Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank loan facilities of Amber Enterprises India Ltd (Amber; part of the Amber group) at ‘CRISIL AA-/Stable/CRISIL A1+’.

 

The ratings reflect the group’s strong market position in the Original Equipment Manufacturer (ODM)/ Original Design Manufacturer (ODM) manufacturing space for Room Air Conditioner (RAC) segment. Amber group had a 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 a 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. During 9MFY24, the group has achieved revenue of Rs. 3,923 crore and the group is expected to clock revenue of around Rs. 6900-7000 crores in fiscal 2024. Amber group had grown at ~64% year-on-year in FY23 due to the increase in the volume and price growth. The PLI scheme is further expected to aid growth in the medium term. 

 

Group’s operating margin has improved to 6.88% in 9MFY24 supported by stabilization in commodity prices along with improved economies of scale; group is expected to maintain operating margin of 7-8% in the medium term. The operating margin had declined in FY23 due to continuous increase in the raw material prices. While the group is able to pass on the increase in price, however the same is with a lag of one quarter.  Over last 2 years, group 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. 

 

The ratings also factor the group’s strong financial risk profile despite continuous debt funded capex in last two fiscals ending fiscal 2024. Group is estimated to undertake capex worth Rs.300-350 crores in FY24 which will towards research & development and maintenance. The capex would be funded partially through debt and from internal accruals.  Group has a robust networth, expected to be over Rs 1700 crore as on March 31, 2024. Capital structure is healthy, with gearing and total outside liabilities to adjusted networth (TOLANW) ratio expected at around 0.7 time around 2.4 times, respectively, as on March 31, 2024. Debt protection metrics are also comfortable as reflected in expected interest coverage of around 4.8 times and net cash accrual to adjusted debt (NCAAD) of around 0.3 time for fiscal 2024.

 

CRISIL Ratings also take into account the recent announcement made by the group regarding acquisition of 60% stake in Ascent Circuits Private Limited (Ascent) on Feb 02, 2024, through its subsidiary company IL JIN Electronics (India) Private Limited (ILJIN). The cost of acquisition is Rs. 311 crores which has been paid through investment done by Amber in form of 9% Optionally fully convertible debenture (OFCD) which subsequently got converted into 20,46,002 fully paid-up Equity Shares at a conversion price of Rs. 1,515.15/- per share (including premium of Rs. 1,505.15/- per equity share), by ILJIN.  Amber via Ascent Circuits also signed an MOU with South Korea’s Circuit, which is a YoungPoong Group Company, to manufacture Flex, HDI, semiconductor substrates, PCBs, thereby enhancing PCB manufacturing in India.

 

Amber group has also entered into a 50:50 joint investment through its subsidiary Sidwal Refrigeration Industries Private Limited (Sidwal) with Titagarh Rail Systems Limited (TRSL) for investment in Shivaliks Mercantile Private Limited (SMPL), an existing company, which will become a Joint Venture (JV)/Special Purpose Vehicle (SPV). Sidwal has already invested Rs 100 crore towards the abovementioned JV out of the total expected investment of Rs 120 crore by each venture partner. With this investment, Amber is targeting to add its addressable market share in the railways and mobility segment. The above transaction is funded through internal accruals and liquid funds of the group.

 

In April 2024, Sidwal through its wholly owned subsidiary Railway Sub Systems Private Limited formed a joint venture with Yujin Machinery Ltd., a South Korea Based Company & Sinkodia Pte. Ltd., a Singapore based company & Dujin International, a Hong Kong based company, to carry on the business of manufacturing of all types of Driving Gears, Couplers, and Pantograph for various rolling stocks, including all types of wagons, trams, Vande Bharat trains, Indian Railways products, high speed and metro trains, regional rapid transit systems, etc, in India or such other places agreed between the parties. The initial investment is of Rs. 5 crores which is sourced through group’s internal accruals and liquid funds.

 

Amber group has acquired 50% stake in Resojet Private Limited (Resojet)- a part of LCGC Resolute group, Hyderabad to carry on the business of manufacturing of fully automatic top loading and front-loading washing machine(s) and its components. Amber has invested Rs. 35 Crore in Resojet to acquire 50% stake in the JV Company in May 2024. Through this investment Amber will be the ODM/OEM solution provider for front load automatic machines. The investment has been funded through fresh term loan of Rs. 35 crores.

 

The acquisitions and investments are of total consideration of around Rs. 471 crores which are largely funded through internal accruals and liquid funds available with the group; group availed term debt of only Rs 35 crore i.e. ~7.5% of the total acquisition cost. Despite the investments done, the group still maintains healthy quantum of liquid funds of more than Rs. 650 crores as on March 31, 2024.

 

Group had also announced regarding the board’s approval on Feb 10th, 2024, for amalgamation between two subsidiaries companies ILJIN (Transferee), and Ever Electronics Private Limited (EVER) (Transferor). The Scheme is subject to necessary statutory and regulatory approvals including the approvals of National Company Law Tribunal, the shareholders and creditors of each of the companies.

 

CRISIL Ratings will keep a close watch on the overall financial performance of the group, including the impact of this merger and recent acquisitions on its business and financial risk profiles. Any material impact of the recent announcements on the consolidated credit profile of the group will remain a key monitorable over the medium term.

 

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 (India) Private Limited (PICL), ILJIN, Ever, AmberPR Technoplast India Pvt. Ltd., Pravartaka Tooling Services Pvt. Ltd (60% held by Amber), Amber Enterprises USA Inc. and Appserve Appliance Private Limited together referred to as the Amber group. CRISIL Ratings 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 ILJIN. 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:

• Established market position and diversified clientele: 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 2024. 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.

 

• High operating efficiency: 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 6.88% in 9MFY24 and should remain in the range of 7.0-8.0% over the medium term. 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.

 

• Strong financial risk profile: Amber group has a robust networth of more than Rs.1484 cr. as on March 31, 2023 which is estimated to improve to more than Rs. 1700 cores as on March 31, 2024.  The group’s networth 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 strong despite debt funded capex. Group also maintains healthy cash balance along with liquid investments of Rs.750cr. as on March 31, 2023 which is estimated to remain more than Rs. 650 crores as on March 31, 2024. Debt protection metrics are also comfortable as reflected in expected interest coverage of around 4.8 times and net cash accrual to adjusted debt (NCAAD) of around 0.3 time for fiscal 2024. 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:

• Exposure to risks related to seasonal business.: Majority of the group’s revenue comes from RACs, 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 like motors, printed circuit boards (PCBs), components, etc. moderately mitigate 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.

 

• Large working capital requirements: Operations are working capital intensive in nature as reflected by inventory and receivables estimated at 60 and 90 days, respectively, as on March 31, 2024. 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 63% during last 12 months ending Mar-24. 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 and expected to be more than Rs. 650 crores as on March 31, 2024. Net cash accrual generation of around Rs.350-450 crores per year are adequate against yearly debt repayment obligations of ~Rs.125-150 crores. Amber has fund-based limit of Rs. 2360 cr. out of which only 63% is utilised on an average during the last 12 months ending Mar-24. For its subsidiaries, limit utilization for similar period is in the range of 50-80% at an average. Group is estimated to maintain a current ratio of 1.05 times as on March 31, 2024.

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 favourable government policies.

Rating Sensitivity factors

Upward Factors:

• Sustained increase in the market share in room AC space while increasing share of components to total revenue.
• Improvement in the ROCE levels to 14-15% leading to improvement in net cash accruals and sustenance of strong financial risk profile with net debt to EBITDA levels maintained below 1 times.

 

Downward Factors:

• Decline in the revenue by more than 20% and decline in the EBITDA margins below 5% on group level leading to significant decline in cash accruals.
• Substantial debt-funded capital expenditure impacting financial risk profile increasing net debt to EBITDA levels above 2 times.

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.

 

Ascent Circuits Private Limited (ACPL) is engaged in the manufacturing of Printed Circuit Boards (PCBs) catering to a wide range of industries including Aerospace & Defence, Medical, Energy solutions, Automotive, Telecom, Data Centre, Consumer Electronics, IT, Lighting etc. 

Any other information: Not Applicable