Best AC stock: PG Electroplast vs Amber Enterprises vs Epack Durable

In India, air conditioners (ACs) were once considered a luxury, primarily due to their high costs, moderate temperatures, and limited financing options. However, ACs have transformed from a luxury item to a necessity in recent times, largely because of rising temperatures and global warming.

Additionally, increased urbanization, rising disposable incomes, and technological advancements that allow ACs to consume less energy have significantly boosted demand. The Indian room air conditioners (RAC) market is expected to grow at a healthy compound annual growth rate (CAGR) of 12% over the next three years, reaching a value of ₹50,000 crore. This presents immense opportunities for established players such as Voltas, Blue Star, and Carrier to expand their businesses rapidly.

However, there are few lesser known players in the market that supply major components and appliances to these bigger companies.

Some of them are PG Electroplast, Amber Enterprises, and Epack Durable.

Let’s compare these three companies on various parameters to see who is a better AC player in the market.

Business Overview

#PG Electroplast

Part of the PG Group, PG Electroplast is a diversified electronic manufacturing services provider. It specialises in original design manufacturing (ODM), original equipment manufacturing (OEM) and plastic injection moulding.

Its wholly owned subsidiary manufactures air conditioners, coolers, and components for various consumer durables.

The company is the second largest player in room air conditioning (RAC) finished goods sales in India through which it supplies to a large clientele.

Apart from air conditioners, it manufactures semi-automatic and fully automatic washing machines and air coolers and is the second largest ODM player for washing machines.

It offers plastic moulding services for consumer durables and electronics companies in India and also assembles printed circuit board assemblies for TV manufacturers.

PG Electroplast also manufactures custom tooling solutions for various components and products.

It has a reputed clientele that includes LG Electronics, Carrier, Whirlpool, Acer, Voltas, Blue Star, Croma, and Crompton.

#Amber Enterprises

Amber Enterprises is a prominent solution provider for the air conditioner OEM and ODM industry in India.

It is one of the largest players in the air conditioning market with a market share of 29% and has a diversified product portfolio.

The company’s product portfolio includes RAC, heat exchangers, fans, condensers, motors, and case liners.

It recently expanded its product portfolio by adding tower ACs, window top throw inverter series, tropical high efficiency split air conditioners and cassette ACs.

Amber Enterprises also manufactures printed circuit board assembly (PCBA), for consumer durables, home appliances, and telecom sectors.

Apart from these, it also manufactures components, such as motors and mobility applications for consumer durables.

The company has a diversified clientele with over 20 ODM and OEMs including LG, Hitachi, Mahindra, Daikin, and Blue Star.

#Epack Durable

Epack Durable is an original design manufacturer of room air conditioners (RAC). It is the second largest manufacturer of RAC with around 24% market share.

The company's product portfolio includes air conditioners and small domestic appliances such as induction cooktops, mixer grinders, water dispensers, and domestic air coolers.

It also manufactures components for different appliances.

The company’s clientele includes Blue Star, Daikin, Carrier Midea, Voltas, Croma, Havells, Haier, and Godrej.

Between the three companies, Amber Enterprises has the highest marketcap of ₹22,060 crores, followed by PG Electroplast with ₹179.2 bn, and Epack Durable with ₹3,750 crore.

Amber Enterprises is also leading with 24 manufacturing facilities for consumer durables and five manufacturing facilities for electronics.

PG Electroplast has a total of 11 manufacturing facilities located in India across various states, with a capacity to produce over 4 lakh units of air conditioners a month and over a lakh washing machines a month.

Epack Durable, on the other hand, has 3 vertically integrated manufacturing facilities with a production capacity of 4.2 million units of air conditioners, and over 2 m units of appliances. 

Amber Enterprises is also leading with respect to a market share of 29%, followed by Epack Durable with a 24% market share.

In terms of stock market performance, PG Electroplast is leading with a return of 186% in the last year, whereas Amber Enterprises gave a return of 97%.

Epack Durable shares were listed on the stock market in February, and ever since its listing the shares of the company zoomed by 93%.

The primary reason for the growth in the share price of AC stocks is the strong growth in sales volume due to the high demand for new and replacement stock.

#Revenue

The primary source of revenue for PG Electroplast is the products segment (61%), including air conditioners, washing machines, and air coolers. Plastic moulding contributes 25% to the revenue, followed by electronics (13%), and tools (1%).

For Amber Enterprises, RAC contributes to the majority (80%) of the revenue, followed by electronics (16%), components, mobility applications, and motors (4%).

In the case of Epack Durables, RAC manufacturing is the primary source of revenue (80%), and the remaining 20% is from manufacturing small domestic appliances and components.

In the last four years, the revenue of PG Electroplast grew at a compound annual growth rate (CAGR) of 40.6%, followed by Amber Enterprises (22.1%), and Epack Durable (17.8%).

The primary reason for the high growth of PG Electroplast is its diversified revenue profile and strong sales volume, which are driven by high demand.

For Amber Enterprises, the revenue growth is majorly from the electronics and mobility applications segment.

In the case of Epack Durables, long-term relationships with clients pushed the revenue growth.

#Profitability

The profitability of a company can be assessed through earnings before interest tax depreciation and amortisation (EBITDA) and net profit growth and margins.

For PG Electroplast, the EBITDA and net profit grew at a CAGR of 51.3% and 85.4%, respectively, in the last four years, primarily due to strong revenue growth in the ODM solution space, which contributes the highest to the profit margins.

Amber Enterprises EBITDA and net profit grew at a CAGR of 21.1% and 13.8% respectively on account of cost competitiveness, strong focus on backward integration, and diversification of revenue profile.

In the case of Epack Durables, the EBITDA and net profit grew by a CAGR of 28.8% and 46%, respectively; backward integration efforts and strong sales growth have helped the company grow its profits.

Clearly, PG Electroplast is leading in terms of profit growth, followed by Epack Durable and Amber Enterprises.

Even in terms of profit margins, PG Electroplast is leading with average EBITDA and net profit margin of 8.5% and 3.4% respectively, followed by Amber Enterprises with 7.6% and 2.4% respectively, and Epack Durable with 7.3% and 1.8% respectively.

                                Profitability

#Debt Management

All three companies have debt on their books; however, in the last four years, the debt levels have consistently decreased.

PG Electroplast has a minimal debt of ₹700 m, which can be easily paid off with its cash accruals. Moreover, it has incurred a capex of ₹270 crores in 2024 to increase its capacity across RACs entirely from internal accruals.

It also plans to spend an additional ₹380 crores in capex to establish a new integrated unit for manufacturing RAC units in two different locations.

The company plans to fund this capex entirely through internal accruals.

Amber Enterprises debt to equity ratio is 0.3x at the end of March 2024. Its debt has increased primarily due to capex being funded by debt. In the next two years, the company will have repayment obligations of over ₹400 crore and a planned capex of ₹380 crores

Despite this, the company has enough cashflows to repay its obligations and fund its capex.

The capex is primarily for research and development (R&D), maintenance capex, and brownfield expansion in the components and sub-assembly segment.

Epack Durables has a debt to equity ratio of 0.1x at the end of March 2024. The company’s IPO proceeds have helped in reducing its debt significantly.

It is planning a capex of ₹230 crore in the next two years to expand its capacity and upgrade its technology.

Given the growing demand for ACs and electronic appliances due to urbanisation and rising disposable incomes, the capex of the companies couldn’t have come at a better time.

#Financial Efficiency

We can measure the financial efficiency of a business by checking its return on equity (RoE) and return on capital employed (RoCE) numbers.

These return ratios indicate a company’s ability to generate returns from the equity and capital invested. A high and consistently growing ratio is considered better.

The four-year average RoE for PG Electroplast, Amber Enterprises, and Epack Durable is 12.9%, 6.9%, and 10%, respectively, whereas the five-year average RoCE is 17.4%, 11.4%, and 21.1%, respectively.

The RoE and RoCE of all PG Electroplast has grown consistently over the last three years on account of rising profits and margins.

However, for Amber Enterprises and Epack Durables, strong downward pressure on margins due to rising raw material prices has affected the return ratios.

#Dividend

None of the three companies pay dividends to their shareholders, given their high investment in capacity expansions.

Amber Enterprises declared a dividend in the year 2020 but hasn't paid any dividends since then.

Going forward, given the high investment in capex, no dividend payments can be expected from these companies.

#Valuation

Valuation ratios help us estimate the intrinsic value of a company and help us analyse whether a company’s shares are overvalued or undervalued compared to its peers.

The two popular valuation ratios are price to earnings (P/E) and price to book value (P/B). A high ratio indicates the shares are overvalued, a low ratio indicates the shares are undervalued.

The PE ratios of PG Electroplast, Amber Enterprises, and Epack Durable are 91.8x, 107.7x, and 76x, respectively. In terms of PE, Amber Enterprises shares are highly overvalued compared to the other two companies.

The PB ratios of PG Electroplast, Amber Enterprises, and Epack Durable are 15.4x, 9.9x, and 4.3x, respectively. In terms of PB, PG Electroplast’s shares are highly overvalued compared to those of its peers.

When compared to the industry average, PG Electroplast and Amber Enterprises shares are overvalued, whereas Epack Durable shares are undervalued.

Which AC Stock is Better: PG Electroplast, Amber Enterprises or Epack Durable?

In terms of revenue growth, profit growth, profit margins, and return ratios, PG Electroplast is leading when compared to other two companies.

Amber Enterprises has higher revenue and profit numbers but is also the most overvalued of the three companies.

Epack Durable, on the other hand, is a major AC player that ranks second in terms of revenue and profit growth.

The company recently made a debut on the stock market and has been an investor’s favourite since. In the last 9 months, the stock has already give over 90% returns.

It has an established track record and market share in the RAC market and has long-standing relationships with its clients.

Having only three integrated manufacturing facilities in India, it plans to expand its manufacturing capacity by investing around ₹2.3 crore in the next two years.

It also plans to launch new products and undertake backward integration into components manufacturing to boost its profit margins.

Amber Enterprises has one of the largest market share of 29% in the RAC market. Being an established player in the RAC market, it plans to expand its electronics, components, and mobility applications business.

The company has already launched new products in the RAC segment and plans to do the same in its other business segments as well.

It plans to invest around ₹380 crore in capex for brownfield expansion in the components and sub-assembly segment.

The company is also exploring new segments, such as automation, smart electronics, and home appliances, to meet the rising consumer demands.

PG Electroplast, on the other hand, is focussing on improving its RAC business. It plans to invest ₹380 crore in capex for establishing new RAC segment in two locations in India.

Its subsidiary recently acquired a 100% stake in Next Generation Manufacturers to become a preferred outsourcing vendor for the consumer durables and electronics business of the Amstrad brand.

The subsidiary also recently signed an agreement with Spiro Mobility or an exclusive partnership to manufacture Spiro's EV in India. This opens up the company to a whole new industry.

All three companies are investing heavily in capex to take advantage of the strong demand for ACs due to growing urbanization, rising temperatures and disposable incomes.

All three companies have a good chance to grow their revenue and profits in the medium term, given their efforts to grow their market share and presence.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com