Jasbir Singh, Chairman & CEO, Amber Enterprises, says “looking into the announcements by the Railway and the Urban Development ministries for metro coaches, we expect the total addressable market to go to almost about Rs 75,000-80,000 crore for the order book which is coming in next five to six years. 3,000 new Vande Bharat Expresses are going to be launched and one Vande Bharat Express has 16 coaches and we want to address almost about Rs 2-2.5 crore per coach as a bill of material solution provider, giving solution not only for air conditioners, but for other equipment which rolling stock manufacturer buys from outside, like doors and gangways, pantry systems, gears, couplers, interiors, toilets and seats, etc. ”
You have been talking about how you are looking at expanding into other categories and beyond the room ACs and it seems to be happening. What kind of potential do you see in the entire railway segment because there is a complete overhaul which is happening on the railway coaches back home? How big an opportunity could it be for you?
Jasbir Singh: We are very excited for this new announcement with Titagarh. We see it as a win-win situation. It has got three components to it. First of all, since Sidwal, our railway mobility application business, we are delivering solutions in space of air conditioners, doors, gangways and pantry systems. So, we will be creating another SPV with Titagarh where we are going to bring interiors and other components which for us will increase a very big time.

Now, looking into the kind of announcements the Railway Ministry and the Urban Development Ministry have done for the metro coaches, we expect this total addressable market to go to almost about Rs 75,000-80,000 crore for the kind of order book which is coming in next five to six years’ time. We expect that Sidwal, our subsidiary of railway application, can multi-fold growth on this venture with Titagarh, where we will be creating a complete comprehensive and integrated solutions for the complete rolling stock manufacturers, in terms of almost 25-30% of what goes into a passenger coach.

This can be quite meaningful. I was already observing that you had moved towards railways before this particular tie-up was also announced by HVAC, the heavy air conditioning side. The new Titagarh is, of course, a wagon side. We already saw HVAC. Can you throw us a big picture on how railways could become a part of your overall business in the next 3-4 years?
Jasbir Singh: We entered into railway business in 2019 by acquiring Sidwal and first of all, we started re-layouting our factories and getting it ready for the metro coaches as well as for the complete air-conditioned coaches. Today, we have a dominant share in the metro space as well as in the railway air-conditioned coaches. But then to increase our wallet share within the existing customers, we thought of a strategy where we can leverage our group strength and also give a complete comprehensive solutions in the complete railway coaches business.

According to the announcements made by the Ministry of Railways, almost 3,000 new Vande Bharat Expresses are going to be launched and one Vande Bharat Express has 16 coaches and we want to address almost about Rs 2-2.5 crore per coach as a bill of material solution provider, giving solution not only for air conditioners, but for other equipment which rolling stock manufacturer buys from outside, like doors and gangways, pantry systems, gears, couplers, interiors, toilets and seats, etc. So, we are forging some more alliances in this SPV to bring a complete ecosystem of the consolidator solution provider in this railway business.

You said Rs 2-2.5 crore is what you are targeting per coach and the total addressable market is Rs 70,000-80,000 crore if I had it right. But what part of the market share are you expecting to win because it is also getting a bit heated in terms of this entire cooling segment? You had a lot of MNCs doing this work. What is the USP that you bring to the table? Is it lower margins at all or what kind of margins are you expecting on this?
Jasbir Singh: In Sidwal, we have 20% EBITDA margins currently and almost 40% of return on capital employed in that business. It is a very good business with very high entry barriers and similarly, we have chosen the products which are very high entry barrier products where the gestation period is almost about five to six years, that is what we have chosen to be in.

We are bringing in more parts to be supplied to the rolling stock manufacturer. Since we are very large in static application of air conditioners, that is why we get the purchase leverage and having 29 plants we get the geographical advantage also to supply to our customers.What are your intentions of diversifying away from only ACs? What exactly would you be looking at? How much of a potential benefit would that be from the company? What would the overall mix look like?
Jasbir Singh: For Sidwal, are sitting at an order group of almost about Rs 1,100 crore and we expect this to double with this announcement because Titagarh already has 80 Vande Bharat coaches order in hand and we will be supplying air conditioners plus all the Sidwal products for their Vande Bharat requirements and also for their metro coach requirement because they have order book for Pune Metro, for Ahmedabad and Surat Metro.

Of course, for us, this is one of the strategic tie-ups where Titagarh have their facility in Italy also. Till now, we did not have experience in global play. We were lacking in the experience. So, this venture with Titagarh will also give us a global play where we will be supplying air conditioners and other products in Italy as well and that is how we will become eligible for global tenders going forward.

Clearly, the market and the Street is loving your diversification strategy because you are going in a very calibrated manner. Your acquisition of PCB, is also something which people really liked as part of your overall diversification. How is that progressing and what shape it can take going forward in terms of opportunity?
Jasbir Singh: We entered into electronics in 2018 by acquiring Iljin because at that time, the air conditioner industry was travelling from fixed speed to inverter AC. In inverter AC, the largest contributor of bill of material is the PCB board. We did not have it at that time. So we acquired a majority stake in Iljin and that is how it started growing. But after achieving our objective of supplying to the industry, we saw that we can get into the adjacent markets and we started expanding into hearable variables. We started expanding into telecom, auto space and now we practice smart meters.

We saw that 80% PCB assembly, whether active or passive, is getting imported. And looking into the Atmanirbhar Bharat campaign and agenda of our Honourable Prime Minister, we thought that we should get into backward integration and that is how we acquired Ascent Circuits, which is the bare PCB board manufacturer. We have also done a MOU with Korea Circuit recently, which is one of the leading players in the bare PCB board category supplying to semiconductor industry and also to mobile industry. They will be also participating with us and we will create the whole ecosystem of passive components, especially in the bare PCB board and PCB assemblies in various applications. We see multifold growth coming in the electronic sector and I think that is purely becoming number 2.0 business strategy for us.

So there was a multi-fold increase in the electronics business. The share of railways is expected to double and you talked about how margins for this particular JV is 20% with ROCEs of around 40%. If I have it right, your blended margins right now is around 7% with ROCEs being below 20%, actually 9%, single digit. What will the total blended rate look like given the additional businesses coming at a very lucrative new number in terms of margins and ROCEs?
Jasbir Singh: We have already guided the markets. Last year, we touched 14.5-15% in ROCEs and in the next 3 years, we should be in the range of 19-21% of ROCEs on a consolidated basis.

The margins are on a consolidated basis then?
Jasbir Singh: Well, we are improving the margins. It is very difficult to comment right now because margins in percentage terms are functions of commodities as well as the sub-assemblies which we do. But there will be some margin expansion also on the consolidated balance sheet.

About the top line itself, this entire EMS industry has been growing at a CAGR of almost 35-40%. What could be the CAGR growth for you in say next 3 years, given the diversification into newer segments?
Jasbir Singh: If I talk about the three divisions, railway division anyway, we are looking at a multi-fold growth from where we are today. After this joint venture we have just announced, we expect that in next five years’ time, Sidwal has a potential to go at least three to four times of what it is and plus we are creating another ecosystem which will be almost parallel to Sidwal in a 50-50 JV.

For electronics, of course, there is a lot of potential now since we are into bare PCB boards and we shall be attempting exports also. We are excited by the multi-fold growth there. We expect that it will be in line to the EMS projections but it is there. And since we have added smart meters, we have added telecom businesses and we also expect a good chunk of growth coming in from that sector. So, overall, we are excited that all the three divisions, in five years’ time, will have multi-billion dollar opportunities coming on the table for next decade and that is what we want to leverage on.