Healthy order book
While Endurance reported a weak 1Q, the auto parts maker RFQs have risen to Rs 15.4bn in 1QFY21 (up from Rs 12.8bn QoQ). With the recent acquisition of its Italian technology partners Grimeca and Adler, the company is further expanding its presence with customers. It is winning new orders from new customers (TVS Motors), and the management expects to increase its wallet share by cross-selling products to OEMs. Endurance has raised FY21E Capex guidance to Rs 2bn (from 1.5bn earlier). The stock 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. Maintain BUY
1QFY21 financials: Standalone:
Revenue/EBITDA declined by 74/99% YoY, owing to COVID-led lockdown and decline in production volumes from all major OEMs. EBITDA margin came in at 0.7% due to negative operating leverage. Standalone loss of Rs 319mn. Consolidated: Revenue/EBITDA declined by 68/88% YoY. EBITDA margin came in at 7.1% (17.9/14.9% YoY/QoQ). Loss of Rs 249mn. Performance of Europe operations was better than India business. The revenue decline was lower at 55% as Europe has started to open up. EBITDA margin came in at 16.3% (-123bps YoY).
Concall and other highlights: (1) Healthy order book, ramp-up from TVS: The company has won new orders, particularly from TVS, an OEM in which it has a nominal presence. The orders include Rs 1,220mn for brakes and Rs 320mn for suspension components. Endurance’s requests for quotes have risen to Rs 15.4bn in 1Q. (2) New plant: Endurance is setting up a capacity of 600k p.a of CBS brakes at its Pantnagar plant in Uttarakhand, which will commence operations by 2021. (3) Demand is picking up in 2Q: In 1Q, business from Bajaj Auto declined by 68%, Honda by 88% and RE and Hero by 78%. However, these OEMs are now witnessing demand pick-up and production is expected to return to pre-COVID levels. (4) Europe business: While sales were down 52.5% YoY, sales trends/forecasts suggest a rebound in Europe’s passenger car sales. In the last two years, the company has received EUR 110mn worth of business for EV and hybrid cars from Audi, Porsche, VW, Daimler, BMW, etc.
Earnings outlook:While we are lowering our FY20 estimates to factor in the weak 1QFY21 performance, we are positive on the order book ramp-up at Endurance, particularly with new OEMs. We set a revised target price of Rs 1,085, based on 26x Jun-22 EPS (25x earlier), to factor in the improving outlook Key risks: (1) a delayed recovery in 2W sales and (2) any pushback in timelines of new orders.
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