Buy This mid-cap Auto Ancillaries sector Stock For Target Price Of Rs 1660, Suggested By Axis Direct

Stock Outlook

On NSE, the stocks of Endurance Technologies Ltd. closed today at Rs 1441.80 apiece. The stock's 52-week low is Rs 1,047.20 apiece recorded on 29 August 2022, and the 52-week high is Rs 1,9889 apiece, recorded on 8 November 2022.

The stock's ROE is 11.75. TTM EPS is 33.24. The P/B ratio is 5.18. The dividend yield is 0.43% and the face value is Rs 10. It has a market capitalization of Rs 20,280.77 crore.

Returns on Investments

Stocks over the week moved up by 0.91%. In the past 1 month, the stocks gave a negative return of 0.56%. Over the last 3 months, it has given a positive return of 19.39%. Over the 1 year, the stocks gave a negative return of 9.5%. In the past 3 and 5 years, the stocks jumped by 67.93% and 46.24%, respectively. Looking at the long-term investment returns, it shows that it has given good returns and performed well.

Performance roundup

Endurance Technologies Ltd. consolidated revenue grew by 25%/1.7% YoY/QoQ to Rs 2,114 Cr in Q1FY23 (missed our estimates by 6%), led by 40% YoY revenue growth in Indian business driven by 2W sales volume growth of 37% YoY, (2W forms ~82% of Endurance Technologies India business) but partially offset by 7% YoY decline in topline in European business (YoY fall of 2% in Euro terms) due to 16.4% YoY drop in PV sales. EBITDA de-grew 2%/7% YoY/QoQ at Rs 240 Cr (16% below our estimates), with EBITDA margin coming down to 11.3% vs. our estimate of 12.7% (down 300/100bps YoY/QoQ). This decline was due to lag in passing on of raw material cost to OEM's, steep increase in metals and energy prices. Adj. PAT de-grew further, down 11%/17% YoY/QoQ to Rs 114 Cr, (22% below our estimate) on account of lower other income. Reported profit of Rs 103 Cr (up 7% YoY/ Down 24% QoQ) had incurred exceptional cost of Rs 10.3 Cr towards VSS for one of its plants in Chakan.

Brokerage's Views

The Company is focusing on a richer product mix with a growing mix of new higher-margin products like front forks, paper-based clutches, fully machined castings, ABS, drive shaft etc. It is expanding its Disc brake and Alloy wheels capacity on the back of higher orders from various OEM's. It has strong EV focus, and has already started supplies of brake assemblies, suspension and aluminium casting for E-scooters and 3W. (Management cited EV market to expand to ~$150bn, with a CAGR of 90% by 2030). To further strengthen its EV portfolio, it acquired 51% stake of Maxwell in July'22, after which it started BMS supplies to 2W EVs and battery pack makers. Consistent new order wins, wallet share gains by offering new products and new clients and capacity ramp up will continue Endurance Technologies to grow ahead of industry both in India and EU. "We estimate consolidated Revenue/EBITDA/PAT to deliver a CAGR of~19%/28%/37% over FY22- 24E. With softening commodity prices and focus on high-margin products, we see margins improving to 13% and 14.8% in FY23/24E from 12.8% in FY22.

Healthy Order Book

In this quarter Endurance Technologies has won new orders worth Rs 404 Cr (FY22 Rs 742 Cr) from Honda, Hero Motocorp, Tata Motors, Ather Energy, Hero Electric, M&M, Bounce in Q1FY23. This includes Rs 110 Cr EV orders but excludes orders that it has received from Bajaj Auto which is a major client for the company. The European arm has also won orders worth €14.32 mn (FY22 €71 mn) in Q1 from Daimler, Magna, and Stellantis.

Domestic business

The standalone revenue in Q1FY23 grew 40% YoY (low base), which is broadly inline with the growth in the 2W industry (up 37% YoY, Scooters grew 87% YoY and Motorcycles up 24% YoY). Revenue from Indian operations formed a major chunk at ~76% of total consolidated revenue. High commodity and energy prices put pressure on EBITDA margins in Q1FY23, going forward margins are expected to improve as RM prices softness.

EU business

Europe's business accounted for 24% of total consolidated revenue. Weak PV sales (down 16.4% YoY) led to de-growth in topline by 7% YoY (2% in Euro terms). In Europe, electricity tariffs increased to 3 times and gas prices 4.5 times YOY, impacting the margins. While inflation has impacted demand, the supply side also faced challenges in terms of procuring critical parts.

Outlook & Valuation

According to the brokerage, "We remain positive about Endurance Technologies' growth story given that it can ride the premiumization theme along with the 2W industry and its increasing content per vehicle with the introduction of value-added products. Furthermore, the increased focus and traction on EV-related products provide more clarity on the growth in the longer term. Driven by new customer wins and a technology-led increase in content per vehicle, we estimate Endurance Technologies to outperform the underlying 2W industry in India. Strong execution track record, continued order wins and efforts to enter new EV agnostic products drive our positive view. In this backdrop, we maintain our BUY rating on the stock and value it at 27x FY24E P/E to arrive at a target price of Rs 1,660/share (Rs 1,580/share earlier), implying an upside of 17% from the Current Market Price."