Rationale

 The rating action factors in Amber Enterprise India Limited's (AEIL) strong operating profile, characterised by its established market position as the leading original design manufacturer (ODM) of room air conditioners (RACs) and its components in India, integrated operations, and established relationships with reputed players in the RAC industry. The company has ~70% share of the total outsourced RAC manufacturing business in India. Its clientele includes several of the leading RAC brands, such as Voltas, Panasonic, Daikin, LG, Godrej, Whirlpool, Samsung, Toshiba and Bluestar, among others. In addition, over the years AEIL has backward integrated into manufacturing key RAC components, which has supported its growth and profitability. In the past three years, the company has also diversified into mobility AC applications, where its key clients include the Indian Railways (with whom AIEL enjoys a dominant share of business) and large metro coach manufacturers. The company made two acquisitions in FY2022 (Pravartaka Tooling Services Private Limited and AmberPR Technoplast Private Limited), further focusing on backward integration and synergistic growth opportunities. The ratings also favourably factor in AEIL's healthy financial profile, characterised by consistent revenue growth (barring FY2021), steady profitability margins, strong liquidity position and comfortable debt coverage indicators. Despite the disruption in operations due to the pandemic related lockdown in Q1 FY2022, which is the peak season for the RAC business in India, the company witnessed a strong recovery in Q4 FY2022, resulting in record high revenues in FY2022 (~Rs. 4,208 crore). The mobility business continues to support consolidated profitability margins, even as the RAC segment faces increasing pressures from raw material price increases. Further, AEIL was able to convert one of the customers from its refrigerant filling business (following the Government of India's (GoI's) ban on importing refrigerant filled ACs in October 2020) into opting for completely built units. The same is likely to provide additional contract manufacturing opportunities to the company over the medium term. AEIL received approvals under the Production Linked Incentive (PLI) scheme announced for the AC component sector—Rs. 100 crore for the electronics division in ILJIN Electronics Private Limited and Rs. 300 crore for the AC components division—which is likely to support its growth prospects in the near to medium term. The company's capex plans for FY2023 remain elevated at ~Rs. 400-500 crore, which would constrain an improvement in the return and coverage indicators in the near term. However, this is likely to be offset by incremental cash flows from its domestic and exports businesses. The ratings are constrained by AEIL's exposure to the inherent seasonality in the RAC business, leading to volatility in revenues and profitability. Additionally, given the seasonality in the RAC industry, the company requires large working capital for its operations (especially during the fiscal year end, which is also the peak season) to manufacture and distribute its products. It also needs to continually invest in building capacities and new product development to meet customer demands and sustain its competitive advantage. While the former necessitates cautious management of its working capital requirements, the latter impacts the company's return metrices (return on capital employed, RoCE), which remain subdued. Furthermore, AEIL, like other electronics manufacturers, faces high dependence on imported raw materials/ components and is susceptible to any significant supply chain disruptions. Nonetheless, ICRA takes comfort from the company's long track record in the industry, its diversification into non-AC component and mobility application businesses (to offset the RAC business's seasonality) as well as its healthy liquidity position and financial flexibility. The Stable outlook on the rating reflects ICRA's expectation AEIL is expected to maintain a strong credit profile, supported by its resilient business profile, low external borrowings, comfortable capital structure and healthy liquidity position. ICRA has withdrawn the issuer rating for AEIL, in accordance with ICRA's policy on withdrawal and at the request of the company.