Endurance Technologies is an Aurangabad based Auto Ancillary Company. It has
25 manufacturing facilities of which 18 are in India and 7 are in Europe. Its India
business has been an organic growth story while European business is fully
acquired. It derives 70% revenues from India and 30% from Europe. Currently
company operates in five segments namely Die-casting (62.8% of revenues),
Suspension (23.3%), Transmission (5.5%), Brake systems (4.6%) and Aftermarket
(3.8%). The company is prominently 2W and 3W component supplier in India
and 4W auto component supplier in Europe.
Scalable business model: Endurance has a strong business model and is on its
way to achieve diversification. It is the largest die-casting player in India and has
strong market share in its other products. The die-casting market is expected to
grow at a CAGR of 8-10% between FY16-FY19 whereas market for Suspension,
transmission and brake systems is expected to grow at a CAGR of 14.3% during
the same period. We believe that there is ample scope of growth from here
considering recovery of Indian automobile industry has been better than expected.
Profitable operations in Europe: Endurance operates 7 manufacturing facilities in
Germany and Italy and its major client there is FCA Italy S.p.A. Its European
operations enjoy have higher EBITDA margins that it’s Indian operations. The
revenue in Europe is likely to grow faster as demand for low weight aluminum
die-casts is expected to increase due to stringent regulations to control emissions.
Consistent profitability over last five years: Endurance has shown decent record of
profitability despite slower growth in the Indian and European automobile
industry. With its strong focus on cost control and automation, company has
improved its gross margins as well as overall profitability. Endurance also enjoys
~22% return on equity which is better than most of its peers.
Bajaj Auto contributes 38% of total revenues: Endurance has high client
concentration with top three clients contributing 58% of its revenues. In FY2010,
Bajaj Auto contributed 51.5% of its total revenues which has come down to 38%
in FY2016 due to the de-risking measures taken by the company. Endurance
continues to add more clients in India and Europe and this strategy is expected to
decline its client concentration significantly.
Outlook Valuation: At the higher end of the price band, company is asking for a
valuation 22.9x of its FY16 EPS of `20.6. This valuation looks at par with its
peers. We believe that the issue is fairly priced at the current valuation considering
its growth initiatives, scalability in operations, focus on profitability and strong RoE
profile. We recommend to ‘Subscribe’ to this issue.

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