AMBERNSEfinancial year 2023July 26, 2023

Amber Enterprises India Limited

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Management on call

Jasbir Singh

EXECUTIVE CHAIRMAN AND CHIEF EXECUTIVE OFFICER AND WHOLE TIME

Daljit Singh

MANAGING DIRECTOR – AMBER ENTERPRISES INDIA LIMITED

Sudhir Goyal

CHIEF FINANCIAL OFFICER – AMBER ENTERPRISES INDIA LIMITED

Sanjay Arora

WHOLE TIME DIRECTOR–ILJIN

Sachin Gupta

CHIEF EXECUTIVE OFFICER –

Key numbers — 40 extracted

rs,

lectronics division); and Mr. Sachin Gupta, CEO of RAC Division; and our Investor Relations advisors, SGA. We have uploaded our results presentation on the exchanges, and I hope everybody had an opp

20%

inancial year. In H1 of calendar year '23, industry has declined by approximately in the range of 20% to 25%. However, we expect RAC industry to grow by 7% to 8% on a year-on-year basis for financial

25%

l year. In H1 of calendar year '23, industry has declined by approximately in the range of 20% to 25%. However, we expect RAC industry to grow by 7% to 8% on a year-on-year basis for financial year

declined by approximately in the range of 20% to 25%. However, we expect RAC industry to grow by 7% to 8% on a year-on-year basis for financial year '24, which augurs well for Amber. As mentioned e

ned by approximately in the range of 20% to 25%. However, we expect RAC industry to grow by 7% to 8% on a year-on-year basis for financial year '24, which augurs well for Amber. As mentioned earlier

INR1,702 crore

e consolidated financial highlights. On the revenue front, for quarter 1 FY '24, revenue stood at INR1,702 crores versus INR1,826 crores in quarter 1 FY '23. On operating EBITDA, for quarter 1 FY '24, operating

INR1,826 crore

l highlights. On the revenue front, for quarter 1 FY '24, revenue stood at INR1,702 crores versus INR1,826 crores in quarter 1 FY '23. On operating EBITDA, for quarter 1 FY '24, operating EBITDA stood at INR138

INR138 crore

crores in quarter 1 FY '23. On operating EBITDA, for quarter 1 FY '24, operating EBITDA stood at INR138 crores versus INR131 crores in quarter 1 FY '23, a growth of 6%. Operating EBITDA margins for Q1 FY '24

INR131 crore

'23. On operating EBITDA, for quarter 1 FY '24, operating EBITDA stood at INR138 crores versus INR131 crores in quarter 1 FY '23, a growth of 6%. Operating EBITDA margins for Q1 FY '24 stood at 8.1% versus

24, operating EBITDA stood at INR138 crores versus INR131 crores in quarter 1 FY '23, a growth of 6%. Operating EBITDA margins for Q1 FY '24 stood at 8.1% versus 7.1% in Q1 FY '23. Our component s

8.1%

NR131 crores in quarter 1 FY '23, a growth of 6%. Operating EBITDA margins for Q1 FY '24 stood at 8.1% versus 7.1% in Q1 FY '23. Our component strategy, which led to product mix change, has helped to

7.1%

in quarter 1 FY '23, a growth of 6%. Operating EBITDA margins for Q1 FY '24 stood at 8.1% versus 7.1% in Q1 FY '23. Our component strategy, which led to product mix change, has helped to improve thes

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Guidance — 20 items

Jasbir Singh

opening

“However, we expect RAC industry to grow by 7% to 8% on a year-on-year basis for financial year '24, which augurs well for Amber.”

Jasbir Singh

opening

“We expect Mobility Application division to grow in a range bound of 15% to 20% in this current financial year.”

Jasbir Singh

“Yes, but we will maintain our guidance that on the absolute EBITDA basis, you will see a jump of 25% to 30% on the EBITDA level.”

Jasbir Singh

“That is doors, gangways, pantry systems will start paying dividend from next year onwards.”

Jasbir Singh

“And from next year, quarter 2 starting, we will start getting the reflection of this multiproduct strategy of ours in Sidwal.”

Anupam Goswami

“And you're looking at the growth, you expect about 7% to 8% growth in the RAC.”

Jasbir Singh

“It will be very difficult to predict whether it is 15% to 18%, but I think we should be at least 3% to 4% higher than the industry at least moving forward, looking into our strategy, which is moving.”

Jasbir Singh

“We should expect something big, I mean, good trajectory beyond 29% as we are adding more components and we've added more customers also in both components as well as in the (check right word) category.”

Natasha Jain

“And how do we see this segment going forward?”

Jasbir Singh

“But the reason why we are changing the guidance instead of 30% to 20% to 25% is because looking into the bad season right now moving on.”

Risks & concerns — 9 flagged

Our component strategy, which led to product mix change, has helped to improve these margins during the quarter despite weak demand in RAC, owing to unseasonal weather patterns.

— Jasbir Singh

Operating EBITDA is before impact of ESOP expense and other nonoperating income and expenses.

— Jasbir Singh

On the percentage terms, I will again reiterate what I've always said that it is very difficult for us to predict the percentage of margins because of the high product mix which we carry as a solution provider.

— Jasbir Singh

In the earlier interaction, you mentioned the industry may address to flattish or may decline for the full year.

— Renu Baid

It will be very difficult to predict whether it is 15% to 18%, but I think we should be at least 3% to 4% higher than the industry at least moving forward, looking into our strategy, which is moving.

— Jasbir Singh

Very difficult to answer your question, Karan, because we have five divisions and all the divisional capacities are at different level.

— Jasbir Singh

So given where we are seeing margins of some of the brands or OEMs, do you think there's a risk that the component manufacturing can also be brought in-house by them and thereby shrinking our target market or addressable market?

— Indrajit Agarwal

Sir, given that we are looking at an industry level decline in the first quarter.

— Rahul Gajare

So it's very difficult to say at what percentage.

— Jasbir Singh

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Q&A — 20 exchanges

My first question is with respect to the Electronics segment. We have seen very good growth in the segment in the first quarter of this year. Margins are somewhere in the range of around 5%. Is there a scope for this to improve? What can be the drivers of improvement in terms of margins? And if you can talk about the growth drivers also for the segment slightly more in detail would be great.

Jasbir Singh

Yes, this margin, you're right, is in the range of 5%. When we bought these companies, it was in the range of 3% - 3.5%. We are moving towards a 6% range, and that's what we guided that in the next two years' time, we should be getting those numbers. Because the reason is that the new orders which we are taking and the new applications which we are entering into are coming with a slightly higher margins and we are very bullish on this divisional performance as well as the future growth prospective of this division. When we bought this company, this was in line to air conditioners moving from f

And congratulations on a great set of margins. Sir, my first question is regarding margins itself, about 7% -- more than 7% this quarter. You mentioned product mix changes. So could you give us more color as to what exactly were the product mix changes? And how sustainable do you foresee this margin trajectory to be in? Do you think the coming quarters can sustain at about 7% to 8% from here on also because of the PLI benefits coming in?

Jasbir Singh

Thank you, Sonali, and good morning. Yes, the margins expanded, and the prime reason is that as we explained in the last couple of quarters that we are shifting our strategy towards more of components. That is what led to this margin increase. in both AC as well as non-RAC businesses, which we've added in the last couple of quarters, are paying dividends now. On the percentage terms, I will again reiterate what I've always said that it is very difficult for us to predict the percentage of margins because of the high product mix which we carry as a solution provider. Yes, but we will maintain o

I have two questions. First, you've highlighted various new emerging areas where we see developments coming towards companies expanding. So what kind of investments are you expected to do in the next 18, 24 months across these segments development?

Jasbir Singh

Renu, we guided earlier that total capex for this year is going to be in line of INR350 crores to INR380 crores range. And that is primarily because of maintenance capex of all 27 plants, plus the R&D initiatives. And, as explained, that our divisions are now moving to different applications. So, we will need some capex in the divisional part also for expansion of our capacities for newer applications, which we want to address it. Sure. And the second question is on the growth side. While in RAC and Components, you mentioned you'll be growing faster than the industry. In the earlier interactio

Sir, my question is a little follow-up. You mentioned about July sales. And you're looking at the growth, you expect about 7% to 8% growth in the RAC. If that so then Amber should be in the range of double-digit growth, let's say, 15% to 18% in RAC?

Jasbir Singh

It will be very difficult to predict whether it is 15% to 18%, but I think we should be at least 3% to 4% higher than the industry at least moving forward, looking into our strategy, which is moving. Okay. Okay. And so, sir, you mentioned about Sidwal growing double digit. So do we -- in the multiyear product that we are mentioning, do we maintain the margins of about 20%? Yes. Sidwal maintainable margins are in the range of 20% to 22%. If you would have seen the last 4, 5 quarters, you know that it changes, varies from quarter-to-quarter because sometimes we have AMC contracts billing happeni

Sir, one question, primarily the split between ACs and RAC and Components. Could you talk about rough margins in both of them? Because we've seen a period 3 years, 2.5 years back, where our margins went from 8% to 6%. And again, in this quarter, we have jumped to 8%. So just for us to be able to understand this better, what is the margin in your RAC business and your component business approximately?

Jasbir Singh

Actually, this is a very company sensitive information, and we would not like to highlight on the complete vertical split. So we have a range. I can talk about the range. The range of finished goods to component varies from close to about 6% to almost about 9%. That is the range on which we supply various models, whether it is in goods or it is the component. Okay. This is helpful, sir. And can you talk about proportion in both of them? Proportion, yes, RAC proportion is reducing now. You would have seen in the presentation also that I think from -- it used to contribute close to about 68% a c

My first question is you mentioned in your presentation that industry is expected to grow by 7% to 8%. So I assume this is at a RAC and component level. So even if I take a 7% growth, sir, at the current market operating price, I come to a volume of about 9 million units. So sir, just wanted to understand, would we be able to do that kind of volume given that quarter 1 is already gone and it was a bad quarter.

Jasbir Singh

Yes. We are in that that's about 9 million numbers. Because what we are seeing right now is the inventory getting liquidated in quarter 2. And generally, whenever this kind of trend happens because we've seen bad seasons 4 or 5x in our history of the last 22 years. So there's always a certain jump in quarter 4, which leads to a single-digit growth trajectory, and that is what should happen this year as well. So we are very confident that market should come to about 9 million. So industry should come to 9 million this year. All right. And sir, just on the market share. So if we are expected to

So my question was I wanted to understand the capacity utilization in our facility at a major consolidated level.

Jasbir Singh

Very difficult to answer your question, Karan, because we have five divisions and all the divisional capacities are at different level. But if I want to give you a gist of the divisional capacity utilization, I think if I talk about motors, we should be at about close to about 50% capacity utilization. We've just moved into a newer factory last year in that category. On RAC, we will be again talking of about 50%, 55% capacity utilization because we did two greenfield facility expansions. And on Sidwal, w in mobility application, we are at about close to 65% to 70%. And in Components division,

Can you give us some color on the balance sheet? How is it shaping up? And on the return on capital, the trajectory which we have been talking about, it will be a lot appreciated.

Jasbir Singh

Pankaj, as guided earlier that we already touched 15% of return on capital towards doing about 16% to 16.5% this year. And as guided earlier, I would like to reiterate that in the next 2 to 3 years' time, we should be in the range of 19% to 21%. And any color on the balance sheet as we speak because interest cost has moved up quite substantially. So just some color on the overall balance sheet debt numbers. I'll ask Sudhir to answer this question. So what kind of color you are looking for in terms of balance sheet? Like -- what exactly you want to know? Because these... Gross and net debt and

First question is on the Electronics division. It's now at an annualized run rate of nearly INR1,100, INR1,200 crores. So any color you can give on what is the product-wise split within that electronics revenues?

Jasbir Singh

Right now, almost 30% revenue is coming from hearable and wearable and 70% is consumer durable. But we've started the small shipments in the telecom sector. So by year-end, I think the consumer durable and appliances sector should come to about 55% to 60% and 40% would be the other hearable, wearable plus telecom. Okay. And consumer durable is a mix of different products, I'm guessing different appliances you said? Consumer durable, we have AC, refrigerator, washing machines, microwave ovens, water purifiers and TVs. Okay. Understood. And just quickly on this quarter gone by. If you were to sp

I wanted to understand, I mean, you touched upon this point in the previous participant question. I wanted to understand that as all EMS companies who are giving confidence are doing a margin of, say, 15%, 17% in the component business. Maybe in PCB board supplying to consumer electronics. So what is -- if we are moving towards more on the component side and what kind of margins can we be and why is it? Like if we ramp it up, then how much can the margin increase? To what level can it increase is what I wanted to understand in the component business? And why are we doing it low compared to oth

Jasbir Singh

So basically, there are EMS companies which have 4% EBITDA, and there are EMS company in electronic sector, which has about 11% to 12% EBITDA. It depends on which applications you are serving to. So there are about 9 to 10 sectors where you can address or deliver these solutions in the electronic space, starting from the lowest margins in our sector, which is consumer durable and home appliances, then moving on further in the industrial and health care sector, it is more. In auto, the range is about 7% to 9%. But if you start catering to defense applications and railway application, then it is

Sir, I had a question on the [inaudible 0:32:08].

Jasbir Singh

Dhruv, you were not audible. Can you repeat your question?

Just wanted to get -- I think you mentioned in the initial part of the commentary, but the RAC industry growth this year, how do you expect it to shape up through the rest of FY '24? Is my understanding right that Q2 could be a bit better than Q1 because Q1 was a lot impacted and then you're expecting Q4 to be a much better one as inventories normalize. Did I understand right?

Jasbir Singh

Yes. Basically, we are seeing some uptick in July month. And I think if the inventories get liquidated in quarter 2, then quarter 3 and quarter 4 should be positive. But quarter 4 will generally be positive. We have seen this trend of bad seasons earlier also. I mean, within the bad season, this was the worst season which we saw. But it bounces back. It's a strong comeback whenever this kind of thing happens. So CAGR of industry gets maintained. So I think we are quite bullish looking into the trend of sales of most of the large companies, we think that industry should come up in the 7% to 8%

I have one more medium-term question. So given where we are seeing margins of some of the brands or OEMs, do you think there's a risk that the component manufacturing can also be brought in-house by them and thereby shrinking our target market or addressable market?

Jasbir Singh

Well, on the scale of 1 to 10, if we say that everybody will start manufacturing all the components, that's not possible. That's -- basically, what happens is we have customers who have only 20% of in-sourcing. We have customers who havejust assembly lines and they buy 100% components outside. And we have component -- we have customers on the other side who are deeply backward integrated. So they will be at a level of 7 or 8 in the backward integration. But still, there is a lot of scope of component supply to even customers which are deeply backward integrated, we are still supplying componen

Sir, given that we are looking at an industry level decline in the first quarter. Can you give us some sense on how this has played out regionally in terms of the industry performance, given that you will be catering both on RAC and Components. So you have some sense of how a particular region has done.

Jasbir Singh

Well we need to refer to the GFK reports because they are the one which comes out to proper region-wise, we don't monitor region-wide sales because we are a B2B company. So we supply to customers and then they supply further. But what we are hearing from brands and from our customers is that North India was a big dissuader because of continuous rains starting from March and until now. So North is like a complete, what shocked the markets and. But otherwise, the West and East, we are hearing that this is going pretty well. Okay. So this is the continuation of the earlier question. Given that we

Sir, just a clarification on the subsidiary margins on PLC and the electronics division. So you see a sequential decline. Should we assume that margins will remain in this level or it should revert back to the earlier trend because in a couple of quarters for at least PIC, we've seen about 14%, 15% margins.

Jasbir Singh

So it will vary from quarter-to-quarter because we have some exports coming in and then there are different product mix we have. Again, I'll reiterate that please don't see the balance sheet in the percentages of margin. It's absolute EBITDA basis where one need to see the B2B company like us. Because we have a high range of 5% to 22% of EBITDA businesses. So it's very difficult to say at what percentage. But yes, looking into the moving trajectory right now, like we have guided that Sidwal will be in range of 20% to 22%, Electronics will be about 5%, 5.5%, and motors will be around 9% to 12%

So one, with the industry likely to having a very muted growth this year. So do you see any impact from PLI benefits that industry will receive? Or is it fair to say that there may not be a real PLI benefit that the industry may receive this year? Also on -- particularly on our company side, the benefit that we received in FY '20, what is the likely budgeted PLI benefit that we made in FY '24?

Jasbir Singh

So last year, we've maintained -- we've achieved the incremental sales required as per PLI. And this year also, we don't see an issue of reaching to our incremental sales part of it. there may be some companies who may not be able to do it. But as far as Amber is concerned, we are pretty much on track. Okay. So that's good to know. And if you can quantify the amount that we are likely to get. See, the total we have applied for INR400 crores in the PLI. So we are one of the largest PLI applicants. And as per the PLI structure, which is there. In the next five years, we would be receiving close

Just wanted to understand, can Sidwal provide air conditioning solutions for trucks? And how - - and as government has mandated air conditioning for trucks, we intend to get into it?

Jasbir Singh

See, one impact is very sure that once the car drivers will start sitting in an air-conditioned environment, they will have ACs in their homes also. And once the AC starts penetrating into that community, you can see the exponential jump on room air conditioners to come. Coming to your question on Sidwal getting into truck air conditioning system, I mean, we can give the solutions. We right now giving solutions on the truck refrigerator, reefer parts. If somebody has to come with their older trucks and get it converted, we can do that. But we don't see that a large business plan because the no

Just wanted to understand, what is the total addressable market for us in EMS space? And how are we working on it?

Jasbir Singh

Well, on the EMS side, we can divide this answer into two categories. One is on the room air conditioner side and other side is electronics side. Electronics, you must have seen a lot of research reports that it's both import substitution as well as the domestic market, which is going into the electronic side. Every appliance, every auto and every other sector are adding electronics into their products category, and that is where they place it. So it's -- on the electronics side, I think it's a ocean. It's right now close to about $7.5 billion worth of PCBA's are getting imported in the countr

So my question is basically on your railway segment. So I just wanted to understand as a business perspective. You sell the ACs under conditioners to the AC railway manufacturers directly or it goes to the government and then it goes to the person? What's the process?

Jasbir Singh

It has actually two types of customers. One, we have Indian railways, where Indian railways have their own factories in Kapurthala, Chennai, Raebareli And other places. And there are zonal railways also where they maintain and refurbish older coaches. So we supply to all railway divisions. That is where we participate in tenders and we receive the orders and we supply directly to Indian railway factories. Then on the metro side, we supply to the train manufacturers, the metro car builders like Alstom and Bombardier or-- CRRC, or CAF , who are making the car body. So we have our customers in th

Thank you, everyone, for joining on the call. I hope we have been able to address all your queries. For any further information, please get in touch with Rohit or Strategic Growth Advisors, our Investor Relations Advisors. Thank you very much. Have a good day ahead.

Management

Speaking time

Jasbir Singh

Moderator

Pankaj Tibrewal

Sudhir Goyal

Aniruddha Joshi

Pulkit Patni

Natasha Jain

Alok Deshpande

Dhruv Jain

Madhav Marda

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Opening remarks

Jasbir Singh

Hello, and good morning, everyone. On the call, I'm joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, CFO; Mr. Sanjay Arora, CEO, Electronics Division (please note he is whole time director of our subsidiary ILJIN Electronics (India) Pvt Ltd. It was erroneously mentioned as CEO Electronics division); and Mr. Sachin Gupta, CEO of RAC Division; and our Investor Relations advisors, SGA. We have uploaded our results presentation on the exchanges, and I hope everybody had an opportunity to go through the same. Quarter 1 of FY '24, which is usually a strong quarter for the RAC industry, was marked by unseasonal rains and weather patterns. Owing to the muted demand that industry witnessed, the channel inventories together elevated levels and is expected to come down to normalized level by end of quarter 2 of this financial year. In H1 of calendar year '23, industry has declined by approximately in the range of 20% to 25%. However, we expect RAC industry to grow by 7% to 8% on a

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