Endurance Technologies

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 17,898 (-0.05%). Top gainers in NIFTY50 were ASIANPAINT (+2.4%), MARUTI (+2.4%), and SBILIFE (+2.4%). The top losers were UPL (-3.2%), RELIANCE (-2.2%), and CIPLA (-2.1%). Top sectoral gainers were AUTO (+0.7%), MEDIA (+0.4%), and HEALTHCARE (+0.3%) and sectoral losers were REALTY (-1.6%), OIL & GAS (-1.5%), and PHARMA (-1.3%).

Excerpts of an interview with Mr Ramesh Gehaney, Director and COO– Endurance Technologies with CNBC -TV18 dated 16^th November 2021:

• On the European side, the semi-conductor shortage continues to hit production. The company anticipates that 3QFY22E will be stronger due to a perceived improvement in the semi-conductor chip situation.
• However, there are further obstacles, such as a greater shift from traditional petrol and diesel cars to EVs and hybrid vehicles, which will need the use of more semi-conductors. The number of new automobile registrations in Europe and the United Kingdom is down by 22 to 23 per cent.
• In terms of Malaysian chip production, the company believes that the allocation of semiconductor chips to the sector has grown, albeit the situation may not improve until the end of FY22.
• The firm is actively engaging with OEMs and EV players and has obtained orders from Ather and Bajaj Auto, as well as being in active discussions with all of them. In Europe, they secured orders of Rs 110 mn on electric vehicle platforms and hybrid goods, accounting for 50% of 2QFY22 sales.
• The current impact on margins is primarily due to a rise in commodity prices. Aluminium can price up to 50 Rs per kg, a 42 per cent increase over the current price. Steel prices were similarly high, but they are gradually levelling off. However, the company anticipates that the raw material situation will improve from present levels as steel prices stabilise.
• Going Forward, margins numerically would be under pressure. But the company’s profit has increased by 55%.
• Assuming the aluminium prices remain elevated, the impact on margins would be around 3.7% in FY22 and FY23. If the impact of higher material prices is removed, Endurance has maintained its EBITDA margin of 17%.

Asset Multiplier Comments–

• 2QFY22 performance was impacted by raw material cost inflation and semi-conductor shortage.
• We expect the share of EV/Hybrid technology to increase in the near future as the demand in Europe shifts towards less polluting vehicles to reduce carbon footprint as they have bagged a brake system order of RS 500 mn from Ather.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of Endurance Tech was ₹ 1,759/- as of 17-November-2021.  It traded at 39x/ 27x/ 23x the consensus earnings estimate of ₹ 45/ 65/76 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 1,893/- which trades at 28x the earnings estimate for FY23E of ₹ 61/-

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