PL Stock Report: Endurance Technologies (ENDU IN) - Q1FY24 Result Update - End of incentives could be a drag - Accumulate

Endurance Technologies (ENDU IN) - Himanshu Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs1,636 | TP: Rs1,725

Q1FY24 Result Update - End of incentives could be a drag

Quick Pointers:

§ Won new business worth Rs 3.1bn/EUR 17mn for India/Europe in 1QFY24.

§ Sharp decline in PSI incentive to impact standalone margin from FY25 onwards

We marginally reduce our FY25E EPS estimate by c1% as we factor decline in PSI incentives which is partially offset by increase in subsidiary estimates. Endurance Technologies (ENDU) 1QFY24 consolidated EBITDA margin came in at 13.1% (c30bps QoQ) in line with PLe. Going ahead, ENDU sees domestic 2W demand growing from September and continued strength in the PV volumes in India. However, sentiment in Europe is weak given inflation and high interest rates and the company sees production getting lower than retails in 2Q. ENDU will see multiple SOPs going ahead in remainder of FY24 which should continue to help growth. The company will also see sharp decline in PSI Incentives from FY25E, which currently accounts for cRs.600mn (0.8% FY24E).

We believe that ENDU will continue to outperform the industry volume growth given (1) 2W demand improvement from 2HFY24, (2) addition of new and value added products (ABS ramp-up over FY24-25, driveshaft’s, non-automotive castings etc.), (3) ramp-up in EV offering and (4) increasing share of after-markets and exports. Maintain ‘Accumulate’ rating with revised TP of Rs 1,725 (Rs 1,745 earlier) at 25x Mar-25E EPS.

Beat on revenue, mixed on margin: (1) Consolidated: Revenue grew by c16% YoY and was a beat on PLe by 3.9% and on Bloomberg consensus estimates (BBGe) by 2.9%. EBITDA margins at 13.1% were in line with PLe (13%) and lower than BBGe (13.4%). Gross margin was flattish QoQ but higher than expected while employee expenses and other operating expenses were higher than expected and largely off-set GM beat. EBITDA beat flow-through led to beat on PAT. Standalone: ENDU’s standalone revenue in Q1FY24 at Rs 18.4bn grew by 13.3% YoY. Other Subsidiaries: Revenue from Europe at Rs 6.2bn has grown by 22.4% YoY; and grew 12.6% in EUR terms. While EU new car registrations grew by 17.9%, certain key customers of ENDU reported low/mid-single digit growth.

Key takeaways: (1) In 1QFY24, ENDU won ~Rs3bn (excl Bajaj) worth orders in India and EUR17mn worth of orders in Europe. ENDU has also received Rs 25bn worth requests for proposals from OEMs. ENDU is targeting both in Indian and European operations to grow ahead of the industry. (2) On the EV side ENDU has received orders from all major EV OEMs and has a cumulative total order book of Rs. 6bn in Q1FY24. Company also added HMSI as new EV customer with SOP by October 2024. (3) Management guided on premium bikes vehicle content for Triumph Speed 400 is Rs 28k with peak value of Rs 3.3bn based on 120k bikes per annum, Harley X440 is at Rs 10k with Rs 853mn as peak value (85k peak volumes) and for Chetak it is also 10k. (4) ENDU is confident of improving its margins in FY24 in Europe given scale, lower energy prices and higher margin EV mix and it aims to grow profits higher than sales growth. (5) Maxwell: Stake raised to 56% from 51%, it has won LOI from Ampere for ~Rs.500mn annual revenue at peak. Production will start from Q4FY24. Company also commenced supplies against PO from HMCL for over Rs 1bn and received LOI from Hero Electric at estimate value of Rs 700mn. (6) ENDU will see sharp decline in PSI Incentives from FY25E and negligible from FY26, which currently accounts for cRs. 600mn (0.8% FY24E). ENDU noted that they are applying for an even bigger incentive scheme but it might come with a lag of couple of years.

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