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Valuations correction provides comfort  

Valuation and View

Endurance’s (ENDU) 4QFY22 result was significantly above our/street estimates as consol margins expanded 140bp QoQ at 12.2% (est at 8.8%). This was driven by healthy operating performance at both S/A (+160bp QoQ to 12.4%) and Europe (+210bp QoQ to derived 11.5%). Besides most of its products being EV agnostic, ENDU has up its ante in EV specific products (BMS) with acquisition of 51% stake in Maxwell Energy for Rs1.35b (while remaining 49% will be acquired in phased manner over 5 years, subject to max payout of Rs1.7b). It has a target to achieve revenue of Rs400m in FY23 with current orderbook of Rs1.56b.   

We believe ENDU should continue to outperform the industry growth driven by i) new order wins at both domestic (Rs7.45b in FY22) and Europe (Eur71.4m), ii) ramp up in ABS supplies to ~400k/annum with expectations of chip shortage easing out, iii) expansion at disk brake facility (~470 assemblies/month by Oct’22) and drive shaft supply is expected to commence from July‐22 (revenue target of Rs2b by FY25). While operating costs headwinds are likely to sustain in Europe, we expect operating leverage and healthy performance in domestic market will provide cushion to margins in the coming quarters. We have upgraded our EPS est for FY23/24 by ~5.7%/2.2% to factor in new order wins execution. We maintain BUY with revised TP of Rs1,550 (v/s 1,517 earlier) based on ~26x FY24 consol EPS (unchanged). ENDU trades at 23x FY23 (v/s 33x LPA) is comforting given expected revenue/EBITDA and PAT CAGR of 15%/29%/34% over FY22‐24E.  

Result Highlights – Strong performance in both S/A and Europe

* Consol revenues grew ~10% QoQ (‐2.7% YoY) to Rs20.7b (est at Rs16.7b, cons at Rs18.9b) as S/A revenues grew ~4.1% QoQ while Europe revenues grew ~31.2% QoQ (derived).

* Gross margins expanded 30bp QoQ at 39.5% (est at 38.4%). This coupled with op leverage, led EBITDA beat at Rs2.5b (+24% QoQ, est at Rs1.5b, cons at Rs2b). Consequently, margins came better at 12.2% (+140bp QoQ, est at 8.8%, cons at 10.6%).

* S/A margins expanded 130bp QoQ to 12.4% (est at 9.2%) while derived European margins expanded ~210bp QoQ to 11.5% (est at 7.1%).

* Healthy op performance coupled with lower tax at 19.9% (est at 26.8%) led Adj. PAT beat at Rs1.33b (+44% QoQ, est at Rs439m, cons at Rs826m).

* FY22 revenue grew 16% while EBITDA/Adj. PAT declined ~5% each.

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