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Valuation and View

Endurance (ENDU) 2QFY23 reported numbers are not comparable YoY/QoQ due to consolidation of Maxwell Energy’s financials. Despite, we note consol 2QFY23 results were a mixed as S/A performance came in line with estimates across parameters. However, European business (adjusted for Maxwell in consol) remained weak significantly impacted by steep energy cost inflation (impact of Eur1.9m in 2QFY23 and Eur3.6m in 1HFY23). New order wins of Rs6.9b/Eur25m in SA/Europe is healthy in 1HFY23 (v/s Rs4.8b/Eur14.3m in 1QFY23 and Rs7.5b/Eur71m in FY22) is key positive. ENDU’s recent acquisition Maxwell energy EV specific orders at Rs1.75b (including recent order wins of Rs700m from Hero Electric) and active lead pipeline of Rs1.25b orders.  

Nearterm challenges withstanding, we believe ENDU should continue to outperform industry growth driven by i) new order wins at both domestic/Europe, ii) ramp up in ABS supplies to ~600k/annum with expectations of chip shortage easing out, iii) expansion at disk brake facility (470 assemblies/month by Oct’22) and drive shaft supply ramp up beyond Bajaj to M&M/TVS. Operating costs headwinds are likely to ease in Europe, especially energy cost in addition to decline in RM inflation should drive margins expanding ~300bp over FY2225E to 15.7%.  We cut FY23E EPS by ~12% to factor delay in RM recovery and elevated energy cost, however, raise FY24 EPS by ~4% to factor in ramp up in orders execution. We maintain BUY with revised TP of Rs1,709 (v/s 1,617 earlier)roll forwarded to 26x Sep’24 consol EPS (v/s Mar’24). ENDU trades at 24x/19x FY24/25 EPS (v/s 32x LPA) is comforting given expected revenue/EBITDA/PAT CAGR of 15.2%/23.5%/29% over FY22245E.

Result Highlights – New order wins impressive both in S/A and Europe

* Consol revenues grew 12% QoQ (+26% YoY) at Rs23.3b (est Rs22.3b). S/A revenues grew 28% YoY (+18% QoQ) at Rs18.7b (est Rs17.65b) while Europe revenues grew 18% YoY (8.5% QoQ) at Rs4.5b. Maharashtra state PSI incentive at Rs284.61m in 2QFY23 (v/s Rs300.95m in 1QFY23).   

* Consol EBITDA grew 14% QoQ (+4% YoY) at Rs2.4b (est Rs2.5b) with margins increase 20bp QoQ) at 10.3% (est 11.4%).

* Segmental EBITDA margins – S/A margins expanded 175bp QoQ at 10.8% (est 11.2%) while Europe margins (derived) contracted 440bp QoQ at lowest 8.7% (est 12.1%).

* Consol Adj.PAT grew 21% QoQ (+49% YoY) at Rs1.1b (est Rs1.2b).

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