of 698 Crores at consol level that helped in increasing the profitability and improving the share of business

Rs.6,927 crore

you through the consolidated financial highlights. The revenue front, for FY2023 revenue stood at Rs.6,927 crores versus Rs.4,206 in FY2022 marking a growth of 65%. For the quarter of Q4 FY2023, revenue stood a

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Guidance — 20 items

Dhruv

“One is that sir the growth that we have seen in the RAC business and the entire business in that sense as you mentioned about new customer addition, so if you could just give some indication as to what was the quantum of the growth that was driven by new customer addition and how should we look at it going forward.”

Jasbir Singh

“So from that perspective it will be right to assume that yes we can double the revenue in three to four years’ time.”

Jasbir Singh

“Your second question on Q1 status, yes the demand is muted and we are all seeing very unseasonal rains in the middle of the May, temperatures in Delhi on 2nd of May was 21 degrees so you can expect you know the air conditioner system but yes channel inventory is high as we speak today.”

Jasbir Singh

“We are hopeful that this will be liquidated in the month of June and July and on the overall industry growth we were optimistic that industry will touch about 17% to 18% growth, but now I think we are still hopeful looking into the lifestyle shift and power plus other so many other reasons industry should be in a 10% to 15% range in the financial year end so that is our estimates.”

Jasbir Singh

“We have crossed our threshold limits both on the incremental capex which was required and also the incremental sales so we peaked both the part of the PLI eligibility and we are eligible I think this financial year we expect to receive the first part of the PLI .”

Jasbir Singh

“I think we are seeing a stability in the commodity cycle; I do not think there should be any further change in the commodity cycle and so we should be able to maintain what we are at but yes we expect to see some kind of operational leverage because capacity utilizations at our new plants are little less which will also add some bit of margins going forward.”

Madhav Marda

“Currently is there like a blended number that you have or any broad sense you can give us that will be very helpful.”

Jasbir Singh

“Madhav each of the division is a different capacity utilization, about two greenfield facilities which we have just started, it was started in Sri City started in Q4 and we just ended up having 20% capacity utilizations but this year we expect the capacity utilization to go to at 35%, 40% but other than that all the divisions are at different levels so on a blended basis I would say we should be at about 65% to 70%.”

Nitin Arora

“I understand you will stop giving the volumes for the reason which you stated but generally in the last four or five years in the standalone side which is your RAC you have grown at 23%, 24% CAGR.”

Nitin Arora

“What could be the industry CAGR in that case.”

Risks & concerns — 5 flagged

Financial year and Q4 operating EBITDA is before the impact of ESOP expense and other non-operating income and expenses.

— Jasbir Singh

We are not missing anything Pankaj, we are just not onboarding lower margin businesses, it is a very cautious call which we have taken and that is the strategy.

— Jasbir Singh

Maximum EBIT that is very difficult, that need a detailed calculation to work on and give the EBIT calculation for the same but on the sales turnover like I said we can easily go there like from here we can reach around Rs.9000 Crores to Rs.10000 Crores with the current capex base.

— Sudhir Goyal

— Jasbir Singh

First risk is the brands keep on exchanging market shares between them.

— Jasbir Singh

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Q&A — 16 exchanges

Congratulations sir on a great set of numbers. I had a couple of questions. One is that sir the growth that we have seen in the RAC business and the entire business in that sense as you mentioned about new customer addition, so if you could just give some indication as to what was the quantum of the growth that was driven by new customer addition and how should we look at it going forward.

Jasbir Singh

Good morning Dhruv and thanks. You know each division has actually added customers. So from consol level point of view the newer customers addition, we do not have a number right now but we can definitely come back to you at a later stage but it has all these new customers that were added has come in Q4 and that is the reason why Q4 revenue jumped significantly. We were in touch with these customers from last two to three years and as explained earlier the lead times to onboard a customer is quite high in our businesses and this was a very positive part from all the divisions’ perspective that

Hi sir. Good morning. Thanks for your time. Just three four questions. One if you could give us the volume breakup for your RAC business for 2023 and if possible, between split and windows. Second you did mention that Q1 seems to be a little muted and we are aware that there has been unseasonal rainfall across North and a couple of other regions so if you could talk about a channel inventory, is it only in the north where inventory seems to be high or are you seeing that across other parts of the country as well and thirdly in terms of your overall industry growth itself for FY2024 are you can

Jasbir Singh

Good morning Ankur. Basically on the volume side we stopped giving the volume numbers because it has become a company sensitive information. We saw it in past that some of the customers they took the numbers and started renegotiating which was negative for the company. On the value terms as I explained that we have started seeing our offering to customers from a wallet share on the bill of material part so at 8.4 million numbers the market size comes to about Rs.25,000 odd Crores which converts into Rs.17,640 Crores in the manufacturing footprint level and room AC plus the room AC components w

Congratulations on a good set of numbers, so my first question is you know on the market share which has now become 29% and we spoke about PCB is being about 20% of the industry so you know from the rest of the kind of components that we have say motors or in terms of the plastic molding etc what is the level of market share and on an overall basis how do you see this inching up to 29% or is this something that way we are starting to keep the ceiling. Number two is if you could just talk about the overall exports outlook on both motors as well as on EC and the motors the margins have inched up

Jasbir Singh

Good morning Bhoomika and thanks so I will start with your first question on the components sphere of business other than the inverter PCB board so I think on the motors front, PICL is the leading company today in the motors front we will be sitting somewhere about close to about 26% to 27% market share on the component side and in sheet metal we are the largest in the country giving solutions in the sheet metal side. We should be somewhere about 35% to 40% and then on the crossflow fan side again we are one of the leaders, again having about 25% market share so in each category of the compone

Sir thank you for the opportunity and congratulations on a great set of numbers. Sir my first question is regarding price hikes also with respect to the new BEE models that are there in the system now, so what is the quantum of price hikes that you have taken from January till now and also an extension to this question is the transition to the new BEE almost complete and have all channels now restocked the new models.

Jasbir Singh

Good morning Sonali and thanks. On the price hike, there has been no price hikes because the commodities, it is more or less stabilized now and BEE norms everybody has adjusted all the inventories are well taken care of and it has been digested by the market so it is a new normal now. Understand. Second question any update on the PLIs please. You have received two PLIs one in the normal category, one in the large category, any update you would like to share at this point in time. We have crossed our threshold limits both on the incremental capex which was required and also the incremental sale

Good morning. Thank you so much for your time once again. I completely understand that percent margins is not the right way to look at the business but if you look at the RAC division where you reported 284 Crores of EBITDA in FY2023. so I think going to FY2024 and FY2025 you did indicate that you know we can grow ahead of the industry but just how will the EBITDA basically shape up because last time there was a lot of volatility in some commodity cost, product mix shape etc. so going to FY2024 if you could give us some sense in terms of how the EBITDA overall will go.

Jasbir Singh

I think we are seeing a stability in the commodity cycle; I do not think there should be any further change in the commodity cycle and so we should be able to maintain what we are at but yes we expect to see some kind of operational leverage because capacity utilizations at our new plants are little less which will also add some bit of margins going forward. Got it and just in terms of the ESOP cost that should be coming down like I am assuming that would have peaked out in FY2022 or FY2023? So ESOP cost for the current financial year like FY2022-FY2023 is Rs.27 Crores and the current financia

Hi sir. Thank you for taking my question. I understand you will stop giving the volumes for the reason which you stated but generally in the last four or five years in the standalone side which is your RAC you have grown at 23%, 24% CAGR. What could be the industry CAGR in that case.

Jasbir Singh

Industry has grown about 16% to 17% CAGR. What was the need of moving into the component side just a little structural question because one a company loses 400-500 basis points of margin, you become a very thin margin company on the RAC from about 7% to 8% to 4% , so generally as a business call when you are increasing the market share if you would have lost it, you would have moved to the other business in terms of increasing your content when someone is gaining the market then what was the need of coming to the component where you are losing out in terms of even ROE and ROC. If you can throw

Good morning Sir.

Jasbir Singh

Good morning Pankaj. On the capex side, we have done a very aggressive capex over the last two years and as a result our asset turns and the shift in business suffered on the margin side and the resultant impact has been on the return on capital. Can you give us some sense on how you foresee in the next couple of years this metrics to start improving and what will contribute, a little more granular detail will be appreciated. Thank you. I think green shoots are visible in the last financial year results, 400 bps increase in the return on capital employed largely because of operational efficien

Good morning everyone, so I have a two questions firstly again on the ROCE part so you know few comments which you made that your blended capacity utilizations are 65, 70, even if I adjust the capacity of Rs.300 Crores which came in February month from FY2020 base sir our capital employed has more or less has become 1.8 times sir and during this period our absolute EBIT, the absolute EBIT is the focus and not the percentage so on the in during this period from FY2020 to FY2023 our absolute EBIT has hardly grown in tandem with the capital employed in the business so is it a right understanding

Sudhir Goyal

Hi Sudhir here. If you see our capital employed it was 1,900 Crores in the last financial year and now grown to 2,542 Crores, a growth by 32%, whereas operating EBITDA improvement it is more than 60%. I tell you I think where the calculation is going wrong from your side based on the face of the balance sheet so there is some investment, cash investment in the bond, equivalent to amount Rs.191 Crores which you might not be considering to calculate the net debt level. Okay because you know I was just looking like reported numbers at the equity side and even I was exploring the cash part but I t

Hi good morning sir. I wanted to understand about the PLI schome. How are you going to book the incentive given that you have crossed the threshold limit, have you booked some incentives as it come in this year itself or will they be recorded once you receive it in the next year?

Sudhir Goyal

We are following the accrual base of accounting, so incentive is already booked in the financial for the financial year 2022-2023, but since we have achieved that and since we have already filed the QPR as well with the government, so that has been booked in the books of accounts. Understood and we have crossed the threshold limit is both the schemes, right? We crossed both the threshold limits of capex as well as sales. I mean for Amber as well as for the electronics business. No, no. Electronics we took the first two year as a gestation period so FY2021-FY2022 and FY2022-FY2023 is the invest

Good morning to the Amber team and congratulations on the good set of numbers. Just one question from my side so this year or probably over the past two or three years we have seen several new AC brands come in the market so I just wanted to understand in terms of the value market share gain that we have seen how much of this has been with those new brands as in can you share some number in terms of the number of brands that you are working with let say three years back and let say FY2023, some color on that.

Jasbir Singh

We have got about close to about 26 customers in the home AC category and they keep on shifting as per their market shares and as per their requirements so it is very difficult to answer your question on the newer brands. Okay and sir just one question on working capital. How should we look at working capital going forward over the next two or three years? On our net working capital days, we are almost at 29 days from 39 days and I believe this is maintainable from 35 to 30 days. Sure. Thank you thank you so much.

Hi. My first question on the outsourcing industry you said how it was 41% two years back and now with the PLI scheme it has come down to almost 25% in this year on that note and also you mentioned about the industry size growing at 10% to 15%, so on that note our outsource unit market share or industry that is becoming flat and how do we see to outgrow that for Amber.

Jasbir Singh

Let me give you again clear picture that we are a B2B player so we have to move accordingly, we have to realign our strategies according to the strategies of our customer. Now in our business model we have serious two large risks. First risk is the brands keep on exchanging market shares between them. Earlier from 2004 till 2011 LG was the undisputed leader, then Voltas became the leader, now we do not know who is going to be the leader in next couple of years. So our offering from that perspective is we are supplying to all the major brands that shift does not impact us. Second is their strat

Hi. Thank you for the opportunity. I just have one basic question. When you have shifted your strategy from outsourcing to insourcing with components and assemblies, in terms of absolute ticket size per customer I am talking of say unit value, does it go up or go down.

Jasbir Singh

It completely varies from customer to customer. If customer wants to supply, they want us to supply some assemblies also then it is almost on the same part because earlier they were supplying compressors so that is a pass through other than that we are supplying components in a separate bit it becomes almost similar but if customer chooses not to take all the kind of components from us, they want to take few of the components from us then it will reduce so it will vary from customer to customer. Understood and what has been generally your experience with your customers. Generally, experience,

Thank you. Congratulations to the team for great results. Sir first question is on the RAC growth. You have mentioned that RAC and component segment, company will outgrow the industry, now when you talk about say 10% to 15% kind of growth for the industry and higher channel inventory so generally we have seen some kind of lag in our growth when inventory is high in the system so what will drive our growth faster than the industry growth and will that be back ended since inventory is high or would be high in the first half.

Jasbir Singh

Largely what we do is we keep on horizontally deploying our complete range of components with the customers so for example I am supplying customer A only motors and heat exchangers, now this year I have started heat exchangers, motors I was already giving we have started supplying them sheet metal and cross flow fans so my offering to them increases irrespective of their even if they do not grow my business will grow with them, so that is what we are doing with almost every customer, that is why we are saying that we will outnumber the industry. Okay okay so that commentary that is there in th

Thank you for the opportunity and congrats on a good set of numbers. My first question is on the motor division. Can you help us understand what is the size of the industry, what kind of growth do you expect from the industry and what is the kind of market share that you have within the space, how many competitors are there and also what is the contribution of the AC motors?

Jasbir Singh

We are competing with Japanese company called Medak and then there is an American company called Regal Beloit, which was earlier GE Motors Marathon, they compete with us and of course a large part of motors continue to be imported from China. So large part of the competition is in from China not from India but on the overall size I think at 8.4 million numbers, the motors we sell is close to about 1000 rupees per AC so that is the market size we are talking of today of the complete, out of that almost 60% of motors are imported from China and other divisions. So what kind of growth are you exp

Yes. I think my question has been answered. My question was similar to what was asked earlier in terms of your margin profile I think FY2018 you are at close to 9% margins in the AC and component business, and now we have gone down to 6%, so again this is the same thing. It is like a structural margin that we are looking at these levels.

Jasbir Singh

Margins actually percentages of margins does not matter to us, so what matters is the absolute growth because we do not define what customer wants from us, we supply what they ask so their subassemblies can increase, their kits can increase, I mean for example if I am supplying a fully finished goods and in that compressor and heat exchanger is getting supplied by customer, I cannot demand a margin on that part of good, but my billing will be to a tune of close to complete AC but whereas in other cases on the component side you know so what we see is the blended basis of the absolute numbers w

Thank you everyone for joining on the call. I hope we have been able to address most of your queries. For any further information, kindly get in touch with SGA, our investor relations advisors and have a good ahead. Thank you very much.

Management

Speaking time

Jasbir Singh

Moderator

Sudhir Goyal

Pankaj Tibrewal

Nikunj Gala

Vinod Chari

Sonali Salgaokar

Nitin Arora

Aditya Bhartia

Jayesh Shah

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Opening remarks

Jasbir Singh

Hello and good morning, everyone. On the call, I am joined by Mr. Daljit Singh, Managing Director, Mr. Sudhir Goyal, CFO, Mr. Sachin Gupta, CEO, RAC & CAC Division, and SGA our Investor Relation Advisors. We have uploaded our result presentation on the exchanges, and I hope everybody had an opportunity to go through the same. Indian RAC market has grown to almost 8.4 million units in FY2022-FY2023 and poised to create healthy growth in the upcoming years owing to rise in temperatures, boom of residential sector, growing retail and hospitality sector, rising construction activities in the commercial and real estate space along with rampant expansion on SME and commercial hubs. The growing construction projects across the country supported by governmental spending towards infrastructure would eventually result in disproportionate demand for HVAC solutions by stepping up the transport infrastructure of the country such as railways, metros and buses. With AC industry peaking to a market si

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