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

Ladies and gentlemen, good day, and welcome to Amber Enterprises India Limited Q2 and H1 FY '24 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 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, Executive Chairman and CEO and Whole-Time Director of Amber Enterprises India Limited. Thank you, and over to you, sir.

Hello and good morning everyone. On the call, I'm joined by Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, CFO; Mr. Sanjay Arora, Director ILJIN Electronics; Mr. Sachin Gupta, CEO of RAC Division; and our IR Advisors, SGA. We have uploaded our results presentation on the exchanges, and I hope everybody had an opportunity to go through the same. Amber over the years has evolved as a comprehensive backward integrated and diversified B2B solution provider. As you all must be aware that we started our journey from room AC sectors comprising of window AC and then split and inverters and further diversified into cassette air conditioners, ductables and package units of higher tonnages. Being backward integrated over periods, we spread our wings in RAC and RAC components spreading into different geographies of India. Today, we command 29.4% of manufacturing footprint of Indian room air conditioner industry. To gain an edge over the changing market patterns from fixed speed ACs to inverter ACs, Amber in the year 2018 ventured into the world of electronics by acquiring ILJIN and Ever and became a market leader in inverter air conditioner segment. As we graduated in our skills and know-how of electronics, we learned that electronics is an ocean, which needs to be explored. In the past 5 years, a stint which started from inverter AC, has now diversified into providing solutions for home appliances, consumer electronics, hearables and wearables, telecom and automobile segments. Recently, we entered in a joint venture with Nexxbase Marketing Private Limited, having its brand name NOISE to undertake the manufacturing, assembling and designing of wearables and other smart electronic products, thus contributing strongly towards Make in India initiatives, which will help reducing import dependency, promoting top-tier manufacturing and positioning India as a global hub for industry-leading wearable technologies across various categories. Being #1 smart wearable brand in India. And third, globally NOISE in-depth understanding of the category, combined with ILJIN's expertise in manufacturing resources and innovative capabilities will help build a world-class manufacturing ecosystem in India while contributing significantly to the bludgeoning growth of the entire category. Going forward, we clearly see our Electronics division becoming Amber 2.0 strategy, having exponential growth opportunities in the year to come. Furthermore, to expand our addressable market in heating, ventilation, air conditioning segment, we acquired Sidwal during the year 2019 to cater the mobility infrastructure of country which includes railways, metro, bus and defense. Sidwal being the pioneer in all indigenous roof-mounted air conditioners for rail coaches carved out a niche for itself by developing top of the line products over the decades. Post acquisition, we ramped up Sidwal facilities, expanded R&D capabilities and enabled Sidwal to create a different application of metro, railways, HVAC solutions for new aged application trains like Vande Bharat Express, Metro ACs and trains like RRTS, Namo Bharat. Today, Sidwal is the leader in mobility air conditioning space and is further turning its wheels by expanding its footprint into railway subsystem space, while introducing products like doors, gangways and pantry systems; hence, enabling Sidwal to increase its wallet share in the bill of material of passenger coaches. With Indian government launching its plan of modernization of Indian railways by launching new Vande Bharat Express and Urban Development Ministry to have new lines in the new cities and existing metro lines to expand its network, exponential growth opportunities are unfolding for Sidwal. We are currently inching towards finalization of our first global order for Sidwal products, and this division is also set to become Amber 3.0 strategy going forward. We also feel pride in sharing that Sidwal has also been a part of recently inaugurated new RRTS, Delhi-Ghaziabad-Meerut corridor journey to be known as Namo Bharat, where it manufactures air conditioner systems for the trains. Looking into the current business and manufacturing landscape change in last couple of months, we have witnessed the customer demand getting fragmented in various forms like individual components, modular kits, finished products, subassemblies and we at Amber now onwards shall be doing our reporting in 3 divisional formats. For the sake of simplicity and for our own focused approach, we shall be looking towards 3 divisional contracts hereon. As explained above, all the 3 divisions Consumer Durables, which comprise of room AC, finished goods, room AC and non-room AC components. This is 1 division. Second division is Electronics division; and third is Railway Subsystem and Mobility. All have multi-fold growth opportunities going forward. I will now take you through the consolidated financial highlights. On the revenue front, for H1 FY '24, revenue increased by 2.1% to INR 2,629 crores versus INR 2,576 stores in H1 FY '23. We have reported revenue of INR 927 crores in Q2 FY '24 versus revenue of INR 750 crores in Q2 FY '23. On operating EBITDA, on H1 FY '24, operating EBITDA stood at INR 203 crores versus INR 182 crores in H1 FY '23, a growth of 11.5%. For Q2 FY '24, operating EBITDA increased to INR 65 crores compared to INR 52 crores in corresponding quarter last year. Operating EBITDA is before impact of ESOP expense and other nonoperating income and expenses. Operating EBITDA margins for H1 FY '24 stood at 8% versus 7% in H1 FY '23. PAT of H1 FY '24 stood at INR 41 crores versus INR 41 crores in H1 FY '23. For Q2 FY '24, PAT loss stood at INR 6 crores versus loss of INR 2 crores in Q2 FY '23. Increase in depreciation on account of CapEx incurred and finance costs increase due to increase in debt and higher cost of finance, which led to increase in PAT loss. Net debt as of September '23 stood at INR 956 crores from INR 662 crores in September '22. We expect this debt number to come down to in the range of INR 650 crores to INR 675 crores by the financial year-end. Working capital days for September '23 stood at 52 days -- sorry, September '24, compared to 39 days in September '22. And we also expect the net working capital days to normalize by the quarter 4. Overall, CapEx for H1 FY '24 stood at INR 149 crores, and we plan to incur a total CapEx in the range of INR 350 crores to INR 380 crores end of current financial year. Coming to the divisional highlights, we can now take you through all 3 divisional highlights.

Sorry to interrupt, Mr. Jasbir Singh.

Yes, hello?

Yes, sir. Now we can hear you, sir. Please go ahead.

Coming to divisional highlights, we can now take you through all 3 divisional highlights, which are as follows: Consumer Durable division. In Consumer Durable division, the room AC and the component segment. For H1 FY '24, revenue for this division increased to INR 1,744 crores versus revenue of INR 1,797 crores in H1 FY '23. Operating EBITDA stood at INR 114 crores versus INR 99 crores in FY '23. For Pravartaka, we have set up a new facility in Chennai, which is in process of scaling up. For AmberPR cross-flow division we have expanded in Pune, which is also in the process of scaling up. We have witnessed a mixed trend for the first half of this financial year 2024. Quarter 1, which is usually a strong quarter, was impacted by unseasonal weather patterns, resulting in increased inventory levels. However, rising temperatures and festivities on the anvil got the demand back and has helped in liquidation of inventory, thereby leading to almost normalized levels of channel inventory. We anticipate a year-on-year growth in the single digits for the room AC industry in the fiscal year '24, which bodes positively for Amber. In this Consumer Durables division, we have a motor segment. On the motor segment for H1 FY '24, revenue stood at INR 135 crores versus INR 130 crores. Operating EBITDA stood at INR 13 crores versus INR 15 crores in FY '23. Our profitability was slightly impacted a bit here due to increase of employee cost owing to inflation. However, for motor division, we expect exports to increase in the coming quarters and further expect the industry to grow in the range of 25% to 30%. Coming to Electronics division. On the Electronics division, which includes ILJIN and Ever, we have performed phenomenally well. Revenue for H1 FY '24 increased to INR 515 crores from INR 449 crores in H1 FY '23. EBITDA increased to INR 24 crores versus INR 17 crores in H1 FY '23. The division has witnessed growth in revenue, operating EBITDA as well as PAT due to product mix and growth of existing customers. During the quarter done by ILJIN entered into a JV with NOISE. This JV will be 50% owned by ILJIN and 50% owned by Nexxbase and we'll have a new plant setup in Noida. To begin with, ILJIN will develop local comprehensive integrated solutions in the wearable space and further intend to move into other electronic products. This is an exclusive tie-up with NOISE and going forward this JV will be catering to other brands as well. In FY '23, ILJIN did a revenue of close to INR 1,100 crores, which included INR 330 crores of wearable segments. With this JV going forward, we expect additional INR 1,000 crores top line by next fiscal year in this JV and a CapEx of about INR 10 crores to INR 15 crores and expect margins to be in the line with CapEx. Further, we have also added customers in telecom, automobile and hearable space in this segment. As mentioned during our prior discussion, a significant portion of the PCBAs required for non-smartphone applications are currently met through imports. The government's commitment to promoting domestic electronic manufacturing offers a significant potential for the substantial growth, and we anticipate a growth rate of 35% in FY '24 for this segment. We also expect this division to increase its margin going forward. We are targeting an EBITDA margin in the range of 6.75% to 7% range and doubling its revenue over the base of FY '24 year-on-year base in the next 2 years' time. Coming to the third division, Railway Subsystem and Mobility. On the mobility applications, the H1 FY '24 revenue stood at INR 235 crores versus INR 200 crores in H1 FY '23. For H1 FY '24, operating EBITDA stood at INR 52 crores versus INR 51 crores in H1 FY '23. The division has witnessed growth in revenue, operating EBITDA as well as PAT due to growth in the current operating segments. We are adding new product categories for metro coaches, which includes gangway, doors, pantry system, HVAC system. Due to our recently announced technology transfer agreements, we have started receiving orders for the new product categories, and we are glad to share that the order book of Sidwal has significantly jumped and now stands at INR 1,140 crores. We expect mobility applications division to grow to in the range of 25% in FY '24 and double its revenue in the next 2 financial years. With this, I will now open the floor for Q&A.

[Operator Instructions] The first question is from the line of Natasha Jain from Nirmal Bang.

Congratulations on a good set of numbers. My first question is on Electronic side. While we have a robust commentary for this division and have also delivered good growth in terms of margins, our top line for this quarter has been quite tepid at 3% and on a Q-o-Q basis, it has been a decline. Since this is a nonseasonal segment and our historical trend has been quite good, so why only a 3% growth? So that's my first question.

Sanjay, would you like to answer this question?

Hello? Can you hear me?

Yes, sir, we can hear you. Please go ahead, sir.

So this growth was [indiscernible] mainly due to the muted growth in the AC segment, like the Electronic division we supply a lot of controllers and the AC season was quite damp this time and it also affected the growth. So that was the main reason of the less growth in the Electronics.

So sir, it -- would it be possible to give a breakdown for electronics in terms of telecom, hearables and wearables, automobile and PCBA, that will help?

I think Sudhirji that you will have to do.

Sir, can you please repeat? We can't hear you.

Sudhir Goyalji, do you have that break up or can we give that later to her, please? Sudhir Goyalji?

Sir, Mr. Sudhir Goyal is not connected, sir.

Anyway Sanjay we can send it to Natasha later on, the breakup of 3, 4 segments within the Electronic division.

All right, sir. Sir, my next question is on the Consumer Durables segment. Sir, first of all, has there been any price discounting which you have taken as an ODM for the brand?

Price discounting?

Yes. Has there been any price discounting or any discounts that were passed on to the OEM players?

No, there is no price discounting, which we have passed on to any customers. The commodity now have eased off so that is a quarterly lag basis. I mean whatever the impact is that will automatically get transferred.

All right. And sir, lastly...

Sorry to interrupt, Ms. Natasha Jain, may we request you to rejoin the queue?

Sure.

Our next question is from the line of Dhruv from Ambit.

I had a couple of questions. So first was on the Electronics side, just to build on the last participant's question. So we see a tepid growth and while you've given a guidance of, say, close to 35%, 40% growth in the full year, right? So do you think you can continue the momentum in the second half, you'll see a better number there also?

Yes, we have added new applications in this sector. We have added auto EV space. We have also added hearable and wearable customers and telecom business, which we just onboarded in quarter 1 has started. So we expect that we should be able to match in the range of 35% growth for this quarter -- for this division.

Okay. And sir, on the stand-alone side, we've seen a strong growth. However, I think Sanjayji made a comment that the AC season was tepid so that growth that we are seeing was it on account of newer customers just trying to connect? I think, just a little bit of disconnecting in that sense.

So multiple reasons Dhruv, new customers, new applications, new products.

Sorry. Hello?

Hello?

Yes. And sir, on the -- I mean, can you just elaborate a little bit on these new applications per se?

So the new application, which I spoke like we've added telecom sector components. We have also added telecom products in the Electronics division. Then we have added auto EV space. We have added some customers in the hearable/wearable space. So all these put together, plus there are some customers which have been added in the refrigerator and washing machine space. So all put together is giving us this growth.

[Operator Instructions] Our next question is from the line of Sonali Salgaonkar from Jefferies.

Thank you for the very detailed earlier commentary during the call. Sir, just 2 questions. Firstly, any update on PLIs, the 2 that we have received for AC components. And secondly, for Nexxbase, you did mention that about INR 1,000 crores additional revenue. So just to clarify, this INR 1,000 crores will be for the JV as a whole so we'll be taking about 50% of that or 50% is equal to INR 1,000 crores for us?

No, the JV Sonali, will have total INR 1,000 crores and since it's a 50-50 JV, we will not be able to consolidate between revenue. It will be a separate revenue which we will be booked in new company. And we will be able to consolidate the PAT in our ILJIN on the 50% part of it. As far as your first question is concerned regarding the PLI. We -- the PLI approach -- I mean we are eligible in the PLI, PLI audits have started. A couple of factories have been visited and we expect that by -- maybe by quarter 4, we should be receiving our PLI benefits -- start receiving the PLI benefits.

Sir, how much incentive we are expecting in FY '22 (sic) [ FY '24 ] and '25, if we can -- share that?

So for the first year, it was about INR 16 crores. And this financial year, we expect the incentive to be in the range of about INR 28 crores to INR 30 crores.

Our next question is from the line of Aditya Bhartia from Investec.

Sir, my first question is on the Electronic side. How do you -- clearly looking at this vertical, would it be an extension of what we have been doing until now or can it be completely different foray into even industrial applications, defense, aerospace, are all options open? Or are we looking to be specializing in certain fields within the electronic space?

No, since we have now launched the electronics space, and we are expanding our knowledge base, so we are very open. We have taken 2-pronged strategy. One is to increase our margins because we started with our lowest margin businesses available in the PCBA which is the consumer durable part, whereas the defense and aerospace and the railways and industrial is higher margin businesses. So we are inching towards that. So as you see, we started with Consumer Durables, then we entered into telecom, then we added hearable/wearable and now we've added auto EV space. So we'll continue to grow in the space of PCBA applications while increasing our margins. And we also intend to backward integrate in the component space moving forward, which will strengthen our moat in this division. So that -- so we are seeing this as an Amber 2.0 story like what we did in air conditioners, we started with manufacturing just a sheet metal a box of air conditioners and then started producing air conditioners and then backward integrated and today, we can deliver 70% of bill material of air conditioners, including the full boxes. So a similar strategy will be followed over the years in this division, and we are very excited. I think this division has a potential to surpass room AC division in 3 to 4 years' time.

Understood, sir. And sir, you spoke about, I think, 6.5%, 6.75% kind of margins. Given the kind of mix that we are having today, how are those margins going to be attained? Because I understand that room ac or consumer durables is slightly on the lower side in terms of margins, even possibly wearables and hearables could also be a similar margin or if I understand it correct -- incorrect?

No, you are correct. The consumer durable space will continue to be lower margin space. But since we are adding new applications, which are at a higher margin that will grow this division's performance to a better margin. And we are intending to backward integrate into some components, which are at a higher margin space. So consolidated basis, you will see this division going to almost about 6.75% to 7% range. When we acquired this company, it was this 2.8% EBITDA company, and it's already inching towards 5% now, and we'll continue to grow the margins.

[Operator Instructions] Our next question is from the line of [ Onkar Ghudargare ] from Shree Investments.

Yes. Am I audible, sir?

Yes. Very audible.

My question was regarding -- you mentioned about doubling of revenue from FY '24 for Electronics division and -- in 2 years and doubling of revenue in 2 years for railway systems and mobility division as well. Just wanted to know what's your long-term strategy on both these since you are mentioning 2.0 for Electronics and railway subsystems 3.0 for Amber? Just wanted a broad long term view on these two aspects.

The broader long-term view is that these division will be heading for a very independent growth and have the potential of becoming as big as Amber is today going forward. So it is a very simple strategy which we have opted. We actually acquired into adjacencies and then we have grown those divisions into various applications. In Electronics, like I have explained that we have already entered into 4 applications. Now we have -- we are adding some more applications in that, plus we are going to backward integrate into component space of the electronic PCBA part, which will help us both top line growth as well as the bottom line growth. In the Sidwal, the mobility division, when we acquired, this company was a small company and the EBITDA margins were also less. So we've already traveled journey in last 3 years from 16% EBITDA to almost 22% EBITDA and grown the top line by almost 3x in the last 3.5, 4 years. What we are going to do next is that today, we are contributing only 4% to 5% of the bill of material of the passenger car. Now if you can imagine the kind of orders which have been floated by the Indian Railways for new Vande Bharat Express train and also by the Urban Development Ministry, which has already shortlisted 25 new cities to have new metro lines and the existing cities having metro lines are going to expand its network, there is an opportunity -- huge opportunity which has come for the complete railway application passenger coaches, which is called rolling stock. So in rolling stock, if you see, we currently are giving a solution of only 4% to 5% of our bill of materials. So we -- to become a meaningful supplier in the whole railway subsystem, we've now started our growth story for getting deep dive into the bill of material for increasing our wallet share with the existing customers. Now how do we do that? We started forging our alliances by signing technology transfer agreements. We have done 2 TOTs, one with Taiwanese company and another one with Canadian company for doors and gangways and we've developed pantry systems. So today, we can offer 10% of bill of materials in a passenger car to a customer. So from 4%, we have reached to 10%. And moving forward, we are going to further do some more alliances and we wish to reach to 25% to 30% of offering, becoming a multiproduct company in the railway subsystem part. So within India, there's a huge growth opportunity. There is a growth opportunity in the global space as well. So we are excited with this complete growth opportunities coming for these divisions. And by forming alliances by TOT for JVs we will reach to a 30% offering of a bill of material in the next 2 to 3 years' time. And that's how we are very confident that we can double the revenues from current levels and also increase some margins.

Just 1 number I wanted. For FY '23, what's the revenue -- what was the revenue of Electronics division and what was the revenue of Railway Subsystem, if you can provide that.

So FY '23 revenue of Electronics division was INR 1,100 crore plus. And for Sidwal, it was INR 422 crores.

[Operator Instructions] Our next question is from the line of Arafat from InCred Capital.

Sir, my first question is on CapEx. So sir, last year, you invested almost INR 750-odd crores. And this year also you guided [ INR 350-odd ] crores investment. So I just want to know which are these areas you will be investing? Of course, it will be a non-AC more about a hearable/wearable. But I mean if you can guide on that? And again, what asset turn you're expecting or a longer-term with this investment?

So we will be investing in all the 3 divisions, largely investments are happening in Electronics division and the Mobility division, plus this complete INR 380 crores includes the maintenance CapEx of all 27 plants. It also includes the R&D CapEx and some new products which we are developing for the room air conditioner division. So in total, we will be reaching currently. We -- on the return side as guided in the market earlier also, we will repeat. Last year, we have done -- last financial year, we've done about 15% ROCE, and we expect ROCEs to jump to about 16%-plus this year. And as guided earlier, we will again maintain that guidance that we should see Amber on a consol basis, delivering a 19% to 21% ROCEs in the next 2 to 3 years' time.

Okay. Okay. And my next question on, again, on the PCBA side, let's say you are now have a AC PCBA, refrigerator, television and all. Is there any plan to enter, like you said, high growing like aerospace and defense and medical in that matter? So any plan to enter that segment heavily, sir?

Certainly there is a plan to enter into various applications of PCBA. If you actually strip down the availability of the PCBA application, almost about 8 to 9 sectors are prevailing. So first of all, on the bottom line point of view, the top bottom line contribution is aerospace and defense and then comes the railway, then industrial, then telecom sector, then automobile sector, then health care sector is there, then hearable/wearable and consumer durable. So we started our journey from consumer durable appliances side. We are inching into adding some new customers, new applications. We'll continue to do more applications in this division. It will take time, defense and aerospace is a little longer time duration because their testing periods time, validation assessments takes long time. Similarly, case in industrial and railways, but yes, we have initiated our processes.

[Operator Instructions] Our next question is from the line of Aniruddha Joshi from ISEC.

[Technical Difficulty]

Sorry to interrupt, sir. May I request you to mute your line after you're done asking your question please.

Sure. Is it okay now?

Yes sir. Please go ahead.

It is okay. Yes.