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Valuation and View – Industry outperformance likely to accelerate

Endurance (ENDU) 2QFY24 consol results were weak as margins in India business (adjusted for MH incentive) were muted at 12.5% (+100bp/+50bp YoY/QoQ, est 13%) while Europe margins were in-line at 16% (vs 16.5% QoQ). New order wins pace mixed in 2QFY25 with SA/EUR orders at ~Rs1.24b/EUR23.6m (vs ~Rs12b/EUR31m in FY24 and Rs9.35b/EUR83m in FY23). ENDU’s EV specific orders is muted with cumulative order of ~Rs8.8b (including BJAUT). The management reiterated key focus areas for the growth ahead would be, 1) to increase 4W share in consol business from 25% to 45% by FY30, 2) increase share of business in premium 2Ws for ABS, suspension and clutch assemblies, 3) deeper penetrate EV OEMs, 4) focus on nonAuto for large opportunities in Aluminium castings and 5) ~10% of India sales from aftermarket by FY28 (vs ~6% currently).

We continue to see ENDU to outperform the underlying industry driven by, 1) new order wins and fast ramp up expected over FY25-27E for the proprietary products, 2) increasing share of higher margins business such as Disc brakes, ABS, Alloy wheels and structural castings. However, focus on Aluminium castings (for non-auto) may partially dilute margins. We cut FY25/26 consol EPS by 3.6%/0.3% to factor in for higher other expense. However, valuations at 31x/27x FY26E/27E consol EPS is attractive (vs 10 year LPA of ~33x) given healthy revenue/EBITDA/Adj.PAT CAGR of 13.7%/19%/22.8% over FY24-27E. We hence upgrade the stock to BUY (from ADD) with TP roll forwarded to Mar’27 (vs Sep’26) at Rs2,955 (vs Rs2,814).

Result highlights – Operationally weak

* Adjusted for MH state incentive, consol revenues grew 15% YoY (+3.5% QoQ) at Rs29b (est Rs29.8b). S/A revenues grew ~17.3% YoY (+9% QoQ) at Rs22.8b (est ~Rs23.4b). MH state incentives of Rs131m booked in 2Q (vs Rs228m in 1QFY25). EU revenues grew 9.4%/6.4% YoY in INR/EUR at Rs6.2b (vs EU car registrations degrowth at 7.8% and decline in tooling sales). Maxwell revenues grew 12.7% YoY to Rs190m led by key customer volume ramp-up from Jul’24

* Consol gross margins came in better at 42% (+270bp YoY/ flat QoQ, est 41.2%), offset by higher other expense at ~Rs6.05b (est Rs5.9b, +25.5%/+5.3% YoY/QoQ). Consol EBITDA grew ~25.7% YoY (+5% QoQ) at ~Rs3.7b (est Rs4b) leading to margins expanding by 110bp YoY (+20bp QoQ) at 12.7% (est 13.4%).

* Segmental margins - S/A at 12.5% (+110bp YoY/+50bp QoQ, est 13.3%), Maxwell EBITDA loss at Rs17m (vs loss Rs42m in 1QFY25 and loss of Rs43m in 2QFY24) EUR margins at 16% (vs 16.5% in 1QFY25). Weak margins restricted Adj.PAT growth to ~42% YoY (+3.5% QoQ) at Rs1.93b (est ~Rs2.2b).

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