Event: Amber Enterprises’ (Amber) has approved to enter into the definitive agreements for acquiring 80% stake upfront in the equity share capital of Sidwal Refrigeration Industries Private Ltd (“Sidwal”), which will include the business of Sidwal Technologies.
Our take on the deal- The acquisition would expand Amber’s portfolio in the HVAC space in mobile applications. The deal is likely to be funded via a mix of internal accruals and debt where the group debt level would not exceed the internal threshold limit of 1.5-1.75x EBITDA. They also assured that the deal would be EPS/ ROCE accretive as Sidwal has high growth prospects/OPM of 20% with nil LT debt and low working capital requirements.
Outlook: We remain bullish on the niche space that Amber is in and its expansion plan in the related HVAC space. Q4FY2019 results will be keenly monitored for signs of growth as the last “cooler” summer season has spoiled its M9FY2019 results. We expect a CAGR of ~21%/38% in consolidated revenue/ earnings over FY2018-20E without taking this acquisition into account (would wait for deal’s fine prints). We maintain BUY with a target price of `910(25x FY2020E EPS).

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