COMPANY UPDATE RETAIL EQUITY RESEARCH Endurance Technologies Ltd Auto Ancillary BSE CODE: 540153 NSE CODE: ENDURANCE Bloomberg CODE: ENDU:IN SENSEX: 34,154 HOLD Rating as per Midcap 12months investment period CMP Rs. 1,350 TARGET Rs. 1,354 RETURN 0.4% 5 th January 2018 Strong all-round performance 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 systems). It also supplies high-value machined aluminium die castings and subassemblies for PVs in Europe. ENDU reported a strong ~12% YoY growth in revenue and PAT in Q2FY18 driven by robust growth across India and European operations. Led by operating leverage, consolidated EBITDA margin expanded by 21 bps YoY to 14.1% in Q2FY18. We expect strong operating performance to continue and project EBITDA margin of 13.9%/14.5%/15% in FY18E/19E/20E. We anticipate revenue/pat CAGR 15%/24% over FY17-20E driven by strong growth visibility led by client additions & increased penetration with existing clients coupled with premiumization of product segments. However, due to sharp run-up in the stock price, we recommend HOLD rating on the stock with a TP of Rs. 1354 (30x FY20E EPS). Healthy growth in topline Consolidated revenue grew by 12% YoY driven by robust growth across India and European operations. Aided by domestic 2W industry growth of 12.3% YoY, India revenue posted a decent growth of 10.4% YoY Strong traction was witnessed across clients in 1HFY18 barring Bajaj Auto (35% of consolidated revenue) which posted growth of just 4% YoY, Honda grew by 30% YOY, Royal Enfield and Yamaha 28% YoY and Hero Moto 97% YoY (on a low base). The company is setting up a plant in Halol (to be operational in Q4FY18) to cater to Hero s 100% requirement of suspension components for its Halol plant. Further, the aftermarket business was a little slow in 1H due to GST implementation, however, the management expects it to post 15% growth for FY18. Europe business also grew at a strong pace of 16% YoY (in Re terms) led by tooling sales. The company has received an additional order from Volkswagen for aluminium castings worth Eur 22.5 mn. Margin expansion to continue Consolidated EBITDA margin expanded by 21 bps YoY to 14.1% in Q2FY18 led by lower other expenses. On the other hand, standalone EBITDA margin improved by only 10 bps YoY to 12.8% as lower other expenses were offset by higher raw material cost. Adj PAT posted a growth of 11.6% YoY due to higher tax rate. We expect strong operating performance to continue as the company manufactures more value-added products (CVT, CBS/ABS, front forks) and project EBITDA margin of 13.9%/14.5%/15% in FY18E/19E/20E. All Geared up The company is geared up to capitalize on all future growth opportunities. ENDU has tiedup with BWI USA for ABS brakes which is a huge opportunity as the government has mandated use of ABS/CBS for new models from April,2018 and for existing ones from April,2019. Further in scooters, the company is looking at two value added products suspension front forks and CVT. The management expects suspension front forks to replace shock absorbers in all scooters in India. The company has already received an order for front forks from HMSI for 125cc scooter. While a bigger opportunity lies for 110cc scooters, the management expects it to happen only over the course of next two years. Further, ENDU has also bagged an export orders for inverted front fork and monoshocks from KTM for their large bikes (ranging from 400cc to 790cc). Additionally, in the last quarter, it received an order from Porsche for electric vehicle components and is currently in talks with several clients for components for hybrid/electric vehicles. All these rightly point out to premiumization in ENDU s product segments and vindicates our positive stance on the company. Outlook & Valuation: Although we have reduced our PAT estimates by 5%/4% for FY18E/19E mainly due to higher tax rate, we continue to maintain positive stance on the company as it gains market share across segments and also stands to benefit from increase in content per vehicle. We now introduce FY20E numbers and roll over our valuations to FY20. Our revised target price stands at Rs. 1,354 (30x FY20E EPS). Company Data Market Cap (Rs cr) 18,970 Enterprise Value (Rs cr) 19,191 Outstanding Shares (cr) 14.1 Free Float 18% Dividend Yield 0.2% 52 week high Rs. 1,397 52 week low Rs. 555 6m average volume (lacs) 0.9 Beta 0.02 Face value Rs. 10 Shareholding % Q4FY17 Q1FY18 Q2FY18 Promoters 82.5 82.5 82.5 FII s 8.7 9.1 10.1 MFs/Insti 4.8 4.8 4.3 Public 1.6 1.6 1.6 Others 2.4 2.0 1.5 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return 27% 56% 132% Absolute Sensex 8% 9% 28% Relative Return* 19% 47% 104% *over or under performance to benchmark index Consolidated (Rs.cr) FY18E FY19E FY20E Sales 6,345 7,334 8,537 Growth (%) 13.8% 15.6% 16.4% EBITDA 882 1,066 1,277 EBITDA Margin (%) 13.9 14.5 15.0 PAT Adj 391 502 634 Growth (%) 18.4% 28.4% 26.3% Adj.EPS 27.8 35.7 45.1 Growth (%) 18.4% 28.4% 26.3% P/E 48.5 37.8 29.9 P/B 9.2 7.6 6.2 EV/EBITDA 21.8 17.9 14.8 RoE (%) 20.6 21.9 22.7 Adj.D/E 0.3 0.2 0.1
Quarterly Financials (Consolidated) Profit & Loss Account (Rs cr) Q2FY18 Q2FY17 YoY Growth % Q1FY18 QoQ Growth % H1FY18 H1FY17 YoY Growth % Sales 1,620 1,448 11.9 1,550 4.5 3,171 2,888 9.8 EBITDA 229 202 13.5 214 7.3 443 388 14.0 EBITDA Margin (%) 14.1 13.9 21 13.8 37 14.0 13.4 52 Depreciation 77 70 9.9 74 3.6 151 138 9.2 EBIT 152 132 15.5 139 9.3 292 250 16.7 Interest 7 8 (15.6) 6 20.7 13 19 (32.4) Other Income 6 4 45.6 6 4.0 12 13 (7.0) Exceptional Items - - - - - - - - PBT 152 128 18.4 140 8.6 291 245 19.1 Tax 52 39 34.1 43 20.5 95 72 31.9 PAT 100 89 11.6 97 3.3 196 172 13.8 Minority Interest/P&L from associates - - - - - - - - Reported PAT 100 89 11.6 97 3.3 196 172 13.8 Adjustment - - - - - - - - Adj PAT 100 89 11.6 97 3.3 196 172 13.8 No. of shares (cr) 14.1 14.1-14.1-14.1 14.1 - Source: Company, Geojit Research Change in Estimates Old estimates New estimates Change % Year / Rscr FY18E FY19E FY18E FY19E FY18E FY19E Revenue 6,299 7,202 6,345 7,334 0.7 1.8 EBITDA 865 1,033 882 1,066 2.0 3.2 Margins (%) 13.7 14.3 13.9 14.5 20 bps 20 bps Adj. PAT 411 521 391 502 (4.9) (3.6) Adj. EPS 29.2 37.1 27.8 35.7 (4.8) (3.8)
Consolidated Financials Profit & Loss Account Sales 5,230 5,574 6,345 7,334 8,537 % change 6.4% 6.6% 13.8% 15.6% 16.4% EBITDA 679 739 882 1,066 1,277 % change 12.3% 8.8% 19.3% 20.9% 19.7% Depreciation 243 291 306 337 365 EBIT 436 449 576 729 912 Interest cost 49 32 25 21 16 Other Income 33 48 33 41 52 PBT 420 465 584 749 947 % change 16.9% 10.5% 25.6% 28.4% 26.4% Tax 120 134 192 247 313 Tax rate (%) 28.5% 28.9% 33.0% 33.0% 33.0% Reported PAT 299 330 391 502 634 Adj. - - - - - Adj. PAT 299 330 391 502 634 % change 18.6% 10.3% 18.4% 28.4% 26.3% No. of shares (cr.) 4.4 14.1 14.1 14.1 14.1 Adj. EPS (Rs.) 21.3 23.5 27.8 35.7 45.1 % change 18.6% 10.3% 18.4% 28.4% 26.3% DPS (Rs.) 1.3 2.5 3.0 3.5 4.5 Cash flow Pre-tax profit 420 465 583 749 948 Depreciation 243 291 306 337 365 Changes in W.C 35 (75) (55) (65) (79) Others 105 (6) (8) (21) (35) Tax paid (105) (134) (192) (247) (313) C.F.O 698 541 634 753 885 Capital exp. (522) (410) (390) (400) (411) Change in inv. (46) 17 - (150) (300) Other invest.cf 59 32 33 41 52 C.F - investing (509) (361) (357) (509) (659) Issue of equity - - (0) - - Issue/repay debt (36) (86) (100) (100) (100) Dividends paid (30) (6) (51) (59) (76) Other finance.cf (49) (34) (25) (21) (16) C.F - Financing (114) (126) (176) (180) (193) Chg. in cash 76 54 101 64 33 Closing cash 167 220 321 385 418 Balance Sheet Cash 167 220 321 385 418 Accounts Receivable 593 761 867 1,002 1,168 Inventories 410 444 502 575 667 Other Current Assets 125 145 159 169 180 Investments 62 38 38 188 488 Gross fixed assets 3,331 3,679 4,069 4,469 4,880 Net fixed assets 1,440 1,498 1,582 1,645 1,691 CWIP 103 44 44 44 44 Intangible assets 147 135 135 135 135 Deferred tax assets (Net) 19 18 18 18 18 Other non-current assets 215 205 205 205 205 Total assets 3,281 3,509 3,872 4,368 5,016 Current liabilities 981 1,064 1,186 1,340 1,529 Provisions - - - - - Total Debt 811 679 579 479 379 Other Non-Current Liabilities 39 37 37 37 37 Equity Capital 18 141 141 141 141 Reserves and Surplus 1,432 1,589 1,929 2,371 2,930 Shareholder's Fund 1,450 1,729 2,069 2,512 3,071 Minority Interest - - - - - Total liabilities 3,281 3,509 3,872 4,368 5,016 BVPS (Rs.) 103.1 122.9 147.1 178.6 218.3 Ratios Y.E March FY16 FY17 FY18E FY19E FY20E Profitab. & Return EBITDA margin (%) 13.0 13.3 13.9 14.5 15.0 EBIT margin (%) 8.3 8.1 9.1 9.9 10.7 Net profit mgn.(%) 5.7 5.9 6.2 6.8 7.4 ROE (%) 23.1 20.8 20.6 21.9 22.7 ROCE (%) 22.5 21.3 24.1 27.3 29.9 W.C & Liquidity Receivables (days) 39.1 47.2 47.2 47.2 47.2 Inventory (days) 33.8 34.6 34.6 34.5 34.6 Payables (days) 59.2 65.2 65.2 65.2 65.2 Current ratio (x) 1.3 1.5 1.6 1.6 1.6 Quick ratio (x) 0.9 1.1 1.1 1.2 1.2 Turnover &Levg. Gross asset T.O (x) 1.6 1.6 1.6 1.7 1.8 Total asset T.O (x) 1.7 1.6 1.7 1.8 1.8 Adj. debt/equity (x) 0.6 0.4 0.3 0.2 0.1 Valuation ratios EV/Net Sales (x) 3.8 3.5 3.1 2.6 2.2 EV/EBITDA (x) 28.9 26.3 21.8 17.9 14.8 P/E (x) 63.4 57.4 48.5 37.8 29.9 P/BV (x) 13.1 11.0 9.2 7.6 6.2
Recommendation Summary (last 3 years) Dates Rating Target 02-June-2017 ACCUMULATE 927 5 January 2018 HOLD 1,354 Source: Bloomberg, Geojit Research Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is above 10%. Buy - Upside is above 15%. Hold - Upside is between 0% - 10%. Accumulate - Upside is between 10% - 15%. Reduce - Downside is more than 0%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit's research desk has reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Abhijit Kumar Das, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion. REGULATORY DISCLOSURES:
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