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Valuation and View – Healthy order wins to help drive outperformance

Endurance (ENDU) 4QFY23 consol results were better-than-expected as margins in Europe business at 17.8% (vs 12.6% YoY) outpaced our estimates while margins in S/A at 11.9% (+80bp QoQ, est ~12%) were in-line. Europe margins recovery was led by falling energy prices, and energy cost related compensation from government (Italian government) and customers. New order wins of Rs9.35b/EUR84m in FY23 (v/s Rs8.8b/EUR67.4m in 9MFY23) is healthy considering weak volumes in domestic 2Ws and Europe. ENDU’s EV specific orders is seeing a ramp-up which now stands at ~Rs3.8b in S/A (42% of S/A orderbook vs 12% in FY22) with cumulative order of ~Rs6b (including BJAUT and do not include Rs1.3b orders at Maxwell) till date as well as EUR41m orders in EVs in Europe.

We believe ENDU should continue to outperform industry growth driven by i) new order wins and ramp up in ABS supplies to ~1.2m units/annum by 2HFY25, ii) backward integration accelerated with setting up of paper plate manufacturing plant by 1QFY24 as its are mainly imported from China/US and in-house manufacturing of ABS valves. Operating costs headwinds are likely to ease in Europe, especially energy cost (~20% decline seen QoQ so-far in 1QFY24E) in addition to decline in RM inflation should drive margins expansion of ~400bp over FY23-25E to 16%. We raise FY24/25 consol EPS by ~1% to factor in decline in energy cost. Maintain BUY with revised TP of Rs1,665 (v/s Rs1,648 ) as we value co at 25x to Mar’25 consol EPS (unchanged). ENDU trades at 27.1x/20.9x FY24/25 EPS (v/s 32x LPA) is comforting given expected revenue/EBITDA/PAT CAGR of 13%/29%/38% over FY23-25E.

Result highlights – S/A in-line; better subs margins drive consol beat

* Consol revenues grew 7.7% YoY (+6.6% QoQ) at Rs22.3b (est Rs21.7b, cons Rs22.5b). Gross margins contracted 120bp YoY (-60bp QoQ) at 59.3% (est 60.2%).

* Consol EBITDA grew ~13% YoY (+19% QoQ) at Rs2.8b (est Rs2.6b, cons Rs2.8b) leading to margins expanded 60bp YoY (+130bp QoQ) at 12.8% (est 12%, cons 12.3%). S/A margins contracted ~60bp YoY (+70bp QoQ) at 11.9% (5 quarter high) while Europe margins (derived) expanded 390bp YoY (+300bp QoQ) at 15.4%. This was led by falling energy prices, and compensation from governments

* Bette op performance was offset by higher deprecation at Rs1.2b (est Rs1.04b), restricted Adj.PAT growth at Rs~3% YoY (+26% QoQ) at Rs1.36b (est 1.2b, cons Rs1.3b).

* FY23 performance – Consol revenue/EBITDA/Adj.PAT grew 16.6%/7.4%/0.4%.

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