Endurance Technologies Ltd. share price target

Endurance Technologies (Endurance) is one of the biggest suppliers of components to 2wheelers and 3-wheelers in India, having core-competence in aluminium casting, transmission and suspension products. The company is likely to benefit from new customer wins, stricter safety norms in India and increasing demand for aluminium content in passenger vehicles across India and Europe. The company is growing at a rate faster than its peers as well as its underlying industry, hence we believe that the premium valuations of 24x on FY21E earnings, at which the...

Margin Sustainability Persists: During Q3FY19, Endurance Technologies Ltd (ETL's) consolidated sales increasedby 17.8% YoY to Rs. 18.1 bn. Its EBITDA margins however declined by 80 bps YoY to 14%.

Revenue in both India and EU businesses grew faster than underlying industry. EBITDA margin shrank 80bp YoY (-40bp QoQ) to 14% (60bp) and RM inflation. PAT grew 16% YoY to INR1.1b (our 8 February 2019 22%/20%/24% YoY. EBITDA margin shrank 130bp YoY (-80bp QoQ) to 12.1% (our Manesar to Pantnagar (50bp impact), the retrospective impact of an increase in tariff on certain imports (30bp) and RM inflation (~50bp). Adj. revenue declined 1.4% YoY (v/s industry volume decline of 7.8%). EBITDA margin was in-line at 18.

Concern on Margin sustainability persists - Maintain SELL: During Q2FY19, ETL's consolidated sales increased by 23.2% YoY to Rs19.4bn. Its EBITDA margins however declined by 15bps YoY to 14.4%. ETL's PAT increased by 25.6% YoY to Rs 1.3bn.

grew 23% YoY to INR19.4b (above est. EBITDA grew ~22% YoY, with margin contracting 20bp YoY and QoQ to 14.4% (v/s est. 14.8%) as lower staff cost and other expenses failed to fully off-set impact of higher RM costs. Adj. PAT was in line at INR1.25b, growing 26% YoY (flat QoQ). 5 November 2018 S/A revenue grew ~26% YoY to ~INR14.4b (above est. of INR13.5b), growing faster than the underlying industry.

Endurance (ETL) had a strong Q3, as anticipated. India revenue grew 25% YoY, as it continues to outperform production growth of India 2W industry (+16% YoY). With volume recovery of Bajaj Auto (~50% of ETL India revenue; +22% YoY in Q3)

Consol. revenue grew 19.8% YoY to INR15.8b (est. of INR16b). EBITDA of INR2.2b was in line with our estimate of INR2.3b. Below-estimated RM cost (led by favorable mix, and pass-through of commodity inflation with a lag) was offset by higher other expenses. EBITDA margin stood at 14.1% v/s our estimate of 14.2%. There was an exceptional expense of INR269m toward Voluntary Separation Scheme as part of its plant consolidation activity in India. Adj. PAT grew 29% YoY to INR957m (est. of INR995m)

Endurance Technologies Ltd (ENDU) is one of the largest 2W & 3W automotive component manufacturers in India. Its India business is focused on aluminium die castings & proprietary products (suspension, transmission and braking...

We met the top management of Endurance Technologies (ETL). There are multiple triggers for it to continue outperforming India 2Ws, driven by (1) penetration in scooters (34% of India 2Ws vs. 8% of ETL sales), (2) upcoming ABS/CBS norms (huge FY20 opportunity)