“ Amber Enterprises India Limited Q2 FY19 Earnings Conference Call ” November 1, 2018 M ANAGEMENT : M R . S ANJAY A RORA , D IRECTOR O PERATIONS , I NVESTOR R ELATION A DVISORS - A MBER E NTERPRISES I NDIA L IMITED M R . D ALJIT S INGH - M ANAGING D IRECTOR – A MBER E NTERPRISES I NDIA L IMITED M R . S UDHIR G OYAL – C HIEF F INANCIAL O FFICER - A MBER E NTERPRISES I NDIA L IMITED Page 1 of 15
Amber Enterprises India Limited 01 November, 2018 Moderator: Ladies and gentlemen good day and welcome to Amber Enterprises India Limited Q2 FY19 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. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Daljit Singh, Managing Director of Amber Enterprises India Limited. Thank you and over to you Mr. Singh. Daljit Singh: Thank you. Good evening everyone and a very warm welcome to our Q2 and H1 FY19 earnings conference call. Today, I am joined by Mr. Sudhir Goyal our Chief Financial Officer, Mr. Sanjay Arora, Director Operations and Strategic Growth Advisors, our investor relation advisors. We have uploaded our updated results presentation on exchanges and I hope everybody had an opportunity to go through the same. As an industry update Q1 and Q2 were hit by unseasonal rains which hampered the secondary sales and lead to inventory buildup across the dealers, distributors and brands. Since, we work with a quarter lag effect with brands our sales in Q2 were also muted. However, the channel inventory which was built up due to unseasonal rains is now being liquidated. and the demand is also gaining momentum. Despite the headwinds from industry in H1 FY19 our full year outlook is in terms achieving 2.1 million units for FY19 remains intact with a strong order book and volume visibility for later half of the year. We have observed these seasonal shifts over the years, but the broad-based industry outlook and order book looks robust, which will help us delivering the performance guided. In its notification on 27 th September, government has increased the custom duty from 10% to 20% on air conditioners, this will add up to Ambers benefit in catering new demands of ACs which were previously being imported. We should expect a shift from imports to domestic procurement across industry due to the cost competitiveness and higher flexibility in model mix. Since Amber is market leader in outsourced ODM and OEM RAC segment with complete range of product offering and 11 manufacturing facilities locating strategically in customer cluster we expect higher demand and are confident in outperforming the industry. I will now take you through the operational numbers. We have reported all numbers on standalone basis. The total revenue for Q2 FY19 should add Rs.226 crores as against Rs.265 crores for the corresponding quarter last year. Our revenues for H1 FY19 stood at Rs.828 crores as against 889 crores in H1 FY18. Overall revenue de-grew by ~6.8% on Y-on-Y basis for H1 FY19. Whereas we have seen a growth in revenue of 12% and 19% in our AC components and non-AC components segment respectively. Non-AC components grew from Page 2 of 15
Amber Enterprises India Limited 01 November, 2018 Rs.115 crores in H1 FY18 to Rs.137 crores in H1 FY19. and AC components grew to 76 crores in H1 FY19 as compared to Rs.68 crores in H1 FY18. In volume terms we have sold ~7.31 lakh unit in H1 FY19 as compared to ~8.69 lakh unit in H1 FY18, down by ~16%. However, our full year outlook remains the same with robust order book in the hand. Operating EBITDA for H1 FY19 stood at Rs.71 crores as compared to Rs.78 crores for corresponding period last year. EBITDA margins were 8.6% for H1 FY19 as compared to 8.8% for H1 FY18. Since we are witnessing growth in our AC and non-AC components, we are confident of improving margins trajectory going forward. Other income includes Rs.7.43 crores of FOREX loss on which 6.99 crores is realized loss and Rs.0.44 crores is unrealized. PAT for H1 FY19 stood at Rs.27.1 crores as compared to Rs.27.9 crores for the corresponding H1 FY18. However, debt repayment lead to PAT margin improvement by 13 basis point on Year-on-Year basis to 3.3% in H1 FY19. On the way forward, we would like to state that 1. With the increased custom duty for air conditioners and shift towards domestic manufacturing and procurement by brands will lead to higher demand across products & customers. 2. With new customer addition, strengthening of our existing relationship, increased product offering by way of strong R&D and expanding to new geographies. We are confident of outperforming the industry and 3. As we see an increase in volume for our products, our investments that we have done in the past we will see better returns, increased capacity utilization will lead to operating leverages. Playing out leading to better profitability, With this I open the floor for discussion. Moderator: Thank you very much sir. Ladies and gentlemen, we will now begin the question and answer session. Our first question is from the line of Aditya Bhartia from Investec. Please go ahead. Aditya Bhartia: Just wanted to understand how the inventory level situation in the channel is and with the brand owners and could higher inventory imply weak Q3 as in or do you think that situation is now normalizing. Daljit Singh: Yes, so like as you know there was a unseasonal rains in India and due to that there was a lot of inventory in the channel but now with the demand is increasing, this inventory in the channel is getting liquidated, and it is getting normalized day by day and month on month Page 3 of 15
Amber Enterprises India Limited 01 November, 2018 basis. Due to this and healthy order book in hand, we are seeing traction now and it is increasing day by day and we look forward for a good growth in Q3 and Q4 moving forward. Aditya Bhartia: Because Q3 last year I think there would have been increased production on account of the preponement of sales before the energy efficiency norm, and to that extent do you think that we can surpass the numbers that we delivered in Q3 last year. Daljit Singh: Yes, two things have happened if you see, first is that the channel was completely full of inventory and now the channel is getting liquidated and hence the pipeline is dried in the channel so definitely everybody would like to fill up that pipeline. Second is this custom duty hike, with custom duty hike we are seeing lot of traction of new and new enquires for manufacturing the air conditioners. So, these inquires will transform into business in Q4 because hike happened in September and as we move forward, and it takes little bit time to convert the enquire into a business. So we are hoping that in Q4 we could see lot of these inquires being converted into business. Aditya Bhartia: And sir given that rupee has been depreciating so sharply has that any impact on margins of our business as well, because from what I understand there must be some delay in passing on the impact of rupee depreciation and increased commodity growth. Daljit Singh: Yes, there has been but as you know we are able to pass on the depreciation of the rupee to our customers. Though there is a lag, so definitely margins also will have a lag a little bit of there, but yes, we are able to pass on to our customer both the commodity as well as the FX changes. So definitely with the lag we would be able to make it and now new orders are coming so all the new orders are being discussed at the current commodities. So going forward as and when they convert into business definitely that would be on the new commodities and new FX only. Aditya Bhartia: Right. And sir is it possible to indicate some number and to how big the impact could have been on Q2 numbers. Aditya Bhartia: Because of the rupee depreciation how badly would Q2 numbers have got impacted, do we have quantification to that. Daljit Singh: So are you talking about in Q2 or Q3? Aditya Bhartia: In Q2, Daljit Singh: In Q2, the FX loss was almost to the tune of 1.77 crores but again like many of the, from the customer side there are quarterly contracts, so we will be able to pass it with a quarter lag and the new customers which we are bringing on board will be on the new commodity and FX only. Page 4 of 15
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