Endurance derives nearly 80% revenue from the two-wheeler segment.
A focus on improving the content per vehicle by entering into new product segments thereby increasing market share has helped the company beat the demand blues faced by the clients.
While automobile companies have been reporting a sharp drop in volumes over the past few quarters due to the demand slack, this has not affected some of the auto ancillary companies in the same proportion. Endurance Technologies, the Aurangabad headquartered two-wheeler components manufacturer, is the case in point.
A focus on improving the content per vehicle by entering into new product segments thereby increasing market share has helped the company beat the demand blues faced by the clients. This should support the stock’s valuation in the coming quarters amid the depressed demand for the automobile sector.
Endurance derives nearly 80% revenue from the two-wheeler segment. Though the two-wheeler volume fell by over 15% in FY20, its impact on Endurance’s financials was limited. The company’s standalone revenue fell by just over 8.4% in the fiscal to Rs 4,974.8 crore while operating profit before depreciation (EBITDA) increased by 4% to Rs 778.5 crore aided by lower input costs.
The company received orders worth Rs 590 crore in FY20 from the leading two-wheeler makers such as Hero MotoCorp, Honda Motorcycle and Scooter, Royal Enfield. This will reflect in its financials from the second quarter of the current fiscal year.
The company’s current order pipeline is worth Rs 1,200 crore. It expects to convert around 50% of this into sales. This would help the company to reduce its reliance on Bajaj Auto, which currently accounts for over half of its domestic operations, according to a report by Kotak Institutional Equities.
New products such as anti-braking system (ABS), inverted front forks, and clutches for bikes more than 200 cc are expected to improve the company’s content per vehicle. It plans to start the ABS supply to Bajaj Auto from the current fiscal. ABS is mandatory for bikes more than 125 cc. To expand the product lines further, the company acquired Adler (technology provides for clutch parts) and Grimeca (braking assembly partner) in the previous fiscal.
Even though the two-wheeler volume for FY21 is expected to drop by 15-18%, its impact on Endurance’s revenue will likely be limited to 10% fall given the order wins and new product lines. In addition, its plant utilisation is expected to return to normal level by the third quarter of the fiscal from the current 50-55%.
The company’s net cash position improved to Rs 237 crore in FY20 from Rs 14.3 crore in the previous fiscal. This together with lower capital expenditure requirements helps in strengthening the balance sheet.
At Monday’s closing price of Rs 862.8 on the BSE, the stock was traded at 22 times the one year forward earnings, which is at a 21% discount to the long-term average valuation.
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