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Consistent improvement in OB, EV play improving; maintaining a Buy

For Endurance Technologies, strong top line performance is attributable to consistent improvement in the two wheeler segment on a yearly basis. The company continues to build its order book toward IC and EV applications. It commenced supplies to a new EV OEM for BMS, which was recently developed through its Maxwell acquisition. With the expected revival in two-wheeler offtake, we expect growth. Accordingly, we maintain a Buy rating at a revised TP of Rs1,700 (25x FY25e).

Strong top line performance, OB growing. Q3 FY23 revenue grew 11% y/y, but declined 11% q/q, to Rs20.1bn, on strong demand on order-book execution. During 9M FY23, the company won orders of Rs8.8bn (Rs1.9bn in Q3 FY23) and had RfQs of Rs19.9bn. For EVs, its overall OB for 9M FY23 was Rs5.8bn, incl. Rs1.9bn ordersfor Ather and HMCL (~Rs2.4bn won in Q3). It will supply batterymanagement systems, braking systems and suspension systems to EV OEMs like Ather, Hero Moto, Ola, Ampere, etc. For its braking business, it plans to develop ABS valves internally, which would reduce costs significantly and dependence on external suppliers, said management. For PVs, it won orders of Rs2.5bn to supply castings to Hyundai and KIA. PV-to-overall sales is now 8% (vs. 6.5% in FY22). Europe: Q3 FY23 revenue was €60.1m (vs. €57m the prior quarter); EBITDA was €8.6m (€6m), with strong ~14.4% margins. Adjusting for higher RM costs in Europe, margins would have been 14.7%. It won orders of €60.1m from VW, Stellantis and Daimler. As the orders enter the production phase and subsequently peak in the near term, we expect 18% growth in FY24 and 19% in FY25.

Margin betterment. The Q3 margin contracted 8bps q/q to 11.4%, as prices of aluminium and steel cooled a bit. With a 90% pass-through, we expect operating leverage-led margin expansion and a better product mix. Hence, we expect margins of 12.6% in FY24 and 13.7% in FY25.

Valuation. We expect an 18% revenue CAGR over FY23-25 and 45% earnings growth, leading to a Rs68 EPS. We retain a Buy at a revised TP of Rs1,700.

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