Initiating Coverage on Endurance Technologies - Moving up the value curve - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities.

Endurance Technologies (Initiating Coverage) - Moving up the value curve

We initiate coverage on Endurance with a BUY as the auto parts major is expected to gain 50-75bps in share of component supplies to 2W/3W segment (current value of supplies by the company is estimated at between 5-6%). The auto parts company is expanding into new components such as ABS brakes, CVTs, paper-based clutches and fully machined castings, thereby moving up the value curve. The company currently has RFQs of Rs 12.8bn and has won orders of Rs 10.3bn/ 5.8bn over FY19/20. With the recent acquisition of its Italian technology partners - Grimeca and Adler, the company is further enhancing its capabilities for supplies to the premium bike segment. Endurance is amongst our preferred pick in the autos/auto parts sector as the company is well positioned to benefit from a demand recovery over FY22/23E.

Moving up the value curve: In our analysis, Endurance's value of the components supplied to the 2W/3W industry is between 5-6% of the overall value, making it the largest parts supplier in this segment. The company has a dominant presence in components it supplies (35-40% in suspension components, 25% in hydraulic brakes, 16% in transmissions). We believe that the company can add another 50-75bps to the overall value of components supplied to the industry, based on its enhanced capabilities. As Endurance expands into new product segments across brake systems, clutches, fully machined aluminium castings and higher value-added suspension products, it has RFQs of Rs 12.8bn on hand (of which ~50% could be converted to new orders). We thus expect Endurance to grow ahead of the market (revenue growth of 14% over FY22/23E).

Expanding in the premium bike segment: Endurance is increasing its presence in the high-end bike segment, post its Italian acquisitions of Adler (for transmission components) and Grimeca (for braking systems). The premium segment accounts for one-fifth of its India revenue in our estimate, which is expected to rise further with its expansion into new products in the 200cc+ category.

Orders from Europe to curtail risk: Endurance is increasingly focus on hybrids/EV models in its European business and has won new orders worth Euro 110mn (current annual sales is c. Euro 250mn) from the VW group, which would de-risk the company from its traditional model mix.

Initiate with a BUY: We set a target price of Rs 1,040 at 25x Jun-22 EPS, which is inline with the average multiple over the past year (which has sustained amidst the COVID outbreak). The valuations factor in mid-teen ROEs and Endurance's growth initiatives. Key risks: (1) a delayed recovery in 2W sales in India (2) any pushback in timelines of new orders.

Shares of Endurance Technologies Ltd was last trading in BSE at Rs.877.85 as compared to the previous close of Rs. 891.5. The total number of shares traded during the day was 3313 in over 584 trades.

The stock hit an intraday high of Rs. 900 and intraday low of 869. The net turnover during the day was Rs. 2929346.

Source : Equity Bulls

Keywords