| Amber Enterprises India Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+’ | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirm its ratings on the bank facilities of Amber Enterprises India Limited (Amber; part of the Amber group) at ‘CRISIL AA-/Stable/CRISIL A1+’.
The ratings reflect the Amber groups strong market position in the Original Equipment Manufacturer (ODM)/ Original Design Manufacturer (ODM) manufacturing space for Room Air Conditioner (RAC) segment. Amber group had market share of around 29.4% in fiscal 2023 compared to 26.6% in FY22 in the Indian RAC market. The continuous growth in market share is driven by diversified clientele across most popular white goods brands such as LG, Voltas, Daikin, Hitachi etc. continuous acquisitions, product diversification, capital expenditure (capex) and in-house research and development. Amber group has grown at ~64% in FY23 due to the increase in the volume and price growth. Further during H1FY24 group has achieved revenue of Rs. 2629 crore (from Rs. 2576 cr.) due to sluggish in Q1FY24 due to unseasonal rains. The revenue of the group is expected to improve to more than Rs. 7000 crores in fiscal 2024. PLI scheme is further expected to aid growth in the medium term.
Group’s operating margin has declined in FY23 due to continuous increase in the raw material prices however the group is able to pass on the increase in price but with a lag of one quarter. Over last 2 years company has taken a cumulative price hike due to inflationary trends. Despite that high costs of raw materials and logistics continued to have an unfavorable impact on operating profit. Although margins improved in H1FY24 to 7.28% and supported by stabilization in commodity prices along with improved economies of scale group is expected to maintain the EBITDA margins of 7-8% in the medium term.
Ratings also factors group strong financial risk profile despite continuous debt funded capex in last two fiscals ending fiscal 2023. Group is expected to undertake capex worth Rs.350-380 crores in FY24 which will be for R&D CAPEX and maintenance CAPEX. The capex would be funded partially through debt and from internal accruals. Debt protection metrics were also comfortable as reflected by interest coverage of around 3.5 times and net cash accrual to adjusted debt of 0.20 times for fiscal 2023.
The ratings continue to reflect the Amber group’s established market position as a vendor for leading air conditioner (AC) manufacturers, the group’s diversified customer base, high operating efficiency, and strong financial risk profile. These strengths are partially offset by exposure to risks related to seasonal business and the group’s large working capital requirement. |
Analytical Approach For arriving at the ratings, CRISIL Ratings had combined the business and financial risk profiles of Amber, Sidwal, PICL, IL JIN, Ever, AmberPR Technoplast India Pvt. Ltd. Pravartaka Tooling Services Pvt. Ltd. Amber Enterprises USA Inc. and Appserve Appliance Private Limited together referred to as the Amber group. CRISIL has combined the business and financial risk profiles of Amber with PICL and Sidwal as both are wholly owned subsidiaries and Amber holds 70% each in Ever and IL Jin. All these entities have significant business and operational synergies.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The Amber group has a strong market position in the room AC segment. Group enjoys in the OEM/ODM manufacturing space for AC and components, where the group has diversified heavily in last 3-4 years. Amber group market share has improved to around 29.6% in fiscal 2023 compared to 21% in FY18.The group supplies to leading brands, such as Voltas, Panasonic, LG, Daikin, Hitachi, Whirlpool, Godrej, and Blue Star, which account for nearly 75% of the domestic refrigeration and air conditioning (RAC) market. Amber’s clientele is fairly diversified, with the top five customers accounting for 50% of revenue in fiscal 2023. Components are also part of group’s product portfolio, customers are able to leverage the relation from a one stop shop perspective reducing overall cost of procurement for these customers. Group has a presence across all of India, with plants located near to customers’ manufacturing facilities and hence has significant logistical benefits accruing to it. This also ensures that the group remains a preferred supplier to the customer with limited scope of the customer backing out of contracts.
The group has backward integrated into the components space by acquisitions in the last 10 years and has successfully integrated the operations of the acquired entities with their main operations, resulting in significant operational synergies and strong growth for the group as a whole. Group has a presence across all of India, with plants located near to customers’ manufacturing facilities and hence has significant logistical benefits accruing to it. This also ensures that the group remains a preferred supplier to the customer with limited scope of the customer backing out of contracts.
Integrated operations, with in-house manufacturing of components (heat exchangers, multi flow condensers, sheet metal components and plastic mouldings, system tubing, printed circuit boards, and electric motors), enhances operating efficiency. Thus, the group’s operating margin has been adequate around 7.28% and should remain in the range of 7-8% over the medium term. And with increase in value addition to final product, the overall profitability of the group is expected to increase over the medium term.
Though group’s operating margin has declined in FY23 due to continuous increase in the raw material prices however the company is able to pass on the increase in price but with a lag of one quarter. Over last 2 years company has taken a cumulative price hike of 15% - 17%. High costs of raw materials and logistics continued to have an unfavourable impact on operating profit however multiple price hikes and softening of commodity prices would partially mitigate the impact over medium term. Amber group has invested in backward integration through recent acquisitions of AmberPR Technoplast India Pvt Ltd (erstwhile Pasio India Pvt Ltd) and Pravartaka Tooling Services Pvt. Ltd. which aid in sustaining the margins over medium term.
Amber group has a strong net worth of more than Rs.1484 cr. as on March 31, 2023. The net worth of the company is expected to further improve further due to continuous accretion of reserves. Despite debt funded capex is last 2 fiscals the financial risk remains healthy, though any significant increase in debt levels would be critical & key monitorable factor for ratings.
Financial risk profile of the company is expected to remain comfortable despite debt funded capex. Group also maintains healthy cash balance along with liquid investments of Rs.750cr. as on March 31, 2023. Interest coverage and net cash accrual to adjusted debt (NCAAD) of 3.5 times and 0.20 times respectively for fiscal 2023. With improvement expected in operating profitability over the medium term, the debt protection metrics are expected to continue to remain strong over the medium term.
Weaknesses:
Majority of the group’s revenue in fiscal 2023 came from ACs, demand for which is seasonal (from January to May). The seasonal business leads to uneven cash flow during the year and affects liquidity and working capital management. However, the Revenue diversification in other product segments write like motors, PCBs etc. moderately mitigating the impact of seasonality in RAC industry. Initiatives taken by Government of India (GoI) to curb the import of electronics through various tariff and non-tariff measures will create new windows of opportunities in near future. Seasonal business also leads to uneven cash flow during the year end and affects liquidity.
Operations are working capital intensive in nature as reflected by inventory and receivables estimated at 62 and 95 days, respectively, as on March 31, 2023. Receivables are large owing to higher sales in the fourth quarter of every year because of the seasonal nature of business as ACs are purchased largely in summer season which pans out from March to September of every year depending upon the region. Since group has a strong customer base, hence there are no issues with receivables and with size, group has also achieved a purchase leverage owing which group has gained bargaining power with its suppliers thus extending its creditor payments reflected in moderate average BLU of 71% during last 12 months ending Sep-23. Sustenance of the improved working capital cycle and continued low working capital debt will remain key sensitivity factors over the medium term. |
Liquidity: Superior Group had total unencumbered cash balance of Rs.750 crore outstanding as on March 31, 2023 and Rs. 434 crores as on Sep-23. Net cash accrual generation of more than Rs.200 crores are generated in FY22 against debt obligations of ~Rs.35 crores. NCA is expected in range of Rs.300-380 crores which are sufficient enough to meet its debt obligations of Rs.100-120 crores in the medium term.
Ambers has fund-based limit of Rs. 1740 cr. out of which only 71% is utilised on an average during the last 12 months ending Sep 2023. For its subsidiaries, limit utilization for similar period is in the range of 50-80% at an average. Group maintains the healthy current ratio of 1.06 times in FY23. |
Outlook - Stable CRISIL Ratings believes Amber group's business risk profile will benefit significantly over the medium term due to expected increase in market share and favorable government policies. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About the Company Manufacturing and assembling air-conditioners(75% of revenue), microwave ovens, washing machines and refrigerators |
About the Group Incorporated in 1990, Rajpura-based Amber started operations in 1992. It manufactures and assembles majorly RACs and key functional and reliable components, such as heat exchangers (coils), multi flow condensers, sheet metal components, injection-moulding components, system tubing, inner case liners, washing machine tub assembly, and other consumer durables. The manufacturing facilities are in Dehradun (Uttarakhand), Rajpura (Punjab), Jhajjar (Haryana), Greater Noida (Uttar Pradesh), and Pune (Maharashtra). In January 2018, Amber came out with an initial public offering (IPO). Its shares are listed on the Bombay Stock Exchange and National Stock Exchange. Mr Jasbir Singh and Mr Daljit Singh are the promoters.
PICL, incorporated in 1994, manufactures AC motors at its unit in Faridabad, Haryana. Amber acquired PICL in 2013.
In December 2017, Amber acquired a 70% stake in Greater Noida-based IL Jin. In March 2018, Amber acquired a 19% stake in Ever, and later increased its stake to 70%. Both Ever and IL Jin are engaged in manufacturing, assembling, dealing, importing, and exporting electronic assembled printed circuit boards for RACs and other consumer durables.
Amber acquired Sidwal in May 2019. Sidwal manufactures heating, ventilation, air conditioning, and refrigeration equipment for mobile applications such as railway coaches, metro coaches, buses, as well as commercial refrigeration and related components. Effective September, 2020, Sidwal is a wholly owned subsidiary of Amber.
AmberPR Technoplast India Private Limited (formerly known as Pasio India Private Limited (“AmberPR”): AmberPR, a subsidiary of the Company is engaged in the business of manufacturing of (i) cross flow fans and its plastic parts, (ii) fans and fan guard for outdoor units of room air conditioners, (iii) plastic parts for water dispenser and refrigeration applications (other than automobile industry) and (iv) plastic parts for seats of trucks, tractors and buses . The Business is being acquired by AmberPR from Pee Aar is one of the leading ross flow fans manufacturer in India along with other plastic components for various industries, on slump sale basis during the financial year 2021-22.
Pravartaka Tooling Services Private Limited (“Pravartaka”): Pravartaka Tooling Services Private Limited, is engaged in the business of manufacturing of injection mould tool manufacturing and injection moulding components manufacturing for various industries. The Business is being acquired by Pravartaka from Pioneer Tooling Services (“Pioneer”) one of the leading injection moulding tool maker and injection moulding components maker for consumer durable, automotive and electronics industry on slump sale basis in the financial year 2021-22.
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Key Financial Indicators: Consolidated:
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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