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Outperformance to continue

Endurance Technologies is a complete solutions provider for aluminum die-casting, suspension, braking systems and transmission products. It is a Tier 1 supplier to leading Indian and global brands in two, three and four-wheeler vehicles. It derives 71% of its revenues from its India business whereas 29% comes from Europe. In terms of the end market, the company garners 56% of its revenue from the two-wheeler segment, 32% from the 4-wheeler segment and 12% from 3-wheeler and other segments. The company has 27 strategically located manufacturing facilities with proximity to OEMs across India and Europe. It has 17 manufacturing units spread across five states in India – in Maharashtra, Gujarat, Uttarakhand, Tamil Nadu and Karnataka and 10 manufacturing facilities in Europe – 7 in Italy and 3 in Germany.

Investment Rationale

* Two-wheeler industry to witness healthy recovery: The domestic two-wheeler industry witnessed a sharp slowdown towards the end of 2018 mainly due to increased cost of ownership (due to regulatory changes), subdued economic growth, weak consumer sentiment and lastly the COVID-19 pandemic. However, the volumes have picked up recently led by strong pent-up and festive season demand, easing liquidity conditions. The rise in COVID-19 cases has yet again impacted demand for two-wheelers, but we expect the recovery to continue led by overall economic recovery, low-interest rates, and favorable base effect. Resilient export demand augurs well for the overall two-wheeler industry. Additionally, given the high penetration of two-wheelers, we expect the recent trend of premiumization in motorcycles and scooters to continue which bodes well not only for OEMs but for an auto ancillary company like Endurance Technologies.

* Endurance will continue to shine: Endurance has outperformed the two-wheeler industry over the last decade led by increased penetration in existing clients, new client additions, widening product base and premiumization. We expect similar growth momentum for Endurance led by positive industry growth trends coupled with new customer wins and an increase in content per vehicle.

Outlook & Valuation:

We like Endurance given its strong position in the two-wheeler segment, diversified revenue and client base, increasing wallet share with key customers, increased focus on value-added products and profitable product mix. Further, the company is gaining a foothold in the electric vehicle space which is expected to grow at a faster pace due to the rising adoption of EVs in Europe. Additionally, net debt-free balance sheet, strong thrust on R&D, healthy return ratios makes it one of preferred pick in the sector. We recommend a Buy on the stock with a target price of Rs. 1,745.

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