Endurance Technologies Ltd - Initiating Coverage - A Healthy Upward Ride - Angel Broking

Endurance Technologies is an Aurangabad based Auto Ancillary Company. It has 18 manufacturing plants in India and 8 in Europe. The company's domestic business is diversified, new clients have been added and diversification into newer products continues. Hence, the dependence on the legacy casting business has come down to 44% from more than 50% a few years ago. In Europe, Endurance is a 4W aluminum casting supplier and is moving in complex products. Company derives 2/3rd revenue from India and the rest from Europe.

Diversified business with improving business mix: While Bajaj Auto was a big revenue driver for Endurance (>50% by FY2010), in the last few years company has added new clients and has expanded in Europe. This has reduced its client concentration and with HMCL and HMSI increasing their revenue pie with Endurance, the business mix is likely to see a rapid change in the next few years.

Growing proprietary business to enhance margins: Endurance is increasing its content with the OEMs, especially in scooters such as CVT and front forks. This is a fairly large opportunity, as scooters have continued to grow rapidly compared to motorcycles. We believe that overall increase in the proprietary sales will increase its EBITDA margins by ~150bps by FY2020E.

Cash rich business leading to debt free balance sheet by FY2020E: With the lower capex requirement, Endurance is likely to generate Rs. 1,074cr FCF over the next three years v/s. >Rs. 1,268cr between FY2012-17. This is expected to make Endurance an almost debt free company by FY2020E.

Outlook and valuation: Shares of Endurance have seen a strong appreciation since its lasting last year. At the CMP of Rs. 1,095, the stock is trading at the PE of 26x of its FY2020E EPS. We forecast top-line and bottom-line CAGR of 14.3% and 21.3% respectively over the next three years. We also forecast ~150bps/200bps jump in its EBITDA margins and ROE respectively. With the strong FCF generation, we believe that Endurance will become almost debt free in the next three years. We value Endurance Technologies at 29.0x of its FY2020E EPS of Rs. 42.8 to derive the core business price target of Rs. 1,242 and add Rs. 35, NPV of ABS opportunity to derive the target price of Rs. 1,277, implying 15% upside.

Shares of Endurance Technologies Ltd was last trading in BSE at Rs.1091 as compared to the previous close of Rs. 1108.15. The total number of shares traded during the day was 1275 in over 96 trades.

The stock hit an intraday high of Rs. 1109 and intraday low of 1079. The net turnover during the day was Rs. 1403294.

Source : Equity Bulls

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