One Stop Solution Provider For Major Brands In RAC Industry
Daljit Singh, MD and Executive Director, Amber Enterprises India Limited in an interview with BW Business World discusses the impact of Amber Enterprises in the Air Conditioning industry of India and their plans for their newly launched I.P.O.
How much market share does Amber have in the air condition manufacturing sector?
As per DRHP filed with SEBI, Amber Enterprises is a one-stop solutions provider for the major brands in the RAC industry and currently serves eight out of the 10 top RAC brands in India (Source: F&S Report). Amber Enterprises is a market leader in the RAC OEM(Original Equipment Manufacturer)/ODM (Original Device Manufacturer) industry in India with a market share of 55.4% in terms of volume in Fiscal 2017 (Source: F&S Report). We offer our customers manufacturing solutions ranging from critical components such as heat exchangers, multi-flow condensers and motors to non-critical components such as sheet metal and injection moulding.
The company’s key customers include leading RAC brands such as Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool. Amber customers command around 75% share in the Indian RAC market in Fiscal 2017 (Source: F&S Report).
What is the current financial plan for the company? Are you looking for investments and an expansion plan?
Under the current financial plan, the company has filed DRHP with SEBI for an IPO of Rs 5550.00 Million on 29th September 2017. The Offer comprises a Fresh Issue of Rs 4,500.00 million and an Offer for Sale by the Selling Shareholders of Rs 1050.00 million. The Company proposes to utilize an aggregate amount of ₹ 3,450.00 million from the Net Proceeds towards full or partial re-payment or prepayment of the loans availed by Amber.
In the component segment of our business, we plan to add new RAC components to our portfolio in order to achieve further backward integration and gain greater wallet share of our customers. Such new products will include brushless DC motor, resin-core motors and inverter controllers. We are developing heat exchangers for refrigerators and dryers and we will continue to add further components for other consumer durables.
What are the plans for the I.P.O.? Can you please elaborate the purpose of this initiative? At what cost would the shares be sold?
The company has filed DRHP with SEBI for an IPO on 29th September 2017. The total size of IPO is 5,550.00 million. The Offer comprises a Fresh Issue and an Offer for Sale by the Selling Shareholders. The Company proposes to utilise an aggregate amount of ₹ 3,450.00 million from the Net Proceeds towards full or partial re-payment or prepayment of the loans availed by Amber.
What are the marketing strategies applied by Amber Group to gain dominance in the industry they cater to?
The key elements of our strategy are as follows:
a. Expansion of existing product portfolio with a focus on ODM
With our R&D and innovation capabilities backed by an in-house tool room, we have successfully designed and developed various components and RAC models. We already manufacture RACs and Inverter RACs of various energy efficiency ratings using green refrigerant. We will continue to add new products for the RAC industry to our offerings. Our R&D team is developing new IDU and ODU chassis and we will focus on increasing the share of ODM based manufacturing in our overall sales. In the component segment of our business, we plan to add new RAC components to our portfolio.
b. Expand domestic customer base and grow export sales
The RAC demand in India is growing, owing to low penetration of RACs, rising disposable income, increased urbanisation, changing lifestyle trends, longer hot weather season and shortening of the replacement cycle. The Indian RAC market volumes are expected to grow at a CAGR of 12.8% from Fiscal 2017 to Fiscal 2022 (Source: F&S Report). Such growth may result in an expansion of existing RAC brands as well as the entry of new consumer durable brands in the RAC segment. We currently export to Saudi Arabia, Oman, Sri Lanka, Nigeria and Maldives. We intend to leverage the low-cost advantages of manufacturing in India and aim to initiate RACs exports into others countries in the Middle East, South and South East Asia as well as Europe.
c. Continuing innovation and strengthening the R&D capacity
Customers’ demand for higher performance and top quality products is growing rapidly in the RAC industry. In response to this, a key part of our strategy is to continually improve our research and design capabilities to pre-empt market dynamics and meet our customers’ requirements.
d. Pursue selective acquisitions, partnership opportunities and inorganic growth
We believe that the track record of our growth and expansion of our business coupled with our vision of expanding our operations enables us to look for opportunities for inorganic growth in order to complement our existing businesses. Accordingly, we continue to evaluate opportunities, domestically and internationally, to acquire established businesses or technologies which may be complementary to our existing business, including in the HVAC and refrigeration components sectors.
e. Continue to focus on increasing efficiency and profitability
Increased competition and stringent regulations have prompted the players in RAC market to find innovative ways to reduce cost and increase the overall efficiency. Improving cost efficiency in our manufacturing processes continues to be one of our key strategies. We have implemented innovative strategic cost-saving and efficiency improvement measures.
What are the challenges in the A/C manufacturing industry? How does Amber bridge those gaps?
Although there are multiple positives for the OEM/ODM growth story in India but because of the nature of this industry, there are some inherent challenges too. The investment required in the OEM/ODM industry is very high and thus is an entry barrier for a new player entering the market. The situation is aggravated by the high finance costs which make borrowing a costly affair. Since margins in appliances are thin, the OEM/ODM players essentially need high volumes to make their operations profitable, thus making attainment of economies of scale a necessity for them.
With our experience, product development expertise and capabilities in the manufacturing of RACs and components, we have become a one-stop solutions provider in India for the RAC industry. In addition to designing and manufacturing complete WAC, IDUs and ODUs, we offer our customers manufacturing solutions ranging from critical components such as heat exchangers, multi-flow condensers and motors to non-critical components such as sheet metal and injection moulding. In terms of bill of material, depending on the model of RAC, we manufacture up to 49% of the ODUs, 62% of the IDUs and 54% of WAC, which includes most of the critical components (except compressors, which are largely imported for the RAC industry in India) (Source: F&S Report). We have the capacity to offer product development and manufacturing solutions from designing, tooling and validating to final assembling and testing. Most of our operations are backward-integrated and the processes are carried out in-house. This backward integration gives us the flexibility to control our manufacturing processes and reduces dependence on external suppliers. This helps to make us a consistent and reliable OEM/ODM supplier. We believe that our backward integrated capability to manufacture most of the critical components to be used in our manufacturing chain makes us uniquely competitive in the RAC manufacturing industry in India.
What is the profit margin for the current financial year and the turnover?
We have demonstrated strong financial performance in the recent years. Our revenue from operations has grown at a CAGR of 19.1% which is higher than the industry average of listed consumer durables brands of 11.7% for the period from Fiscal 2014 to Fiscal 2017. Further, our EBITDA margins of 8.3% for Fiscal 2017 was in line with the average of EBITDA margin of listed consumer durables brands for Fiscal 2017 (Source: F&S Report). While we have grown quickly in recent years, we have managed to deleverage our balance sheet and improve our credit rating in the process. Our debt to equity ratio for Fiscal 2015, Fiscal 2016 and Fiscal 2017 was 1.4, 1.3 and 1.0, respectively. As of April 2017, our long-term bank facilities were rated as CRISIL A-/Stable and our short-term bank facilities were rated CRISIL A2+. We believe that our financial stability and positive cash flow from operations position us well to meet the present and future requirement of our customers.
What are the types of raw materials sourced from India? Do you outsource other raw materials from different countries?
Raw Material Suppliers and Utilities
The principal raw materials we use in our manufacturing include:
(i) Aluminium;
(ii) Copper;
(iii) Sheet metal (Steel);
(iv) Refrigerant;
(v) Compressor
(vi) Plastic resins;
(vii) Motors;
(viii) Fans and blowers;
(ix) Front Grill;
(x) Electronics (remote sets and controllers);
(xi) Capacitors;
(xii) Wiring;
(xiii) Service valves; and
(xiv) Corrugated boxes
We have a centralised system across our manufacturing facilities for procurement of raw material. We procure raw material from various domestic and foreign vendors. While most of our purchases are on purchase order basis on terms governed by the relevant spot market.
Our multiple manufacturing locations allow us optimal utilisation of facilities and enable us to distribute manufacturing across them. This helps us to ease the pressure of seasonality and simultaneous demand schedules of multiple customers.
The large scale of production has also strengthened our relationship with our raw material suppliers and provided us better insight into the markets for procuring material. We have a centralised system across our manufacturing facilities for procurement of raw material, ensuring cost efficiency and timely delivery of supplies. This results in reducing the overall cost of production.
Can you name the brands the company works with? Which brand has been the most profitable for you?
Our key customers include leading RAC brands such as Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool. Our customers command around 75% share in the Indian RAC market in Fiscal 2017 (Source: F&S Report).
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