Amber Enterprises India Limited (AMBER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Amber Enterprises India Limited Q3 FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jasbir Singh, Chairman and CEO of Amber Enterprises India Limited. Thank you, and over to you, sir.

Good afternoon, everyone, and a warm welcome to our Q3 and 9 months FY '20 Earnings Conference call. Today, I'm joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, CFO; and SGA, our Investor Relations Advisors. We have uploaded our updated result presentation on the exchanges, and I hope everybody had an opportunity to go through the same. Let me take you through business updates followed by operational and financial highlights for Q3 and 9 months FY '20, post which we will open the floor for Q&A for the participants. Room AC industry continues to performed well despite slowdown in overall economy. We see decent growth potential in the Room AC industry due to lower penetration of the product, higher aspiration for desire of comfort living, growing per capita income and easy financing options available in the market, which enhances the purchasing power to buy the product and also the shortening of the replacement cycle. Deeper penetration of omnichannel and e-commerce players have also increased the market reach of the products even in rural India. As per industry estimate, e-commerce sales now contributes nearly about 12% of the overall sales volumes. As for our estimates, industry grew by 18% for the first 9 months of the financial year, and Amber has outperformed the industry by growing 75% in terms of volumes for the 9 months FY '20. Our outperformance is largely due to industry growth, increasing share of outsourcing market and demand for products procurement locally, deeper penetration in the existing customers for supply of components and multiple SKUs and also continuous acquisitions of new customers. We have also witnessed the delta of seasonality curve reducing over the years, and the demand for the product is now increasing even in the nonseasonal period, giving us the leverage to phase out our production across the year. We are also seeking multiple opportunities in the export markets and have also started supply of components to various export markets like Sri Lanka, Bangladesh, Nigeria and U.S. We are optimistic that export can be a huge potential market going forward on a long-term basis since the world is moving towards the China plus one strategy. We have already started the talks with various OEMs for export opportunities and envisage good potential going forward. We have been able to maintain our growth momentum and clocked volume growth of 75% as compared to 9 months FY '19. Our Room AC volumes for the quarter stood at 5.72 lakhs unit as compared to 4.23 lakhs in Q3 FY '19. Room AC volumes for 9 months FY '20 stood at 20.24 lakhs units as compared to 11.54 lakhs in 9 months FY '19, a growth of 75%. As highlighted earlier, we endeavor to grow at a higher pace than the industry. I would also like to highlight that not only our Room AC division but our components and mobile application business division, which includes business operations of Sidwal, are growing at a healthy pace, and our penetration level with customers is increasing. Our Room AC revenue grew by 72% and stood at INR 1,596 crores in 9 month FY '20 as compared to INR 931 crores in 9 month FY '19. Our revenues from components and mobile application business, including revenues from Sidwal, grew by 68%, clocking a revenue of INR 1,052 crores in 9 month FY '20 as compared to INR 625 crores in 9 month FY '19. As far as the subsidiaries are concerned, Sidwal is on growth trajectory, and 9 month FY '20 revenues of Sidwal stood at INR 176 crores and EBITDA stood at about INR 39 crores with an EBITDA margin of 22%. With healthy order book in hand and increasing metros and air condition coaches being manufactured, we are confident on the growth outlook for Sidwal going forward. We have realigned and streamlined the operations of Sidwal as per Amber standard and see operational efficiencies flowing in. Better control over inventory management, prudent collection follow-ups and scale of buying leverage due to Amber's purchasing power will further aid to the operations of Sidwal. Revenues for PICL stood at INR 128 crores for 9 months FY '20, a growth of 48%. Increased demand for locally manufactured components and product basket addition has increased the share of business among customers. EBITDA for PICL stood at INR 8 crores with EBITDA margins of 6.6%. PAT for PICL for 9 months FY '20 stood at INR 1.7 crores. Our subsidiaries, IL JIN and Ever are also doing pretty well. The customers, which are being added recently, will have partial year impact this year, and we foresee [ cosy ] revenues and margin uptick in these subsidiaries as well. Revenue for IL JIN stood at INR 232 crores in Q3 FY '20; and in Ever, revenue stood at INR 214 crores in 9 months FY '20 with an EBITDA margin of 5.8% and 3.5%, respectively, for 9 months FY '20. With increasing efficiency and addition of new customers, we envisage an increase of margins in Ever going forward. As the market is moving rapidly towards inverter ACs, we are confident of growing our revenue share from IL JIN and Ever going forward. I will now take you through the financial numbers. On the stand-alone highlights first. The total stand-alone revenue for Q3 FY '20 stood at INR 568 crores, up by 46%, as against INR 389 crores for the corresponding quarter last year. Revenue for 9 months FY '20 stood at INR 1,957 crores as compared to INR 1,217 crores in 9 month FY '19, a growth of 61%. Revenue from Room AC grew at 71% from INR 931 crores to INR 1,596 crore in 9 month FY '20. Our operating EBITDA post the impact of Ind AS 116 for the quarter stood at INR 25 crores as compared to INR 19 crores in FY '19, a growth of 31% of year-on-year basis. EBITDA margins for Q3 FY '20 stood at 4.4%. Operating EBITDA for 9 months FY '20 stood at INR 137 crores as compared to INR 91 crores in 9 month FY '19, a growth of 52%. Operating EBITDA margin stood at 7% for 9 month FY '20. Stand-alone PAT for 9 month FY '20 stood at INR 65 crores as compared to INR 31 crores for 9 month FY '19, a growth of 109% Y-o-Y basis. PAT margins for 9 month FY '20 stood at 3.3% as compared to 2.5% for 9 month FY '19, an increase of 76 bps. Our net debt as on December 31, 2019, for stand-alone entities stands at INR 243 crores as compared to INR 216 crore on September 30, 2019 -- sorry, the 31st December 2020, for stand-alone stands at INR 243 crores. Our working capital days are at 56 days from 66 days in corresponding period last year. So there is a positive jump here. Moving on to the consolidated results. Our revenue for Q3 FY '20 grew by 52% from INR 518 crores to INR 788 crores. Growth from subsidiaries has been significantly up as compared to last year with better margins. 9-month FY '20 revenue stood at INR 2,648 crores as compared to INR 1,556 crores in 9-month FY '19, a growth of 70%. Revenue breakup from the subsidiaries before the intercompany adjustments for 9-month FY '20 stands as below: PICL contributed INR 128 crores with EBITDA margins of 6.6%; IL JIN contributes INR 232 crores with EBITDA margins of 5.8%; Ever contributes INR 214 crores with EBITDA margins of 3.4%; and Sidwal contributed INR 176 crores with EBITDA margins of 22%. Operating EBITDA for Q3 FY '20 on consolidated basis at INR 52 crores as compared to INR 26 crores in Q3 FY '19, a growth of 103%. EBITDA margin stood at 6.7% for Q3 FY '20 as compared to 5% in Q3 FY '19, an increase of 167 bps Y-o-Y basis. Operating EBITDA for 9 months FY '20 stood at INR 207 crore as compared to INR 105 crore in 9 months FY '19, a growth of 98%. Operating EBITDA margins for 9-month FY '20 increased by 110 bps on Y-o-Y basis to 7.8%. With higher Room AC volumes, standout performances in subsidiaries and operating leverage play out, we were able to deliver higher margins. PAT for Q3 FY '20 stood at INR 25 crore as compared to INR 4 crore in Q3 FY '19. PAT for 9 months FY '20 stood at INR 101 crores as compared to INR 28 crores in 9 months FY '19, a growth of 263%. PAT margins for 9 months FY '20 stood at 3.8%, giving an increase of 203 bps on Y-o-Y basis. We have not taken benefits of lower tax rates since we have accumulated MAT credit in our books for stand-alone entity Amber. However, lower tax benefits have been availed for the subsidiaries. Our net debt on consolidated basis for 31st December 2019, stands -- stood at INR 334 crores. Our ROCEs are on the improving trajectory, and we further foresee an expansion in ROCE due to operating leverage playing out and better control over the working capital. ROCE for 9-month FY '20 stood at 19.5%. Our constant endeavor would be to increase penetration and increase our wallet share in the existing customers, continuously add new customers and enhance our products with new technologies by focusing on R&D. With this, I open the floor for discussion.

[Operator Instructions] The first question is from the line of [ Vihang Subramanian from Samsung Asset Management. ]

Congratulations on a good set of numbers. My first question is on the stand-alone PBT. Like excluding other income, that has like declined significantly. So just wanted your sense on why that has happened? Is it because we had added a lot of new customers as well in 4Q FY '19 in the stand-alone business? So is this a function of like your mix changing between indoor and outdoor units? Or is it a function of higher input costs? So just wanted your sense on that.

No, the decrease of PBT is just a function of increase in interest costs because of acquisition of Sidwal and also for the remaining stake of Ever Electronics. So we had outgo -- there was an outgo of almost INR 218 crores for both these acquisitions and which has increased in the debt levels, increasing our interest cost. So that is the reason why PBT is looking depressed. Otherwise...

Is there any other component in the interest cost, like LC charges or bill discounting or any other component? Is there any interest cost?

In the finance charges, there are other components. That's right.

Okay. Could you probably like discuss what those components are or any just 1 or 2 meaningful components?

So the other components, including finance charges are LC issuing charges. Majorly are those. And on consol basis, it includes bank guaranty charges as well.

Okay. And sir, second question is the compressors that we import from China, are they from the Hubei region where most of the electronics are manufactured?

Well, no. Compressors are coming from various plants, not only from China. We get compressors from LG, Korea as well as China and India highly also. So yes, they are not from that region.

And what kind of inventory days do you carry for these compressors? Like do you see any risk, basically to your supply chain in case, say, the Coronavirus gets extended and if supply shuts down that side or something?

So the suppliers' factories were supposed to open on 27th, which has got extended to 10th now. Some of them are opening on 8th and some of them are opening on 10th. We are covered for that particular extension. But however, in case this gets further extended, then definitely we'll not be isolated. So there will be a -- yes.

Okay. Sir, and my last question. Just within components, could you like this kind of -- because your component business has grown really well, right, because with the subsidiaries have grown very well. So is it because of new customers, which you've added? Or is it like you're witnessing some increased traction towards import substitution within components? And just to add to this, if you could just also clarify how much import substitution is left within components, which you can potentially tap?

See, it's a mix of all the 3. Largely in the component sector, a large substitution is yet to happen because all these components like electronic, PCB boards, heat exchangers as well as the motors, they are -- the final products performance is dependent on the functionality of these components. So a couple of companies -- no company will give us approval without conducting a proper reliability test. So there is an addition of 4 customers in IL JIN, which has got to increase for this. Then in motors also, we have increased the wallet share within our existing customers. Like we have increased wallet share with Daikin and with Hitachi, with Blue Star. On the Sidwal side, there is a lot of traction on new air conditioned coaches being built by Indian railways, where we have a strong order book. And also on the metro side, there are new orders, new customers have been added like CRRC China has been added and BML has been added recently. So it's a mix of both import substitution, is not impacting to a large extent, that is still to come. We foresee that import substitution will start happening from the next financial year onwards from '21, '22 onwards. And from -- for the other cases, increasing wallet share as well as increasing customers has led to this growth.

[Operator Instructions] The next question is from the line of Ankush Sharma from HDFC Life.

Just going back to the previous caller's question on the margins at the stand-alone level. And even when I look at the gross margins or at the EBITDA margins, we've seen that over the last 2 quarters, at least, there's been some decline there at the gross level over the last, in fact, 2 to 3 quarters now. And I believe what was told to us was the higher mix of IDUs is also something which has kind of impacted the margins. So how do you see the margins on a full year basis? Do you see the margins kind of going back to the FY '19 levels? Or do you think this decline could sustain?

Actually, it's very difficult to predict how it will go further because we are a solution provider and it is totally up to customers to pick and choose what kind of product mix and what kind of category of product mix they want to go on for. So one is the margin has also -- in the percentage terms, if you see, there is a change in the margins, which is primarily because of foreign currency also. Last year -- if you are comparing with last year results, the margins -- the dollar price was about INR 69, now average costing is coming to INR 71. So margins will change in the room -- RMC charges, the raw material costs will definitely, in percentage terms, will change. And then, of course, the product mix keeps on changing. It's very difficult to see. But yes, on a consolidated basis if we want to see, margins are on the upside trend. And it will also depend on the commodity prices moving forward because we don't know in case -- for example, we are selling INR 100, 15% is our gross margin -- INR 15 is our gross margin. INR 100 can become INR 105 because of currency or commodity, but INR 15 remains INR 15. It can go either way. It can come to INR 95 also. Then INR 15 will remain INR 15. So percentages will keep on changing. But what we focus on is the absolute growth in the EBITDA terms as well as in the patterns.

Okay. I understand. And sir, you gave the numbers for the subsidiaries for the 9 month. Could you break that out for Q3 also for the 4 subsidiaries, sales and EBITDA?

Yes. Sure. So in Sidwal, we have done in Q3 a revenue of INR 68 crores. And you want EBITDA as well?

Yes, please.

So EBITDA is INR 18 crores in Sidwal. In PICL, we have done a turnover of INR 43 crores with EBITDA of almost INR 3 crores. In Ever Electronics, we have done INR 58 crores with EBITDA of INR 1.81 crores. And in IL JIN Electronics, we have done INR 66 crores with EBITDA of INR 4.28 crores.

Understand. And sir, just a few more things. One was on this whole China sourcing, which could kind of get affected because of this outbreak. So apart from compressors, what else do we really import from China? I mean, if you could...

We import a lot of products. We import cross-flow fans, we import valves, we import electronic PCB boards, we import copper, we import aluminum. There are a lot of products, which come from China. There are smaller components also which comes from China today. So -- but we have different sources. Like copper, we have a source from Malaysia, which is not affected. So our supplies are intact on that one. But yes, as we are covered till March, almost mid-March, in case, this gets extended from 10th onwards, then definitely, as I told earlier, we will be impacted.

I get it. Okay. And sir, just one last question...

Mr. Sharma, I'm really sorry to interrupt, but may we request you to rejoin the queue for follow-up questions as there are several participants waiting for their turn. We move to the next question. The next question is from the line of Aditya Bhartia from Investec.

In 9 months as well as third quarter of this year, it appears that component revenues for the stand-alone entity have grown at a pace lower than the overall Room AC revenues. Is it that our customers are asking for a finished product solution as opposed to components and that's also one of the reasons why margins are trending down?

Actually, this is not in our hand, as I explained you earlier, Aditya. It's totally depend on customer to customer. What matters for us is our wallet share within the customer. So this is the flexibility which Amber gives to our customer for switching their requirements with us on a very small short notices. But yes, our -- if you see the components on absolute basis have grown pretty well. And you are right that there was a big jump in Room AC market for volumes basically because of the new customers which were added. But there is an adequate kind of a growth in the component sector also. When we got listed 2 years back, exactly, in 2018, that at that time, our revenue mix of components and Room AC contribution was almost about 74% and 26%, which has gone to 60-40 now. So that is our endeavor. Moving forward in 3 to 4 years' time, on a long-term basis, we would like to have this product mix to 50-50.

Sure, sir. And if I look at our volume growth, we've had 35% volume growth for third quarter, 75% volume growth for 9 months. But if I look at the overall EBITDA growth for the stand-alone entity only for the time being, then it's been relatively slow, 22% for third quarter and 60% for 9 months. So what could have contributed to that, sir? And a related question that other expenses in third quarter appear to have jumped quite sharply. Is there anything that we should be aware about?

Are you comparing quarter 3 versus quarter 3?

So quarter 3 versus quarter 3, in terms of volumes, we have had a 35% jump. In terms of EBITDA, there is a 22% jump. 9 months versus 9 months, there's a 75% jump in volume.

In terms of EBITDA, there is 29.7%, almost 30% jump from 22%. Yes. Are you talking of operating EBITDA?

Stand-alone operating EBITDA.

Yes. Operating EBITDA has moved from INR 19 crores to INR 25 crores. So there is a jump of almost about 30%.

Okay. And other expenses, there appears to be a fairly sharp jump over there, sir?

Yes. Because other expenses, there was expansion in Jhajjar plant. One is, of course, the -- it is pertaining to the volume increase and value increase of revenue. Second is the expansion of Jhajjar plant has not reached to the optimum level, whereas the expenses come up. So that is the reason why slight increase in other expenses is being shown.

Understood, sir. And sir, my last question is on procurement of IDUs in India. What proportion of -- what percentage of IDUs may still be getting imported currently? And where did this number stand some 3 or 4 years back?

As per our estimates, this number is right now in tune of about 20% to 25% of IDUs are still being imported, which this number used to be about 40% earlier.

And of the remaining 75% that are getting manufactured in India, is it fair to assume that a fairly large chunk, almost, let's say, 50% would be getting manufactured by Amber?

No, that will be very wrong statement to make here because most of IDUs are being -- yes, we do -- we are one of the major suppliers of IDUs, but customers like LG, who has their own factories, they manufacture -- who doesn't outsource, they manufacture IDUs in-house. But we are supplying components for IDUs to those factories. Like Panasonic also have a plant in Jhajjar, where a couple of models they are manufacturing themselves and some IDU models are done by us. So for the models done by them, we are supplying them injection molding components and other components.

The next question is from the line of Nirav Vasa from Anand Rathi.

Can you please help me with the order backlog and order inflows that were in Sidwal?

So Sidwal, right now, we have order outlook of almost about INR 600 crores. But order in hand, right now, as we speak, as of today, we have close to about INR 420-odd crores order book in hand. There are certain tenders, which are getting opened in next 10 days' time, and we are hopefully -- we are quite -- we will be adding some more order book as we move forward in next 10 days' time.

Got your point, sir. Sir, my other question is pertaining to our air conditioning business. In the FY '19 annual report, we had stated that we are working on solar-powered ACs. So any comment on that? Can we expect some soft launch of that in the forthcoming season? How are -- how is your rapport building up with OEMs in that regard?

So we have already prepared the model and it is under testing right now. This model are being focused to the industry. But because of the high cost involved, I think there is a very slight uptake on that side because the solar installation is -- in window case, it's really difficult to have a solar installation because of the space paucity. But otherwise, on the split side, the outdoors, which are -- can be fitted in the ground level or in the open, there, they can have that kind of a solution, but the cost goes up. So we are talking to, but the product is ready right now and then it's under -- being offered to customers.

So are the OEMs talking of doing a soft launch of that in the forthcoming season even though I understand every time our new product is launched, economies of scale are not visible in the first go itself. So how is the response coming from OEMS? Are they talking of launching it?

We see a very slow response on that side because of the high cost involved right now. What we see a good response is the IoT-based solutions, which Amber is offering with a layer of artificial intelligence embedded in them. That's where a lot of traction is there these days.

Sir, my last question is...

Mr. Vasa, I'm really sorry to interpret, but maybe you can...

Okay, not a problem.

We'll move to the next question. The next question is from the line of Naval Seth from Emkay Global.

I have 2 questions. One, if you can give Sidwal numbers for first half because if 9 months is INR 176 crores, my implied number comes INR 82 crores for 3Q, while you stated INR 68 crores?

So I think you must see capturing -- you want H1?

For H1 Sidwal, what is the number -- revenue number?

H1 is INR 107 crores.

INR 107 crores.

Okay. So okay. Understood. And...

INR 33 crore was first quarter and INR 63.32 crores is Q2.

Okay. Secondly, on, sir, IDU, as product mix is a bit getting adverse in last 3 quarters because of increased volume from IDUs, now by when you expect -- because now we would be reaching at a certain scale for IDUs as well, being we were the late entrant in IDU as compared to ODU. So by when you expect margins to converge and this skewness should reduce?

Well, our endeavor is to increase the margins by offering more -- better product mix, but then it depends on which models is being sold and which models are getting substituted from China because that's the target audience in IDUs where the margins from China still continues at a decent competition from there. So it will vary from time to time. It can go up, but it depends. We can't give kind of a time line here that when it will come up. Right now, we have touched decent volumes, but still the big threshold volume is yet to come. So I think in the next 2 years' time once the volume crosses about 2 million mark, that is the time when we can see a good margin traction, positive note on the IDUs front coming in.

Okay. In case of, again, over here, if you can share some -- what is the gap between -- if not the exact margin between IDU and ODU, but what is the gap in percentage terms, both the margins?

Both. I mean, it depends. In IDUs also, we have different margins in different tonnages. So if 1 tonne margins are separate and 1.5 is separate and 2 tonne is separate. But if I have to compare apple-to-apple, like 1 tonne ODU versus 1 tonne IDU, there will be a difference of about 1% to 1.5% point.

Okay. Which you think will get converged once you cross 2 million units mark?

Exactly.

The next question is from the line of [ Swati Iwata from Comgest. ]

Just on -- first, can you give us an update on your capacity utilization numbers?

Sure, Swati. We are, right now -- there are 2 sets of capacities we have, one is for Room ACs and second is for components. Components, we are standing, as we speak today, we will be at around 65% to 70% range depending on various components. And in Room ACs, we actually calculate capacities not on yearly terms because that's not the right way to look at our company, we look at it in the seasonal -- peak season part. On the peak season, in the assembly lines of Room ACs, we will be touching about 85% to 90%. And on the sub-shops of Room ACs, we are somewhere about 75% to 80%.

So what does that mean for CapEx going forward?

There is no large requirement of a CapEx right now as we move forward because whenever we set up a greenfield facility, we don't need large 100 acres land as compared to brands. We set up very small factories. And our CapEx in the greenfield facilities goes as high as to about INR 100 crores in the new facilities. But there is no greenfield facility coming up as of now. So we will be talking about a maintenance CapEx plus R&D and some capacity expansion at tools and [ dyes ] level as well as in the sub-shop levels.

Okay. Okay. Understood. And then, can you give me the -- for the 9 months, can you give me the split between AC components and non-AC components?

AC components and non-AC components? So...

Yes, which was a figure you used to give earlier, I guess.

Out of 40% on the other businesses, almost about -- close to about 7%, 8% is mobile applications and remaining 32% is almost 50-50.

Okay. So in the non-AC component, do you serve customers who are not your customers on the AC front like...

So I will tell you. I mean, we have -- Swati, we have 2 sets of customer. One is the consumer durable appliance companies like LG, Samsung, Panasonic, Godrej, Whirlpool who are having -- AC is one of their products. They sell refrigerator, washing machines, microwave and other products. So in the non-AC components, our target audience is the -- other than AC consumer durables, components like case liner for refrigerators, [ extruder ] sheets for refrigerators, PCB electronic, PCBs for refrigerators, some plastic moldings for refrigerators and washing machine tub assemblies, electronics for tub assemblies, motors for this and then, in microwave, cavities and water purifiers, stainless tanks. So there's a lot of things we get. This is the non-AC components we have.

But you sell to guys who are already your customers>

[ Ms. Iwata, ] I'm really sorry to interrupt, but may we request you to rejoin the queue for follow-up. The next question is from the line of Manoj Gori from Equirus Securities.

So again, coming on to the same question of -- so in terms of capacity, expansion of capacity utilization currently, we've been growing at far healthy pace. So going forward, what could drive your future growth with no greenfield expansions coming up?

See, companies who are planning to put up factories in South India, which is right now on a slow burner, and some of the companies have put it on hold, we will tag along with them. Whenever we put factories, we ensure that there is a customer clusters in that region. And with the existing setup we have, I mean, in the North India and the western part of India, we have ample space with us. But yes, the components business growth is coming up with the new components opportunities, which we have recently got, and we are entering into new components, which were not -- were not being manufactured till now by us in the existing customers. And also, in the AC front, we are launching our commercial ACs and adaptable range -- new range by April with our existing customers. So that is where the growth is going to come. So -- and of course, the industry growth is growing. Plus addition of new customers is also ongoing in Room AC as well as in components.

Yes. So in this case, does our current capacity allow us to target such high-growth potential that we see in the market today?

We will -- we are endeavoring -- we have been endeavoring from last -- almost a decade to outnumber industry growth, and that is what our endeavor is to -- on the continuous basis. And we are hopeful to achieve that in coming years also.

I completely agree. When I -- like I referred to in terms of your capacity, in terms of your production capacity. So whether that will support such strong growth numbers, looking at because we are not going for any aggressive expansion plans...

Yes, it will support because as I told you, components, we have capacities with us. And in components, you don't really need large CapEx to put up. If we have to put up additional components line, there will be additional CapEx of about INR 20 crores or INR 15 crores, INR 20 crores depending on what components we want to grow. So in terms of CapEx, you can do that in the existing factories also.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

First, clarification on this 20-lakh unit when you mentioned, is it IDU plus ODU? So it's one AC or IDU or ODU counted separately in this?

No, we have always maintained it in unit terms since beginning. So these are units. So IDU, ODU, window ACs are counted separately.

What will be your market share in the 60 lakh Indian AC industry now? So what will be your market share for the AC supply?

So when we got listed, we were at 19%. And now we are about 21%.

If you would include the components along with it, then what would be the share of the [ R-Bomb]? What will be our share, market share?

So components market share is very hard to predict on the overall level, but what we can tell you is that if INR 100 is a bill of material, out of which INR 30 goes to compressor, remaining INR 70, we are present in almost about 60% of the bill of material.

I'll take this question separately, actually.

Sure.

Okay. On the volume growth side, sir, we ended -- 9 month is about 70% in room air conditioner, what it should be for '20? And what it should be for '21? And in '21, do you have scope for market share gain?

Well, I mean, on one side, the outsourcing market is getting increased. So definitely, there is a possibility of increasing market share. If we outnumber markets, so we are not giving any guidance, the only guidance we have been maintaining to give is that we will outnumber the market. So we'll try to do that. If we are successful in outnumbering the market, our market share gradually grows.

Lastly, you gave a comment on tax rate. What will be your tax rate for '20?

So we've already mentioned in the call that we are at -- in Amber stand-alone basis, we still have MAT credit. So we are opting for the old regime of taxation. But in subsidiaries, we have come to the new tax regime.

If I look at your presentation, sir, there is tax rate of -- on consolidated for 9 months, the tax rate is some 16%, 17%. So we are actually below the MAT rate. So is that the number? Or is 25%, that's the number. Actually, I got confused.

See, as sir has said, our stand-alone number, tax rate is around 35%. And in subsidiaries, it is around 25%. Why the tax rate is coming low in 9 months consol balance sheet is because these are deferred tax liability appearing in the books, which are at 35%. And since deferred tax liability is being calculated on the future tax rates, and in future, we'll be opting for the new tax rate. So there is a delta of that, which is there in the tax amount, negative tax amount is there.

So next year, you will be at the 25% number?

Next year, next year, next to next year. We will analyze the same in the next year that which portion -- which tax rate is beneficial for the company and then we'll decide. Next year is -- at the end of the year, we will be able to take a call, whether new tax regime is the better option or the old one. But next to next year, definitely, we'll be opting for the new tax regime.

The next question is from the line of [ Chinmay Gandre from Bharti Axa. ]

Sir, in terms of the margins of subsidiaries, they are quite healthy. So can you share some light on that? Like Sidwal, I can see almost 26%, 27% kind of EBITDA margins. So anything on that?

Yes. I mean, on a quarter basis, it is 26%. On a 9-month basis, it is 22%. But yes, we are -- this is a reflection of the purchase leverage and certain efficiencies, which Amber has put in after coming in. And moving forward, we should be in the range -- same range of 21%, 22% in Sidwal.

Okay. And sir, also the margins of IL JIN and PICL are also quite healthy in terms of -- around 6.5%, which is also at the upper end of the margin, the variations that have happened over the quarters. So anything on that?

So in IL JIN, as we add new customers, our margins are going to grow further. We have traveled a journey from 3% to almost 6% -- 5.7% right now. And we are endeavoring to take it to 6.5% by next financial year. In Ever also, we are trying to get new customers. And in PICL, yes, their exports have picked up well. In last year, we exported only 62,000 motors. We have already done 1 lakh plus motors, which is coming at a good margin. And we are targeting new geographies for exports in PICL. So we should be seeing a positivity in margins in PICL as well coming forward.

So IL JIN next year, we are targeting around 6.5% of margins and...

In the range of 6% to 6.5%, yes.

6% to 6.5%. And PICL, you're mentioning the margin should be on upper trajectory?

Yes, we should be seeing at least 100 bps increase in PICL margins going forward.

Okay. And lastly, if I understand, in terms of the margins in the stand-alone, especially on the gross margin front, so it is largely a reflection of the mix in -- which was more towards the IDU side. Is it fair understanding?

It is a fair understanding, yes, on a large basis, but it depends on if we sell a few of components, which are at a greater margin. In case those components get sold more, the margins can get increased also.

Directionally, in terms of stand-alone, do you guide a number in terms of EBITDA?

We see at least 0.5% increase in margins going forward.

On EBITDA basis?

On EBITDA basis, yes.

The next question is from the line of Aditya Sharma from Motilal Oswal Asset Management.

I have one question. So many of these companies are moving for in-house manufacturing. So I just want to understand the cost differential between importing and in-house manufacturing?

Well, we don't know their own cost and none of our customers share their cost of manufacturing with us. But the business model which Amber has built is -- we have mitigated 2 risks. Whether company in-sources or outsources, if we have a deeper wallet share with them, it should not affect us. And the market share exchanges between the brand should not expect us. So the largest customer, which Amber today has, is LG, which doesn't outsource air conditioners. So we are selling a good amount of components in all their verticals of businesses they have. So -- but I think in-sources versus China, on the brand basis, we will not be able to comment on the costing front.

Also, sir, one more thing. So I guess, when everyone is investing heavily on in-house manufacturing, then your wallet share might reduce as the number of units you'll be supplying will be less and the number of components you'll be supplying will be more. Is that understanding correct?

It all depends, actually. We have seen that companies, they already have their manufacturing facilities and still they are buying from us, some finished goods also and components also. So there is no fixed rule or fixed thumb rule, which industry follows. Every brand has its own strategies. And these are governed by board members or maybe CEO level. And our -- we are an integrated solution provider. When we sit with a customer, we talk about the buffet of products. So as I told you, I've given an example of LG, which doesn't outsource, but it is the largest customer we have. That's a bigger customer than any other customer in this, so we -- on a controlled basis. So definitely, once -- when we hear a news that somebody is putting up a factory or their own plant, we really get excited because their belief on the growth story of the industry is just in line to what we understand about the industry growth, that's why they are putting up INR 500-odd crores. And then there is an opportunity of supplying both finished goods as well as semi-finished goods and components to that factory.

Okay, sir. Sir, will LG be the largest customer in finished goods as well?

No, we don't supply finish goods to LG. They are the largest customer overall with us. We supply components to them.

The next question is from the line of [ Yogansh Jeswani from Maple Value Fund. ]

Sir, we would like to understand what is the opportunity size for our products in the indoor AC and the outdoor AC market?

Well, see, on one side, if you see the outsourcing concept has evolved from 16% about 6 years back to close to about 38% now. And as per Frost & Sullivan report, there is likelihood that this number will touch to 52% by 2022 or 2023. So that is one growth opportunity which we are looking at. And then we are also launching new products like cassette air conditioners and commercial ACs plus ductable models. Larger tonnages models are being launched by Amber which we will see a large opportunity for coming forward.

Right. And sir, as we can see in the market, the AC market itself is not really growing at a very fast rate. But I mean, we are increasing our revenue more than like 25% CAGR. How are we able to do that?

We've been working on 3, 4 strategies. One, we keep on adding new customers. Second, we try to increase wallet share within the existing customers. For example, our association starts by supplying 1 tonne to a customer. Next year, our endeavor would be to supply 1.5 tonne and 2-tonne air conditioners also to them. And then also some components also. Then there is import substitution, which is happening, which is also helping us. So these are all 3, 4 factors where we are working on.

Right. And are we confident that we'll be able to maintain this growth rate going ahead for the next 3 to 4 years?

Well, maintaining 70% growth is definitely...

Not 70%, sir, but like 25%, 30%.

Yes. I mean, we will not give any guidance here. What we only guide -- we would like to guide is that we will outnumber the industry volumes. I think we will try to maintain that.

The next question is from the line of Tejas Sheth from Nippon India Mutual Fund.

I have 2 questions. One, if the lock-down date extends beyond 10th Feb, is there any alternative plan which we are working on considering that we are at the peak of summer feeding market? That's my first question. Second, when we meet a lot of brand companies, they say that because of oversupply in China because of the domestic slowdown there, the AC imports pricing has been quite favorable vis-?-vis outsourcing in India. I would just like to understand how cheaper would that be? Or what kind of delta we still be gaining over Amber's pricing?

Yes. So if the -- first question to address, if the time lines get extended, we'll definitely be impacted. I don't think so that such a short notice alternatives can be made. But most -- some of the components will not be impacted because largely sourcing is from inside India only. But whereas the finished goods will be impacted. Our subsidiaries will not be impacted, but Amber's Room AC business will be impacted. The other to -- you asked the other question, can you please repeat it?

Oversupply of ACs?

Oversupply of ACs?

Yes. Yes. Yes.

So yes, you are right. China, what -- so China keeps on pushing their strategies also. As the tariff barriers were increased, China increased their export incentives as well as they depreciated their currency to adjust the increase of 10%. So China, yes, they have the inventories, extra inventories today, which is because of -- largely because of the trade barriers. But in the past also, we have seen when -- Amber's growth story has been largely in the tariff barrier path when 10% barrier -- because 10 -- 20% barrier has been post just this February. So this is a large voluminous product. Maybe, yes, I mean, some companies can shift to China, I mean, but not on the old models, and it is a voluminous product. It becomes -- there is a new energy rating coming in next year. Again, there will be a problem for imports on that front. And I believe India government is also looking its product very cautiously. In case an import surge is there, they will definitely act on that.

The next question is from the line of Abhishek from DSP.

Sir, any expectations from the Union Budget tomorrow in terms of any increase in import duty or anything of that sort?

Well, I mean, there have been media news, which we have been hearing. Government has been taking a lot of data. So we have -- as an industry, we have supplied a lot of data to DPIIT. I don't know what decision will come tomorrow. There is a chance -- I see a bleak chance, but there could be a possibility of increase in custom duties, but we are not looking at it very anxiously. So it will be positive if that happens.

Sure. And sir, if you can just help me with what is the import duty differential. So if you were to manufacture an IDU in India versus import, what will be adjusted for the currency depreciation that you have seen now? What will be the cost differential now for an OEM?

So in window and outdoor unit, India still remains very competitive. There is a large delta of close to about INR 800 to INR 900. On some models, it is to INR 1,500 also. In indoor units, I think with the change in the export incentives by China government, they are almost at par with what India can procure or manufacture here. So it depends on strategy of customer, whether they want to bring in and on a lead time of 90 days with just 400 pieces coming in one container, in different energy labeling norms getting changed, it's a very complex situation to import. But yes, on indoor, we still have to work on the costing front.

Okay, sir. And sir, in terms of the India business also, are you seeing some amount of reduction or decline in the competitive intensity with some of the smaller players kind of going away? Are you seeing that kind of phenomenon also happening and that's also helping you increase market share in the overall outsourcing bucket itself?

Yes. I mean, there has been a change in the landscape in the competition, local competition like LEEL got into NCLT and their factories got closed. So definitely, that changed the whole landscape. But yes, the smaller players, they don't have that large bandwidth of R&D capabilities as well as the CapEx, which is required. And with Amber's 15 plants, it becomes very unique company to offer solutions in different geographies in different component sector. So that is improving -- the competition level locally is reducing and improving our capabilities.

The next question is from the line of Ravi Swaminathan from Spark Capital.

Just a couple of questions. One is regarding the south plant that you had told you would be setting up. You had told that there is some deferment. Given the fact that Blue Star has set up, Voltas is also in the process, Daikin is also thinking about setting it up, we can go slightly ahead of the time and set up a facility there, right, sir ? I mean, we have sufficient number of customers now. Samsung is also there.

We do not want to move to new location where we keep on waiting for new opportunities. We put up a factory in just 5 to 6 months' time, the greenfield facility. We have done it in past. So we are observing and keeping a very strong watch on the movements. As we see that the construction starts happening, we'll definitely move towards south.

Got it, sir. And if you could give the indoor/outdoor window volumes for this quarter, it will be really helpful, sir.

Well, maybe we would like to avoid that. In the past, we have seen that a few of our customers tried to negotiate by taking our numbers with us. So as a management, we have decided not to disclose the numbers. We have given you the full volume number of the increase, 20 lakhs plus what we have given as compared to last year, 11 lakhs.

Okay, sir. And PAT margin of IL JIN, Ever and Sidwal this quarter, sir, how much?

That has already been disclosed, but I can repeat it for you again. So PAT margins of Sidwal in the quarter -- you were asking for the quarter, right?

Yes.

So in the quarter 3, in Sidwal, the PAT margins are INR 12.5 crores. For IL JIN, it is INR 1.76 crores. For Ever, it is INR 23 lakhs. And for PICL, we are at INR 32 lakhs.

The next question is from the line of Amar Singhania (sic) [ Amber Singhania ] from Asian Market Securities.

Sir, when I compare your stand-alone and consolidated revenue, there is roughly around INR 59 crore of inter-segment sale, which is getting knocked off. So just wanted to understand, out of roughly INR 2,000 crore of revenue in stand-alone, we do not procure component from our subsidiaries beyond INR 60 crore as such? Or where exactly is this...

So like Sidwal doesn't supply anything to Amber, and it's a different mobile application space. Then we do procure -- Amber procures motors from PICL to a tune of almost about close to 22% of requirements and remaining we also import. And IL JIN and Ever, it is underdevelopment right now. It will take another 6 more months for Amber to give approval on the reliability cycle of the new inverter PCB boards developed by R&D of IL JIN, and then it will start moving forward.

So right now, like it's just roughly 3% of the revenue which we procure in-house. Once these approvals are in place, where this number could go up to?

It will not substantially add up. I think it can go to maximum 10% or so of the whole consol basis.

Okay. And are you planning to do any backward integration for the AC components other than these 4 subsidiaries which we have because there is still a huge scope of backward integration further on...

Yes, we are planning to get into further components. A few of our customers have asked us to start the feasibility report of the wiring harness business as well as cross-flow fans and other injection molding businesses, which we are right now looking at.

Okay. And just lastly, sir, if you can give some guidance about the CapEx for this year and next year?

So this year, CapEx on a consol basis, including our subsidiaries, all subsidiaries, we have already done a CapEx of INR 96 crores, which involve about INR 35 crore of maintenance CapEx and close to about INR 20-odd crore of R&D and remaining is our other CapEx in the subsidiaries as well as in Amber. We look towards maintaining CapEx of about INR 120-odd crore in this financial year.

Okay. Similar CapEx would be there next year also?

No, next year, it will be less than this because we don't have anything -- in case, we don't put up a facility in south, then definitely, it will be much less than the CapEx.

The next question is from the line of Shrinidhi Karlekar from HSBC.

Sir, I just want to better understand your inverter controller capabilities. So we have done some arrangement with Infineon and Bisquare. First, I just want to understand what it is really different with 2 different companies? And the next one is, sir, how big is this opportunity if we go by something like 2.5 million annual inverter ACs of ballpark sold in India? How much of the inverter controller could be manufactured by brands or some other vendors in India? And how much is procured outside of India? And if you can help with the big players, which are in this industry, that would be really helpful.

So our association with Bisquare and Infineon, Infineon is actually a chip manufacturer and Bisquare is a design house. With Bisquare, we've already launched the inverter PCB board with few of our customers. And the Infineon chip, the card is under development, which will be launched very soon for their customers. The whole opportunity is quite big. This almost 55% industry is today inverter air conditioners. And the inverter PCB board is the largest component after compressor in the whole bill of material scheme of things. This costs you around INR 3,200 to INR 3,500 varies from tonnages. And if the industry further graduates -- right now, large investor PCB board is being imported and there are only 2 more suppliers in the country, which are supplying these boards. One is Diamond, which is doing -- it's a Japanese company to which certain boards are being supplied by Dixon also. And IL JIN is one of the largest, which is already supplying to LG and other players right now. So there's a lot of opportunities because as invertor PCB gets to a positive penetration level, the requirement of this -- nobody wants to import, everybody is looking forward for a local solution. And IL JIN is the first company, which is launching their own product R&D, done in India, made in India product very soon.

That would be ODM, right? OEM, we already have, right? Is that understanding...

That's right.

Okay. And sir, we -- is it fair to say that like for other components, such as wiring harness and cross-flow fan, are you getting similar interest from your existing clients to improve your capabilities in this part of -- in this critical component? Or it's more of on your own that you are trying first?

No, we largely -- I mean we've been getting feedback from customers because Amber has always addressed their pain areas. So these are some of the components where a very small companies are involved. They want a larger organized sector to supply to them. And that is where the opportunity is looking for Amber right now.

And sir, last one connected one...

Mr. Karlekar, I'm really sorry to interrupt, but maybe...

Fair enough. Okay.

The next question is from the line of Pankaj Bobade from Axis Securities.

Congrats on reporting excellent set of numbers. Sir, you talked about import substitution opportunities starting from FY '21, '22 onwards. So just wanted to understand about the good quantum or opportunity in maybe volume or value terms? Also, you mentioned that in the bill of materials, we are supplying around 60% other than the compressor, right? So any plans for getting into technology intensive components like compressor?

No, we do not plan to enter into compressor at the moment because the compressor -- we have already company called Highly, which has set up a plant here. And another plant is being commissioned right now by DMCC, which will be commissioned in this calendar year and it will start production next year onwards. So breakeven point for a compressor plant is about 2 million. And the market size is quite small right now at 6.5 million or 7 million to have those numbers with you, and it is a CapEx-intensive plant. So rather than that, we have already got into a more technology-oriented businesses, which is invertor PCB board, which is a highly functional component and the whole energy conservation happens through PCB board. That is what we have got into and that is what we are growing right now. And we would like to actually bring in more brushless DC motors, more energy-efficient motors along with the unique fan solutions for reduced CFM and noise levels in the industry. And also, our new range of heat exchangers, we want to launch with a better efficiencies on the cards.

Yes, regarding the import substitution opportunity, what would be the volume or value?

See, there are 2 kind of import substitution opportunities. One is in the finished goods, which we are already catering to, where we are producing new models every year. And as we are growing bigger, our leverage of cost competitiveness is increasing and that is where a big cost opportunity, big importing opportunities are there. Second, import opportunities are in the component space, like inverter PCB board is largely being imported. Motors, still about 70% motors are imported in India. 90% -- 95% of washing machine motors are being imported in India. That is where a large substitution can happen. Then other small components like cross-flow fans and valves, these wiring harnesses. These are another part which are coming from China, where large import substitution can happen.

The next question is from the line of Rahul Ranade from Goldman Sachs.

Just a couple of questions. So out of the INR 120-odd crores of CapEx in FY '20, how much would be done in Sidwal?

Sidwal will be close to about INR 5 crores, INR 5 crores or 6 crores maximum.

Okay. Okay. And where are we on the working capital days in Sidwal, I believe we've kind of rationalized a lot on that, so?

So we have traveled the journey from 180 to 93 in H1. In Q3, we have further brought it down to 84 days.

Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you, everyone, for joining us. I hope we have been able to answer all your queries. In case you further require any further details, you may please contact us or our Investor Relations advisers, Strategy Growth Advisors actually. Thank you.

Thank you very much. On behalf of Amber Enterprises India Limited, we conclude this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.