Amber Enterprises India Ltd, a key player in the room air-conditioner (RAC) manufacturing space, is bracing for a challenging transition year in FY26. The company's core business is facing significant headwinds, forcing investors to shift their attention to its ambitious foray into electronics manufacturing for future growth.
Near-Term Headwinds Cloud RAC Outlook
The company's management, during a recent analyst meet, projected a 10–15% growth in its RAC business for FY26, which is ahead of the broader industry. However, this comes with a major caveat: the overall market for room air-conditioners is expected to remain largely flat this fiscal year. A combination of factors is dampening demand, including an overhang of channel inventory, disruptions caused by unseasonal weather patterns, and higher product prices following government-mandated energy-efficiency upgrades.
Compounding these issues are rising input costs, particularly for copper, and currency pressures. This cloudy demand and cost environment has severely impacted near-term margin visibility for the consumer durables segment, which still contributes about two-thirds of Amber's total revenue.
The Electronics Rebuild: A Strategic Pivot
In response to the volatility in its core business, Amber is aggressively rebuilding itself as an electronics manufacturer. Over the past year, the company has assembled a broader electronics platform through strategic acquisitions like Shogini, Power One, and Unitronics. Furthermore, it has committed fresh capital to establish printed circuit board (PCB) manufacturing capabilities under relevant government incentive schemes.
Management is bullish on this segment's potential, forecasting that electronics can grow at an impressive 35–40% annually and achieve double-digit margins by FY28. This is a stark contrast to the mid-single-digit margins typical of its traditional consumer durables operations. If successful, this pivot would meaningfully alter Amber's earnings profile, reducing dependence on the cyclical RAC business and tilting profit contribution towards electronics and its railways & defence segments, which offer longer order visibility and higher value addition.
Execution Risks and Stretched Valuations
However, this strategic shift is neither quick nor cheap. The capital expenditure, especially for the PCB capacity, is front-loaded, while the benefits from incentives and improved margins are back-ended. Consequently, free cash flows are expected to remain under pressure until these new projects stabilize. Any slippage in execution—be it in production ramp-ups, securing customer approvals, or controlling costs—could test investor patience further, especially with the stock already down about 11% year-to-date.
The market's patience is also being tested by valuations. At around 50 times its estimated FY27 earnings, the stock appears stretched. Brokerages have taken note of the near-term challenges; for instance, Motilal Oswal Financial Services cut its estimates by 10%, 9%, and 5% for FY26, FY27, and FY28, respectively, to factor in weaker margins. Any future rerating of the stock will critically depend on the electronics division delivering on its promised margins, cash flows, and returns on capital.
While management expects a demand recovery in the second half of FY26, led by the March quarter, air-conditioners may no longer be the primary growth engine. The company's journey through this transition year will determine whether its long-term bet on electronics can power its next phase of growth.
