Sector Update | 7 March 2025
EMS & Consumer Durable
Amber Enterprises (INR b)
Y/E MARCH
FY25E FY26E FY27E
Sales
90.3 109.8 135.2
EBITDA
6.9 8.9 11.7
EBITDA Margin (%) 7.7 8.1 8.7
PAT
2.4 3.7 5.7
EPS (INR)
70.8 109.5 168.7
EPS Growth (%)
79.6 54.7 54.0
BV/Share (INR)
683.5 793.0 961.8
Ratios
Net D/E
0.4 0.3 0.1
RoE (%)
10.9 14.8 19.2
RoCE (%)
10.8 12.8 15.9
Valuations
P/E (x)
89.6 57.9 37.6
P/BV (x)
9.3 8.0 6.6
EV/EBITDA (x)
32.4 25.0 18.7
Compressor shortage seems well managed
The RAC industry seems to be witnessing a good start to the summer season of CY25 after
a strong performance in the last season. Our recent interaction with industry participants
suggests that secondary sales too have started picking up in the South and West regions.
The industry faced a shortage of high-value intermediaries – compressors and copper –
during 3QFY25/Jan’25, which came as a surprise to RAC manufacturers, as BIS
certifications for certain players were not extended and imports got impacted. However,
as per our interactions, most players have addressed this issue with alternate supply
arrangements, and it is expected that the situation would ease further in the coming
months. In the near term, this can impact the volumes of certain OEM and EMS companies
during 4QFY25 as the industry was not fully prepared to deal with this shortfall of
compressors, though the impact on secondary sales might be limited (peak demand is
during Apr-Jun). The industry has made representations to the government to extend BIS
certifications for certain compressor and copper suppliers until domestic capacities are not
available to meet the entire demand, and we expect a favorable decision on the same. We
maintain BUY on Amber Enterprises and Voltas and Neutral on Havells.
Voltas (INR b)
Y/E MARCH
FY25E FY26E FY27E
Sales
148.3 164.2 184.4
EBITDA
10.9 13.0 15.6
Adj. PAT
8.3 10.0 12.6
EBITA Margin (%)
7.3 7.9 8.5
Cons. Adj. EPS (INR) 25.1 30.4 38.0
EPS Gr. (%)
247.1 20.9 25.1
BV/Sh. (INR)
198.9 223.0 253.4
Ratios
Net D:E
(0.1) (0.1) (0.2)
RoE (%)
12.6 13.6 15.0
RoCE (%)
13.6 14.3 15.0
Payout (%)
25.0 25.0 25.0
Valuations
P/E (x)
55.9 46.2 37.0
P/BV (x)
7.1 6.3 5.5
EV/EBITDA (x)
42.2 35.0 28.8
Div Yield (%)
0.4 0.5 0.7
FCF Yield (%)
0.8 1.9 2.2
4Q/1Q are peak demand periods for AC manufacturers and AC EMS players
AC industry has seen good demand so far in FY25, driven by rising temperature and
increasing disposable income. In FY24, industry volumes grew by 12% YoY to around
9.4 million units. We expect a 19% CAGR in industry volume over FY24-27, with 35-
40% YoY growth expected in FY25. With annual AC demand growing at such a
healthy pace, the demand for high-value components such as compressors and
copper tubes would also grow correspondingly. Peak production for AC occurs
normally during the December-June period, accounting for nearly 80% of the annual
output. Any disruption during these months can impact overall production volumes
for AC OEMs and ODMs.
AC compressor shortage cropped up in 3QFY25/Jan’25
The Indian RAC market was impacted by the shortage of AC compressors during
3QFY25/Jan’25 due to 1) BIS certification expiry for a large Chinese player, which has
led to a halt in shipments to India since Oct’24; 2) increased AC demand in China
due to government subsidies; and 3) fears of US tariffs resulting in supplies being
diverted to the US. This could have resulted in production loss for few players during
this period. Companies with stocked inventory or alternative arrangements were
better placed at this time. As a result, companies had to shift to alternative suppliers
such as Highly and GMCC, both of which are already operating at the maximum
capacity in India and China. Among the domestic AC OEMs, major players like LG and
Daikin have in-house compressor manufacturing units and were better placed. Both
are also ramping up their in-house compressor production.
Havells India (INR b)
Y/E MARCH
FY25E FY26E FY27E
Sales
211.9 240.5 276.7
EBITDA
19.9 24.3 29.3
Adj. PAT
13.8 16.9 20.7
EBITA Margin (%)
9.4 10.1 10.6
Cons. Adj. EPS (INR) 22.0 26.9 33.1
EPS Gr. (%)
8.7 22.1 23.0
BV/Sh. (INR)
133.1 150.6 172.1
Ratios
Net D:E
(0.4) (0.4) (0.5)
RoE (%)
16.5 17.9 19.2
RoCE (%)
16.2 17.5 18.9
Payout (%)
35.0 35.0 35.0
Valuations
P/E (x)
66.3 54.3 44.1
P/BV (x)
11.0 9.7 8.5
EV/EBITDA (x)
44.2 36.0 29.5
Div Yield (%)
0.5 0.6 0.8
FCF Yield (%)
0.5 1.1 1.5
Current compressor capacities in India still too small
The compressor requirement in the Indian RAC industry is around 1.05x to 1.1x of
AC demand, reflecting the need for additional compressors due to replacements,
and maintaining buffer stock. Presently, domestic AC OEMs do not have compressor
manufacturing capacities, while MNC OEMs have in-house compressor
manufacturing capacities. The industry meets its compressor requirements of 6-
6.6m units domestically through GMCC, Highly, LG, Daikin, and Mitsubishi, while the
Research analyst –
Teena Virmani
(Teena.Virmani@MotilalOswal.com) |
Sanjeev Kumar Singh
(Sanjeev.Singh@MotilalOswal.com)
Mudit Agarwal
(Mudit.Agarwal@MotilalOswal.com) |
Prerit Jain
(Prerit.Jain@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.