Endurance Tech.

CM RATING46/100
Endurance Technologies, promoted by Anurag Jain, is the largest two-wheeler and three-wheeler automotive component manufacturer in India in terms of aggregate revenue for FY 2015 from its selected product segments. The company also has operations in Europe with highly-automated manufacturing facilities in Italy and Germany. The company is a tier one supplier to Original Equipment Manufacturers (OEMs) for most of its products.

According to the Aluminum Casters Association of India, the company is the number one aluminum die-casting company in India in terms of actual output and installed capacity in FY 2016. The company is a complete solutions provider, providing end-to-end services by engaging its customers from conception to end-user delivery. Its development process includes design, development, validation, testing, manufacturing, delivery and aftermarket sale service for a wide range of auto component products. It also manufactures certain components for four-wheeler passenger vehicles, light commercial vehicles (LCVs) and heavy commercial vehicles (HCVs). Its products and services in India include:

  • raw and machined aluminum castings, such as high-pressure, low-pressure and aluminum alloy wheels for motorcycles;
  • suspension, such as shock absorbers for scooters, motorcycles and three-wheelers, front forks for motorcycles and scooters and hydraulic dampers for quadric cycles;
  • transmission, such as clutch assemblies, cork and paper-based friction plates for motorcycles and three-wheelers and continuous variable transmission assemblies (CVTs) for scooters;
  • braking systems, such as hydraulic disc brake assemblies including calipers, master cylinders and rotary disc brakes for motorcycles and hydraulic drum brake assemblies and tandem master cylinder assemblies for three-wheelers; and
  • aftermarket services to cater to the replacement market

In Europe, it predominantly caters to four-wheeler OEMs, focusing on engine and transmission components. Its products include raw and machined aluminum castings (high-pressure and gravity die-casting products) and steel, cast iron and engineering plastic parts

In FY 2016, its largest customers in India were Bajaj, Royal Enfield, Honda Motorcycle and Yamaha. The company has a long-standing relationship with Bajaj, which is its largest customer. In addition to these customers, it also supplies to a variety of other OEMs in India, such as Hero, Mahindra, Tata, Suzuki, H-D Motor, Fiat India and a leading Indian motorcycle OEM. In Europe, its largest customer is FCA Italy S.p.A., and it supplies components used in the engines of a variety of FCA Italy S.p.A.s brands, such as Jeep, Chrysler, Alfa Romeo, Abarth, Fiat and Lancia (Jeep, Chrysler, Alfa Romeo, Abarth, Fiat and Lancia are registered trademarks owned by the FCA Group). It also supplies to Daimler and other reputable four-wheeler OEMs operating from Europe.

The company has 25 plants across India, Italy and Germany. It has 18 manufacturing plants in India, all of which are strategically located in the major automotive manufacturing belts of the country, comprising eight in Aurangabad (Maharashtra), five in Pune (Maharashtra), two in Pantnagar (Uttarakhand) and one each in Manesar (Haryana), Chennai (Tamil Nadu) and Sanand (Gujarat), with two in-house tool rooms. In addition, it is planning on setting up a new plant at Halol (Gujarat), which it expects to complete in FY 2018, for the supply of suspension parts to Hero. The company also has two manufacturing plants in Massenbachhausen, Germany at its subsidiary Endurance Amann GmbH (Endurance Amann), and five in and around Torino, Italy, at its indirect subsidiaries, namely, Endurance Fondalmec SpA, (Endurance Fondalmec), Endurance FOA SpA (Endurance FOA) and Endurance Engineering Srl (Endurance Engineering). In addition, it expects to commission a new machining plant in Massenbachhausen, Germany in FY 2017 and is currently in the initial stages of planning an automotive proving ground (test track) in Aurangabad, Maharashtra, India, which is expected to be operational by the end of 2018.

The companys manufacturing facilities are in proximity to its customers so as to help reduce logistics costs and to ensure timely delivery of products.

The company has been successful in diversifying its products mainly due to its R&D (research and development) and technological capabilities. It has acquired and developed R&D capabilities including product design, reverse engineering, product simulation, prototyping and testing. Its technology partners include WP Performance Systems GmbH (WP Performance), Adler SpA (Adler), a leading global brake and suspension producer and a European brakes technology provider. As of June 30, 2016, it employed 167 R&D engineers, designers, technicians and support staff in India and at its overseas R&D facilities. In India, it has four R&D centers, all of which are Department of Scientific and Industrial Research (DSIR) approved. In India, it has been granted four patents with another 41 patents pending approval. In India, it also has one design registration granted and three design registrations pending.

The company has grown its aftermarket sales services to 12 distribution centers and 256 distributors in India and 26 distributors outside India. Its products are also exported directly to 18 countries and by third-party merchant exporters to two countries, with its main markets outside of India being Bangladesh, Sri Lanka and Egypt.

Financial Highlights

Performance for quarter ended June 2016

The companys net sales for quarter ended June 2016 grew by 13% to Rs 1442.55 crore primarily as a result of increases in sales from its operations in Italy and its suspension and braking system business in India. These increases were partially contributed by 8% appreciation in the euro for purposes of consolidating its European revenues. The sales from India was Rs 939.90 crore, constituting 65% of total sales and from European countries was Rs 495.09 crore, constituting 35% of total sales. The OPM grew by 60 bps to 12.7% and net profit stood at Rs 80.05 crore.

Net revenue from operations from casting products (including alloy wheels) in India was Rs 420.01 crore, from braking systems in India was Rs 70 crore, from suspension business in India was Rs 351.13 crore, from transmission business in India was Rs 77.72 crore, from operations in Germany was Rs 94.19 crore, from operations in Italy was Rs 381.85 crore and from operations from aftermarket segment was Rs 47.4 crore.

Performance for year ended March 2016

The companys net sales for year ended March 2016 (FY 2016) had increased by 7% to Rs 5240.55 crore primarily as a result of increases in sales by 18% from Italian operations and by 9% from suspension business in India, which were partially offset by the weak euro. The sales from India grew by 5% to Rs 3559.45 crore, constituting 67% of total sales and from European countries grew by 10% to Rs 1614.52 crore, constituting 31% of total sales. The OPM increased by 60 bps to 12.9%. The net profit had increased by 15% to Rs 291.19 crore.

Net revenue from operations from casting products (including alloy wheels) in India decreased marginally to Rs 1723.55 crore, due primarily to a decrease in the aluminum alloy prices, which was mostly offset by an increase in sales volumes of alloy wheels.

There was 4% increase in net revenue from operations from braking systems in India to Rs 243.33 crore mainly from increased sales volumes of hydraulic drum brake assemblies, which was partially offset by declining sales volumes of hydraulic disc brake assemblies.

There was 9% increase in net revenue from operations from suspension business in India to Rs 1222.45 crore mostly due to increased sales volumes in both shock absorbers and front forks arising from higher demand from OEMs

There was 12% increase in net revenue from operations from transmission business in India to Rs 285.86 crore mostly due to increased sales volume of clutch assemblies, which was partially offset by declining sales volume of CVTs

There was 6% decrease in net revenue from operations in Germany to Rs 345.53 crore primarily due to the weakening of the euro by 7%.

There was 18% increase in net revenue from operations in Italy to Rs 1221.12 crore primarily due to increased sales volume arising from acquisition of Endurance FOA

Net revenue from the aftermarket segment increased 13% to Rs 197.49 crore primarily due to increased sales volumes of shock absorbers and braking systems.

Issues Size and Purpose

The company is coming out with an initial public offering (IPO) which is offer for sales of 2.46-crore equity shares of face value of Rs 10 each, aggregating to Rs 1149.4 – 1161.7 crore at a price band of Rs 467 - 472 per share. The offer for sales comprises up to 1.93 crore equity shares by Actis Components and System Investments (completely selling its holding) and up to 53.17 lakh equity share by promoter Anurag Jain.

Strengths

The company is the largest two-wheeler and three-wheeler automotive component manufacturer in India in terms of aggregate revenue from its selected product segments

The company has strong customer relationships with a wide variety of OEMs. In FY 2016, its largest customers in India were Bajaj, Royal Enfield, Honda and Yamaha. In addition to these customers, it also supply to a variety of other OEMs in India, such as Hero, Mahindra, Suzuki, Tata Motors Limited, H-D Motor Company India Pvt Ltd and Fiat India. In Europe, its largest customer is FCA Italy SpA., and it also supply to Daimler, as well as other reputable four-wheeler OEMs operating from Europe.

The company focuses on high-growth markets such as two-wheelers in India. Post near-normal monsoon and payouts from Seventh Pay Commission, two-wheelers sales in India are likely to post good growth after a sluggish period for past few quarters.

The company has been successful in diversifying its products mainly due to its R&D and technological capabilities

Weaknesses

The companys big chunk of revenue comes from its one customer, i.e. Bajaj, which accounted for 41% of consolidated net revenue from operations (including intermediary sales) in FY 2016 and 38% of consolidated net revenue from operations (including intermediary sales) in Q1 of FY 2017. FCA Italy is another large customer on which it is dependent. FC Italy accounted for 15% and 17.5% of consolidated sales in FY 2016 and Q1 of FY 2017.

Pricing pressure from OEMs is characteristic of the industry in which the company operates. Pricing pressure from customers may adversely affect gross margin, profitability and ability to increase prices, which in turn may materially adversely affect business, results of operations and financial condition

The company is heavily dependent on the performance of the automotive sector in India, particularly the market for two-wheelers in India. It is also dependent on the performance of the automotive sector in Europe for the four-wheeler market. Any adverse changes in the conditions affecting these markets can adversely impact the companys business, results of operations and financial condition.

The discontinuation of, the loss of business with respect to, or a lack of commercial success of, a particular vehicle model for which it is a significant supplier could affect its business and results of operations.

Valuation

At the lower price band of Rs 467 per equity share of Rs 10 face value, the P/E works out to 22.6 times EPS of Rs 20.7 (on post-IPO equity) for FY 2016. At the upper band of Rs 472, P/E works out to 22.8 times the FY 2016 EPS of Rs 20.7 (on post-IPO equity).

Among the near comparable listed companies Gabriel India is trading at P/E of 22 times and Munjal Showa is trading at P/E of 13 times FY 2016 EPS.

Endurance Technologies: IPO Highlights 

Sector

Auto Ancillaries

Price Band (Rs)467-472
Issue Size (Rs crore)1149.4 - 1161.7
No. of shares on offer for sale (crore)2.46
Post issue equity (Rs crore)140.66
Post-issue promoter and promoter group stake (%)82.50%
Issue open date5-Oct-16
Issue close date7-Oct-16
ListingNSE & BSE
Rating 46/100

Endurance Technologies: Consolidated Financials

Particulars1303(12)1403(12)1503(12)1603(12)1606(03)
Net Sales3822.494211.904916.955240.551442.55
OPM (%)12.912.812.312.912.7
OP492.67540.77604.81676.63183.16
Other Income28.3928.4732.4933.9910.39
PBDIT521.06569.24637.30710.62193.55
Interest92.8980.9651.0046.4410.22
PBDT428.17488.28586.30664.18183.33
Depreciation and Amortization187.34207.79226.87250.5570.07
PBT before EO240.84280.49359.43413.63113.26
EO-7.98-4.830.000.000.00
PBT after EO232.85275.66359.43413.63113.26
Tax63.2370.44105.49121.3533.21
PAT before MI169.63205.22253.94292.2880.05
MI0.330.741.561.090.00
Net Profit169.29204.48252.38291.1980.05
EPS (Rs)12.414.817.920.722.8
Annualised on post-issue Equity of Rs 140.66 crore; Face value Rs 10
Figures in crore
Source-Capitaline corporate database

Endurance Technologies: Sales Segment breakup

Particulars1303(12)1403(12)1503(12)1603(12)1606(03)
Geographical Revenue
India2898.983019.153402.463559.45939.90
European Countries908.501119.011470.971614.52495.09
Others43.40102.2176.02100.5817.96
Total3850.884240.384949.445274.551452.94
% of total Revenue
India75%71%69%67%65%
European Countries24%26%30%31%34%
Others1%2%2%2%1%
Total100%100%100%100%100%
Figures in crore
Source-Capitaline corporate database

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