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Endurance Technologies Ltd>
  • CMP : 2,664.3 Chg : -34.20 (-1.27%)
  • Target : 1,565.0 (7.93%)
  • Target Period : 12-18 Month

21 Jul 2022

Steady financials, await ramp-up at new age EV OEM’s

About The Stock

Endurance Technologies (ETL) is the largest aluminium die casting company in India by installed capacity and also a leading (top-two) player by market share in other served segments i.e. suspension, braking and transmission.

  • FY22 product mix: - ~60% from 2-W, ~10% from 3-W, ~30% from PV
  • FY22 geographical mix: - ~75% India; ~25% Europe
Q4FY22

ETL reported healthy Q4FY22 results.

  • Total operating income came in at ₹ 2,079 crore, up 10% QoQ
  • EBITDA margin came in at 12.4%, up 160 bps QoQ
  • PAT was up 45.2% QoQ at ₹ 136.2 crore
What should Investors do?

The stock appreciated at ~10.6% CAGR from ~₹ 890 in July 2017 over the past five years, outperforming the broader Nifty Auto index.

  • We downgrade the stock from BUY to HOLD awaiting playout of recent acquisition in the EV domain & recovery of margins in foreign operations.
Target Price Valuation

Introducing FY24E, we now value ETL at ₹ 1,565 i.e. 28x P/E on FY24E EPS of ~₹ 55.9/share (earlier target price ₹ 1,575).

Key Triggers for future price performance
  • With cash positive B/S, sweating of assets & easing raw material prices we see margins and RoCE ramping to ~15% & ~18% respectively by FY24E.
  • Leading supplier domestically in the 2-W & 3-W space with strong business relations with Bajaj Auto, Royal Enfield (Eicher Motors), among others
  • Amidst strong order book and new order wins, we foresee sales, PAT to grow at 11.4%, 30.6% CAGR, respectively, over FY22-24E
  • RFQ’s and active discussion with new age OEMs in the E 2-W, E 3-W space, with management expectation to gain traction in this space in coming years.
  • Focus on increasing aftermarket sales with current share of revenues at~5%
Alternate Stock Ideas

In our auto- ancillary coverage we like Apollo tyres.

  • Walking the talk on b/s deleveraging, sweating of assets & capital efficiency

 

  • BUY with target price of ₹ 230

Key Financial Summary

Key Financials FY19 FY20 FY21 FY22P 5 year CAGR_(FY17-22) FY23E FY24E 2 year CAGR _(FY22-24E)
Net Sales 7,510.5 6,917.7 6,547.0 7,549.1 6.6 8,681.5 9,376.0 11.4
EBITDA 1,128.8 1,130.8 1,040.2 964.6 6.5 1,143.9 1,384.2 19.8
EBITDA Margins (%) 15.0 16.3 15.9 12.8 - 13.2 14.8 -
Net Profit 495.0 565.5 519.6 460.7 9.5 607.1 786.3 30.6
EPS (₹) 35.2 40.2 36.9 32.8 - 43.2 55.9 -
P/E 41.2 36.1 39.3 44.3 - 33.6 25.9 -
RoNW (%) 19.3 18.8 14.6 11.8 - 13.8 15.6 -
RoCE (%) 22.5 19.1 15.3 13.3 - 15.3 17.7 -
Source: Company, ICICI Direct Research

Detail on recent acquisition & key Concall highlights

Acquisition (Maxwell)

  • Company has entered into a shares purchase agreement with shareholders of Maxwell Energy Systems Private Limited (“Maxwell”), for acquiring 100% of its equity share capital in a phased manner. 
  • Maxwell is in the business of embedded electronics particularly in battery management systems for vehicles including electric vehicles ("EV") and for stationary storage systems.
  • Company acquired 51% stake of Maxwell Energy Systems Pvt Ltd on 1st July 2022 with balance 49% to be acquired in phased manner in five tranches, spread over five years.
  • Total consideration to be paid by Endurance for the acquisition is ₹308 crores (₹135 crores upfront for 51% stake and ₹173 crore spread out over 5 years linked to certain milestones)

Concall Highlights (Q4FY22 Results)

  • Disc brake assembly capacity to increase from last year’s level of 2,85,000 numbers p.m. to 5,70,000 numbers p.m. through project executed in Pantnagar and larger project in the form of second brakes plant in Aurangabad commissioned in December 2021. Expect to reach 470000 number p.m. from October 2022. Similarly, brake disc capacity to increase from 3,75,000 to 6,75,000 numbers p.m.
  • In 2W ABS space, 85% of market is controlled by one multi-national. Market size for the same is 3.5 million assemblies. Deliveries had begun to first customer in September 2021 and to second customer in February 2022. Production is expected to reach installed capacity of 400000 units p.a. by September 2022 with ETL being the only manufacturer that manufactures the entire assembly with ABS unit.
  • On EV front it has started production of drive shaft for Mahindra Alfa (E-3W) & also received LOI from TVS for Euro Max 3W.
  • Company’s’ Chakan alloy wheel capacity to increase from 2,40,000 to 3,20,000 numbers p.m. from June/July 2022.
  • On the aftermarket front sales grew from ₹311.6 crores to ₹421 crores; company is currently exporting to 30 countries with plans to add 4 more countries during FY23
  • Company began operation in Wire braided hoses plant in June 2021 finding use in high end bikes.
  • BMS remains an integral component for an EV which acts as brain for battery & forms ~5% of EV cost. Further this would be first EV specific product for company & through this company would like to participate in Electrification trend.
  • Capex during FY22 was ₹350 crores in India. Capex in Endurance Europe during FY22 was Euro 21 MN (~₹170 crores).
  • On the European operations front, during FY22 gas prices were up from 19 €/MwH in Q4FY21 to 99 €/MwH in Q4FY22 (up ~430% YoY) with electricity prices up from 59 €/MwH in FY21 to 248 €/MwH in Q4FY22 (up ~320% YoY).
  • Company has booked ₹60 crores under Mega scheme during FY22. Further till date company has booked ₹265 crores under the said scheme and had received ₹147 crores from Maharashtra government. Total receivables on this front is pegged at ₹446 crore (inclusive of booked income).

Disclaimer

ANALYST CERTIFICATION

I/We, Shashank Kanodia, CFA, MBA (Capital Markets) and Raghvendra Goyal, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.            

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