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Endurance Technologies Limited IPO Views - 03rd Oct 2016

Auto Ancillary | Published on Oct 03rd 2016

IT

Endurance Technologies is an Aurangabad based Auto Ancillary Company. It has 25 manufacturing facilities of which 18 are in India and 7 are in Europe. Its India business has been an organic growth story while European business is fully acquired. It derives 70% revenues from India and 30% from Europe. Currently company operates in five segments namely Die-casting (62.8% of revenues), Suspension (23.3%), Transmission (5.5%), Brake systems (4.6%) and Aftermarket (3.8%). The company is prominently 2W and 3W component supplier in India and 4W auto component supplier in Europe. Scalable business model: Endurance has a strong business model and is on its way to achieve diversification. It is the largest die-casting player in India and has strong market share in its other products. The die-casting market is expected to grow at a CAGR of 8-10% between FY16-FY19 whereas market for Suspension, transmission and brake systems is expected to grow at a CAGR of 14.3% during the same period. We believe that there is ample scope of growth from here considering recovery of Indian automobile industry has been better than expected. Profitable operations in Europe: Endurance operates 7 manufacturing facilities in Germany and Italy and its major client there is FCA Italy S.p.A. Its European operations enjoy have higher EBITDA margins that it’s Indian operations. The revenue in Europe is likely to grow faster as demand for low weight aluminum die-casts is expected to increase due to stringent regulations to control emissions. Consistent profitability over last five years: Endurance has shown decent record of profitability despite slower growth in the Indian and European automobile industry. With its strong focus on cost control and automation, company has improved its gross margins as well as overall profitability. Endurance also enjoys ~22% return on equity which is better than most of its peers. Bajaj Auto contributes 38% of total revenues: Endurance has high client concentration with top three clients contributing 58% of its revenues. In FY2010, Bajaj Auto contributed 51.5% of its total revenues which has come down to 38% in FY2016 due to the de-risking measures taken by the company. Endurance continues to add more clients in India and Europe and this strategy is expected to decline its client concentration significantly. Outlook Valuation: At the higher end of the price band, company is asking for a valuation 22.9x of its FY16 EPS of `20.6. This valuation looks at par with its peers. We believe that the issue is fairly priced at the current valuation considering its growth initiatives, scalability in operations, focus on profitability and strong RoE profile. We recommend to ‘Subscribe’ to this issue.

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