INITIATING COVERAGE 22 FEB 2017

Endurance Technologies
BUY
INDUSTRY AUTOS Built to last
CMP (as on 22 Feb 2017) Rs 670 Endurance Technologies (ENDU) is a large and Investment thesis
diversified player in the auto component space,
Target Price Rs 744 Hero/HMSI ramp up: Given ENDUs rising
with a strong presence in India (~70% of
penetration levels among 2W OEMs and pickup in
Nifty 8,927 consolidated FY16 revenue).
supplies to the Gujarat plants of HMSI and Hero, it
Sensex 28,865 ENDUs India 2W segment accounts for 55% of will benefit from 2W demand recovery.
KEY STOCK DATA consolidated revenues, with Bajaj Auto accounting
Rising content per vehicle: With scooters moving
Bloomberg ENDU IN for 41% of the business. Strong 2W demand,
entirely to front fork suspension, content per vehicle
No. of Shares (mn) 141 regulatory changes, premiumisation trend and
can increase 2x, increasing addressable opportunity
MCap (Rs bn) / ($ mn) 94/1,407 rising revenues from Hero and HMSI (both currently
for ENDU.
6m avg traded value (Rs mn) -
contribute only 11% to revenues) will help
proprietary product revenues to post 20%+ CAGR Europe biz to grow: ENDUs European operations will
STOCK PERFORMANCE (%)
over FY17-20E. With rising popularity of scooters, report 16% revenue CAGR over FY16-19E. A new
52 Week high / low Rs 682/518 demand for CVTs will increase, resulting in a richer machining plant in Germany and change in European
3M 6M 12M product mix for ENDU. emission norms (leading to increased aluminium die-
Absolute (%) 26.5 - - cast parts) will help.
Initiate coverage with a BUY and TP of Rs 744 (21x
Relative (%) 15.3 - - FY19E EPS). Our valuation multiple derives from Aftermarket opportunity: At a mere ~4% of
SHAREHOLDING PATTERN (%) ENDUs 15%+ India margins, strong earnings revenues, the aftermarket holds significance for
Promoters 82.50 growth, high return ratios, low working capital and ENDU. GST implementation and an expanding dealer
FIs & Local MFs 4.64 R&D capabilities that lead to sticky relationships. network are important drivers of this promise.
FPIs 8.60
Public & Others 4.26 Financial Summary (Consolidated)
Source : BSE Y/E Mar (Rs. in mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 49,170 52,406 56,345 63,571 72,339
EBITDA 6,049 6,770 7,438 8,709 10,127
Sneha Prashant
Adjusted profit 2,540 2,909 3,241 4,068 4,991
sneha.prashant@hdfcsec.com
+91-22-6171-7336 EPS (Rs) 17.9 20.6 23.0 28.9 35.4
P/E (x) 37.4 32.6 28.5 23.0 18.9
Abhishek Kumar Jain EV / EBITDA (x) 16.7 14.9 13.1 11.0 9.2
abhishekkumar.jain@hdfcsec.com RoE (%) 23.5 22.4 20.0 20.1 20.5
+91-22-6171-7320 Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Play on 2W demand recovery

After going through a slack
period in FY12-16, the 2W
industry is expected to post
double-digit growth in FY17-
20E, led by increasing
popularity of scooters, rising
premiumisation among
motorcycles, rural economy
pick up and implementation
of Seventh Pay Commission
Recovery of 2W demand
alongwith regulatory changes
will aid in ENDUs suspension,
transmission and brakes
segments, resulting in 24%
CAGR revenue growth over
FY16-19E
ENDUs standalone entity had high exposure to 2Ws after a sluggish 5% CAGR in FY1216. With ENDUs
at 79% in FY16, followed by 3Ws at 14%. About 13% revenues highly skewed towards 2Ws, we expect it to
of 2Ws manufactured in India are exported the figure be a big beneficiary of a pickup in industry demand.
for 3Wsis even higher at 43%. As a result, ENDU is Premiumisation and regulatory changes will lead to
affected not just by the performance of these suspension and transmission & brakes segments
segments in India, but also in other emerging markets posting 24% CAGR.
like South Asia, Africa, and LatAm.
ENDU supplies to a majority of 2W manufacturers in
Production of 2W and 3W grew at 5% CAGR over India. It also partners with them for supplying
FY12-16. Low growth in end-markets dampened suspension systems, despite strong competition from
growth of ENDU (7.5% standalone revenue CAGR deeply-entrenched players such as Gabriel, Munjal
over FY12-16). Showa, etc. This is based on the premise that ENDU is
very strong on QCD (Quality, Cost, and Delivery).
2W segment accounts for over 55% of ENDUs
consolidated revenue, with highest exposure to Bajaj We expect the 2W industrys growth to remain strong
Auto at 41% of consolidated revenues (FY16). We in FY18/19E, as the rural economy picks up. Increase
estimate this industry to enter a recovery phase and in pay scales of government employees may also add
post strong double-digit CAGR volumes until FY20, to industry growth with increased spending power.
2W Contribution To Consolidated Revenue 2W Industry On The Road To Recovery
3W Motorcycles Scooters 2W Growth - RHS
11% Mn units
5.0 25.0%
4.5
4.0 20.0%
3.5 15.0%
3.0
2.5 10.0%
2.0
4W 2W 1.5 5.0%
34% 55% 1.0 0.0%
0.5
0.0 -5.0%

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

FY20E
Source: Company, HDFC sec Inst Research Source: SIAM, HDFC sec Inst Research

Page | 2

ENDU has a strong
relationship with Bajaj Auto
(contributes 41% to
consolidated revenue).
However, the company is
reducing the dependence on
Bajaj by focusing business
with other large OEMs like
Hero and HMSI
Hero and HMSI together
contribute 9-10% to the
companys revenues
currently. However, both
OEMs put together hold 61%
share of the total 2W market
ENDURANCE TECHNOLOGIES : INITIATING COVERAGE
Life beyond Bajaj Auto
ENDUs long-standing relationship with Bajaj Auto, ENDU leveraged its R&D to position itself favourably
brings with it advantages like (1) Bajaj Auto (41% of with Hero post the split. It successfully developed
consolidated revenues) provides the base volumes, suspensions for Maestro Edge scooters, despite
which helps in absorption of fixed costs and (2) Its existing single-source long-term suppliers
leadership in the premium bike market benefits
ENDU, in the sense that most of the advanced Selected as the single-source supplier for Heros new
technologies (ABS, etc.) can be adopted in premium Gujarat plant, ENDU commenced supplying
bikes. suspensions and castings regularly on existing and
new platforms. Now, it is in the final development
However, the company is moving beyond these stages of transmission (clutches for motorcycles,
relationships to reduce dependence on a single OEM CVTs for scooters).
(Bajaj Auto), and evolve into company with a large
customer and product base. At present, Hero/HSMI hold 61% of the 2W market
share, but contribute 9-10% to ENDUs standalone
ENDU started its business with HMSI way back in revenues. We expect incremental revenue
2005 with aluminium die-castings, and later made in- opportunities from Hero and HMSI to add ~Rs 4 bn to
roads into suspension for Karnataka and Haryana the topline.
plants in 2013. It is also a strategic supplier to HMSIs
Gujarat plant for suspensions and castings.
Customer Wise Revenue Break Up (% of sales)
Company FY14 FY15 FY16
Bajaj Auto Limited 48% 43% 41%
Fiat /(Fca, Cnhi) Group 14% 14% 15%
Royal Enfield Ltd (Eicher Group) 3% 4% 6%
Honda Motorcycle & Scooter (I) Pvt.Ltd. 5% 5% 6%
Daimler 5% 4% 4%
VW - Audi Porsche 3% 4% 4%
India Yamaha Motors 4% 4% 3%
General Motors 3% 2% 2%
Johnson Electric /MAGNA/ TYCO 0% 2% 2%
Getrag Ford Transmissions Limited 1% 2% 1%
Source: Company, HDFC sec Inst Research
Page | 3
 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Opportunity in Hero-Honda split suspension products, with a 70-75% SOB to the

HMSIs new Vithalapur, Gujarat plant (worlds largest
ENDU has been selected as the sole supplier of scooter plant with a capacity of 1.2mn units). Gabriel
suspension products to Heros newly-commissioned is the secondary supplier. ENDUs revenues from this
ENDU has earned an Halol plant in Gujarat. Commissioned in 4QFY17 with plant are expected to be ~Rs 1bn p.a. starting FY17E.
opportunity to supply an initial capacity of 0.75mn units p.a., the capacity of
suspension parts to this plant is expected to ramp up to 1.2 mn units p.a. Another opportunity for business in suspensions
Hero/HMSIs Gujarat plant and later to 1.8mn units p.a. in the second and third would be the supply of front forks. HMSIs scooters,
phases. particularly the largest selling Activa 110cc (49% of
total domestic scooter industry volumes), still uses
It is creditable that ENDU has been able to win the bottom link with spring-loaded hydraulic front
This shows its creditability as suspension business, pitted against competitors like suspension instead of telescopic front fork. Most of
it is pitted against Heros own Munjal Showa (Heros group company), which had the new scooter launches in recent years, such as
group company, Munjal been the single source supplier to Hero for its existing TVS Jupiter and Heros Maestro Edge use telescopic
Showa. This would mean plants in Northern India. We estimate that this plant front fork suspensions. Telescopic front suspensions
incremental revenue of Rs would provide revenues of Rs 1bn/1.8bn in enhance the quality of rides. We have assumed HMSI
FY18/FY19E. will shift to front fork completely by FY19. We
1/1.8bn in FY18/19E for ENDU
from Hero Suspension revenue from Heros Gujarat plant estimate this will provide incremental revenues of
Particulars FY17E FY18E FY19E ~Rs 700mn in FY19E.
Hero capacity in Gujarat (in mn) 1.2 1.2 Suspension revenue from HMSIs Gujarat plant
Capacity Utilisation (%) 50% 80% Particulars FY17E FY18E FY19E
No. of units (mn) 0.6 1.0 HMSI capacity in Gujarat (in mn) 1.2 1.2 1.2
Another opportunity for ENDUs share of business 70% 70% 70%
Price of a suspension
business is in the form of (front+rear)
1,720 1,772 1,825 No. of units(mn) 0.8 0.8 0.8
supply of front forks to HMSIs Revenue (Rs mn) 1,063 1,752 Price of a scooter suspension
1,400 1,442 1,485
Gujarat plant, which could Source: Company, HDFC sec Inst Research
(front+rear)
result in incremental revenue Revenue (Rs mn) 1,176 1,211 1,248
of Rs 700mn in FY19E Shift in HMSI to front fork 50% 100%
Supply of suspension and front fork parts to
Total front fork (mn units) 0.6 1.2
HMSI to aid topline growth
Incremental revenue from front
550 570
ENDU commenced business with HMSI by supplying fork
castings in FY06, later suspension components in Incremental Revenue from front
330 684
FY14. In Mar-16, it commissioned a new plant fork (Rs mn)
dedicated to production of castings and suspension Total Revenue 1,176 1,541 1,932
products for HMSI. ENDU is the primary supplier of Source: Company, HDFC sec Inst Research

Page | 4
 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Shift in consumer preferences : a big driver

There is an increasing shift
towards higher horsepower
2Ws (150cc and above), with
consumers demanding newer
technologies in suspension
systems like mono rear and
inverted front fork systems,
which are 2-5x expensive than
the conventional ones
Changing consumer
preferences would lead to
13% CAGR in the 2W
suspension industrys
revenues until FY20, with the
premium segment posting
18% CAGR
In the transmission segment, as consumer preference
towards scooters increases, proportion of CVTs would
grow faster. These have a 75% realisation edge over
motorcycle transmission systems. We estimate 2W
transmission industry revenues to see 14% CAGR,
with CVTs posting a 17% CAGR till FY20E.
Supply of CVT to Hero
ABS is available in very few superpremium 2W
models in India like Pulsar 200 NS/AS, KTM Duke 125,
390, Suzuki Gixxer, Kawasaki Export model Z250.
With CBS and ABS becoming mandatory in FY20, the
2W brakes segment could get a boost.
With Bajaj Auto and RE (both leaders in the premium
segment) being critical clients, ENDU is well placed to
not only reap benefits from a shift in consumer
preference towards premium motorcycles, but also
to leverage structural changes in the segment.
There is an increasing shift towards higher
horsepower 2Ws (150cc and above), with consumers
demanding newer technologies in suspension
systems like mono rear and inverted front fork
systems, which are 2-5x expensive than the
conventional ones. This would lead to 13% CAGR in
the 2W suspension industrys revenues until FY20,
with the premium segment posting 18% CAGR.
ENDUs technological tie up with Alder Spa has given
it access to scooter transmission technology or
Continuous Variable Transmission (CVT). The
company has already commenced supplying CVTs to
Mahindra scooters.
The company is now in advanced stages of procuring
orders from Hero (FY18E). Currently, Hero procures
its CVT requirement from FCC (in which Honda
globally owns around 33% stake).
We estimate the incremental revenues from the
above opportunities to be Rs 400mn p.a. starting
FY19E.

ENDU is in advanced stages of CVT Revenue From Heros Gujarat Plant

procuring orders for CVTs Particulars FY17E FY18E FY19E
from Hero and this would Hero capacity in Gujarat (in mn) 0.8 1.2 1.2
entail incremental revenue of Scooter capacity (%) 50% 50% 50%
Rs 400mn p.a. starting FY19E Scooter capacity (units) 0.4 0.6 0.6
Capacity utilisation 0.8 0.9
Scooter production (units) 0.5 0.5
Endurance share of business 20% 30%
Price of a CVT (Rs) 2,500 2,500
Revenue (Rs mn) 240 405
Source: Company, HDFC sec Inst Research

Page | 5

ENDU is one of the largest
auto component suppliers to
have a strong R&D team
Technology tie-ups with well
known international
companies has enabled ENDU
to come up with various
innovative products like oil
and gas-filled shock absorbers
for motorcycles in India
ENDURANCE TECHNOLOGIES : INITIATING COVERAGE
Leading the curve in technology-based innovations
ENDUs R&D team consists of 167 members (in India reduction in casting weights by conversion from GDC
and Europe) at 4 dedicated R&D centers (for each to HPDC for Tata Motors Nano.
product segment). Its FY16 R&D spend is amongst the
Starting as a single product supplier (aluminum
highest in the industry. The company holds four
casting) to a single customer (Bajaj Auto), the
patents (two each in clutch assemblies and shock
company has over the years evolved into a multi-
absorbers) and one design registered for alloy wheels
customer and multi-product source.
in India. Additionally, it has applied for registration of
41 patents and three casting designs. ENDU is currently the largest supplier of components
to the domestic 2W/3W industry, catering to nearly
The company was the first to launch oil and gas-filled 40% of the market for 2W components in value
shock absorbers for motorcycles in India in 2004. It terms.
was also the first to launch and is till date the only
supplier of upside-down front forks in India (e.g. for The technology tie-ups with leading international
companies and continuous spend on R&D has aided
KTM motorcycles).
its product range to move up that chain, from
The company has also been proactive in terms of aluminum castings to complex/critical products like
customer solutions. For example, aggressive suspensions, clutches and brakes.
Strong Technology Tie-Ups
Partner Technology Valid till
WP Performance Systems GmbH Suspension Component related to new series of motorcycle 2025
Adler SpA Transmission Products related to 2Ws & 3Ws 2018
Leading global brake and suspension
Braking systems and parts for use in LCVs and 4W passenger vehicles 2017
company
Design, manufacture, use and sell combined braking systems and related
European brakes technology provider 2020
assemblies for 2W application
Magnetti Marelli COFAP Companhia
Shock absorbers and sturts for 4Ws for Bajaj
Fabricadora de Pecas
Source: Company, HDFC sec Inst Research
Page | 6

Regulatory changes: an opportunity
Regulatory changes like
implementation of ABS and
CBS in 2Ws would mean new
products in the foray, with
higher realisations
ENDU as of now has no
capability in ABS, but is
working on a breakthrough
through its in-house R&D tie-
ups
The management is inclined
to increase its market share in
the aftermarket (currently
contributes ~4% of
consolidated revenue). With
GST coming into play in
FY18E, we believe this will
bring both organised and
unorganised players on a
level playing field, thereby
giving quality players like
ENDU an edge
Aftermarket holds promise
ABS is available in very few super premium 2W
models in India. With safety in mind, the Ministry of
Road Transport has made it mandatory for all
motorcycles and scooters to have combined braking
systems and ABS, depending on the category, from
FY18/19. As per the ruling, all new launches from
April 2018 below 125cc would have CBS and ABS on
+125cc models. After April 2019, even existing
offerings will need to have these upgraded braking
systems.
If implemented, CBS could lead to a 3x realisation
change and shift to ABS to a 7x realisation change, at
current prices. Barring efficiencies of scale and cost
reduction possibilities, we see 24% CAGR growth in
the 2W braking industry revenues till FY20E, mainly
led by regulatory changes. Only global leaders,
namely Bosch and Continental, have capabilities in
India to cater to the 2W ABS segment.
While ENDU does not have capabilities in ABS yet, it
is focused on attaining a breakthrough in this
segment through inhouse R&D or technological Aftermarket Revenue Improving
tieups.
However, we havent factored this in our estimates. 2,500
Source: Company, HDFC sec Inst Research
ENDURANCE TECHNOLOGIES : INITIATING COVERAGE
Aftermarket, contributing ~4% to total revenues, is
expected to increase owing to an expanding
distribution network and product availability.
The aftermarket products only include proprietary
products (suspension, transmission and brakes).
Given its terms of agreements with OEMs, ENDU does
not deal in aftermarket sales of aluminum casting
products.
For casting products, ENDU sells to the OEM, who
then sells directly to customers through their
channel.
Aftermarket in India is largely unorganised. However,
with GST coming into play, we believe organised
players like ENDU will gain a significant advantage as
unorganised players will have to start paying VAT,
thereby bringing prices at par. Also, the quality of
products of players like ENDU is much superior. ENDU
has spruced up its Indian aftermarket sales team to
gain a higher share in the aftermarket.
Revenue (Rs mn) - LHS % of sales - RHS
3.9
3.8
2,000
3.7
1,500 3.6
1,000 3.5
3.4
500
3.3
- 3.2
FY14
FY15
FY16
Page | 7

Profitable European business!
European subsidiaries, which
contribute 30% to total
revenues went through a
tough phase in FY06-09
(economic crisis)
Over the last four to five
years, ENDU has consolidated
its European operations led by
(1) divestment of certain loss-
making entities (2)
turnaround in certain
subsidiaries like Amann
Druckguss (3) recovery in
European PV market, and (4)
continued strong performance
of the standalone business
ENDURANCE TECHNOLOGIES : INITIATING COVERAGE
European subsidiaries form 30% of ENDUs Over the last four to five years, ENDU has
consolidated revenues. They cater to the European consolidated its European operations led by (1)
PV segment and offer a range of aluminium divestment of certain loss-making entities (2)
diecasting products, including components for turnaround in certain subsidiaries like Amann
aspirated and turbocharged engines which are Druckguss (3) recovery in European PV market, and
needed to meet Euro VI emissions standards. It also (4) continued strong performance of the standalone
manufactures components for aspirated and business. Also, the company made an investment of
turbocharged engines, many of which are required to mere Rs 470mn from FY11 to FY16. During this
meet Euro VI emissions standards. process, the company also added several new
customers like BMW, Daimler (Italy) and VW in 2011.
ENDUs aluminum castings business in Europe (Italy These contributed to the topline growth of 12% CAGR
and Germany) supplies engine and transmission in FY11-16.
components for European PVs. Fiat Chrysler Group
New Customer Adds To Drive Revenues
(FCA) is its largest customer (45% of FY16 revenues).
Revenue (Rs bn) - LHS Growth (%) - RHS
The company made aggressive acquisitions in Europe 30 35.0
in the mid-2000s. It entered Europe with the 25
25 22
30.0
acquisition of Endurance Amann (German subsidiary)
19 25.0
in FY07 and Endurance Fondalmec (Italian subsidiary) 20
16
in FY08. From FY06 to FY10, it invested close to Rs 15 20.0
15
3bn in acquisitions, thereby consolidated revenues 11 15.0
escalated by more than 4x to Rs 23.2bn between 10
10.0
FY06 and FY08. However, when the economic crisis 5 5.0
hit in 2009, European car sales suffered a major
- -
setback. This impacted consolidated profitability and
FY14
FY15
FY16
FY17E
FY18E
FY19E
return ratios significantly from FY08 to FY10.
Consequently, consolidated EBITDA margins declined
from 15% in FY06 to 6% in FY09. Source: Company, HDFC sec Inst Research
Page | 8

As emission norms are getting
stricter worldwide, existing
PVs as well as new age
vehicles (electric/self driving
cars) will have higher
proportion of lightweight
aluminium and magnesium
based die-cast parts
Europe accounts for 24% of
the total aluminum castings
market and ~38% of the sales
come from the transport
sector
With 30% of ENDUs sales
coming from Europe, we
believe the increase in usage
of aluminium in the PV
segment will provide
incremental business to the
company
ENDURANCE TECHNOLOGIES : INITIATING COVERAGE
Increased Al usage in new age cars especially attractive growth prospects for companies
like ENDU. These are among the heaviest automotive
EU has enacted mandatory emission reduction components that have not fully transitioned to
targets for new cars (including electric) till 2021 to aluminum. According to industry experts, aluminum
improve fuel economy and reduce average fleet penetration in engine blocks will grow from 65%
emissions to 95gm CO2/km (from 130 now). This currently to 75% in 2025.
would lead to an increased shift towards the use of
diecast parts of lightweight aluminium and Europe accounts for 24% of the total aluminum
magnesium, which are likely to become the castings market, and ~38% of the sales come from
materials chiefly employed in automotive the transport sector.
construction.
ENDU believes that electric/self-driving cars present a
With OEMs seeking to further reduce the weight of good opportunity as these have a large number of
their vehicles, increased use of aluminum may offer parts made up of aluminum.
Potential Of Aluminium Applications Distribution Of Aluminium In EU Cars (%)
Others
16 Wheels
Crash mgmt
3
20
Steering and Engine
brakes blocks
7 8
Sub frames
Engine
5
cylinder
heads
Bonnets,
8
doors, boot
lids Other
5 Heat Transmission engine parts
exchangers 10 10
8
Source: European Aluminium Assoc, HDFC sec Inst Research Source: European Aluminium Assoc, HDFC sec Inst Research
Page | 9
 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

We expect topline growth of
11% and margin expansion of
~110bps; we also expect a
CAGR of 20% in consolidated
PAT over FY16-19E led by an
increase in its capacity
utilisation, as capex intensity
tapers off and there is a
gradual increase in the share
of the proprietary business
Return ratios should improve
by 210bps to 21% over FY17-
19E, as its domestic business
mix shifts in favour of the
proprietary business and the
European business will benefit
from increase in scale of
operations and improvement
in margins and asset turns
Financial analysis
Growth drivers to support margin trajectory Stable return ratios
We expect ENDUs margins to improve due to an ENDU boasts of healthy and stable EBIDTA margins
increase in its capacity utilization, as capex intensity and low working capital. As a result, it has been able
tapers off and there is a gradual increase in the share to sustain ROE above 20% over the past five years.
of the proprietary business.
The capex intensity is likely to taper off, as the bulk of
We expect margins of the India business to improve it is frontloaded. India business is operating at ~70%
by ~130bps from FY16 to FY19E on the back of capacity, while the Europe business at ~95%. Capex
increasing capacity utilisation and higher share of the for the new European plant is complete, with the new
proprietary business. Margins of the European machining plant commissioned in Jan-17.
business should improve by ~110bps from 15% to
16.1% over FY16-19E (led by a shift towards bigger This will lead to an improvement in return ratios (ROE
and more complex castings). up 210bps to ~21% by FY19E), as its domestic
business mix shifts in favour of the proprietary
With a topline growth of 11% and margin expansion business and the European business will benefit from
of ~110bps, we expect a CAGR of 20% in consolidated increase in scale of operations and improvement in
PAT over FY16-19E. margins and asset turns.
Increase In Prop Business And Increasing Utilisation ROE Profile & Asset Turns
Rates To Boost Revenue & Margins
Revenue - LHS (Rs bn) EBIDTA Margin - RHS (%) ROE - LHS Gross asset turnover - RHS
80.0 14.5 30.0 % X 1.7
70.0 14.0 24.5 1.7
25.0 23.5
60.0
22.4
13.5 19.6 20.0 20.6 1.6
50.0 20.0
13.0 1.6
40.0 15.0 1.5
12.5
30.0 1.5
12.0 10.0
20.0 1.4
10.0 11.5 5.0
1.4
- 11.0 - 1.3
FY14

FY15

FY16

FY17E

FY18E

FY19E

FY14

FY15

FY16

FY17E

FY18E

FY19E
Source : Company, SIAM, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

Page | 10
 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

FCF helps deleveraging, reduces interest cost Cash Flow Generation

ENDUs net debt stands at Rs Despite low growth, ENDU is at par with peers on CFO (Rs bn) FCF (Rs bn)
9.0
6.7bn as on FY16. Given the most operating metrics. Endurance has high 7.8
8.0
strong FCF generation depreciation as a proportion of revenues (4-4.5%) 6.5 6.6
7.0
expected over the period and low working capital. As a result, ENDU has been 5.7 5.7
6.0
FY17-19E, we expect the able to generate strong FCF.
5.0 4.3
company to become net cash ENDUs net debt stands at Rs 6.7bn as of FY16. Given
4.0
4.0 3.2
by FY19E the strong FCF generation expected over the period 2.7
3.0
FY17-19E, we expect the company to become net 2.0 1.6
1.3
cash by FY19E. 0.8
1.0
-

FY14

FY15

FY16

FY17E

FY18E

FY19E
Source : Company, SIAM, HDFC sec Inst Research

Page | 11
 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Valuation
Initiate with a BUY. Our a TP
is Rs 744 (21x on FY19E EPS), We expect ENDU to clock revenue CAGR of 11% over We initiate coverage on ENDU with a BUY rating and
justified considering ENDUs FY16-19E, aided by a recovery in the 2W industry TP of Rs 744 based on 21X FY19E EPS. Our TP is
15%+ India margins, strong demand in FY18, new OEM additions in domestic and justified considering ENDUs 15%+ India margins,
international operations, value-added products like strong earnings growth, high return ratios, low
earnings growth, high return
working capital and R&D capabilities that lead to
ratios, low working capital CVT, ABS, CBS and shift in consumer preferences to
sticky relationships.
and R&D capabilities that higher realisation products (mono-rear suspension,
lead to sticky relationships front fork, etc). Also, margins are expected to
improve owing to a low-cost structure, rising share of
proprietary products and improved product mix in
European operations.
Peer valuation
Mcap CMP Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%)
Rating TP
(Rsbn) (Rs/sh) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Bharat Forge 251 1,076 NEU 943 24.8 31.0 40.0 43.0 34.4 26.6 19.3 16.6 13.6 15.6 17.5 19.6
Exide Industries 183 215 BUY 223 8.3 9.1 10.8 25.8 23.7 19.9 16.3 14.7 13.3 17.5 21.9 21.6
Balkrishna Industries 112 1,162 NEU 1,152 65.8 76.6 84.2 17.8 15.3 13.9 9.5 8.3 7.7 31.4 31.7 30.8
Endurance Tech 94 670 BUY 744 23.5 29.1 35.4 28.5 23.0 18.9 13.1 11.0 9.2 19.6 20.0 20.6
Suprajit Engineering 26 202 BUY 231 8.4 11.1 14.6 24.2 18.2 13.9 13.9 10.7 8.6 23.2 24.8 26.0
Jamna Auto 16 200 BUY 249 11.1 13.2 17.7 18.0 15.1 11.3 8.6 7.3 5.5 31.5 30.1 33.0
Ramkrishna Forgings 12 410 BUY 474 8.3 24.4 37.0 49.5 16.8 11.1 11.9 8.4 6.9 4.9 13.4 17.8
Subros 11 187 NR - 5.9 10.0 13.8 31.9 18.7 13.5 9.1 6.8 5.4 10.1 15.7 19.3
Lumax Autotech 5 430 BUY 673 27.3 37.4 45.4 15.7 11.5 9.5 6.9 5.1 4.1 12.6 15.5 16.6
Source: Company, HDFC sec Inst Research

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 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Key Assumptions
Revenue Break Up FY14 FY15 FY16 FY17E FY18E FY19E
India 30,192 34,025 35,595 39,183 43,230 48,481
Growth (%) 12.7 4.6 10.1 9.6 12.1
Europe 11,190 14,710 16,145 17,231 19,126 22,037
Growth (%) 31.5 9.8 6.7 11.0 15.2
Others 1,022 760 1,006 1,056 1,214 1,336
Growth (%) (25.6) 32.3 5.0 15.0 10.0
Consolidated Revenue 42,404 49,494 52,745 57,470 63,571 71,853
Source: Company, HDFC sec Inst Research

Product Wise Break Up

(%) FY14 FY15 FY16 FY17E FY18E FY19E
Aluminium die casting & Alloy wheels 26,298 31,308 32,902 36,192 40,088 45,300
Growth (%) 19.1 5.1 10.0 10.8 13.0
Shock absorbers & Front Forks 9,953 11,210 12,224 13,400 14,793 16,671
Growth (%) 12.6 9.1 9.6 10.4 12.7
Clutch & clutch parts 2,574 2,560 2,859 3,087 3,377 3,932
Growth (%) (0.6) 11.7 8.0 9.4 16.4
Braking Systems 1,846 2,339 2,433 2,604 2,864 3,208
Growth (%) 26.7 4.0 7.0 10.0 12.0
After Market & Others 1,449 1,753 1,987 2,186 2,449 2,742
Growth (%) 21.0 13.4 10.0 12.0 12.0
Source: Company, HDFC sec Inst Research

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Company Background
Endurance Technologies Ltd (ENDU) was
incorporated in December 27, 1999 and is one of the
largest two-wheeler and three-wheeler automotive
component manufacturer in India. The company is a
complete solutions provider, providing end-to-end
services by engaging their customers from conception
to delivery. The development process includes
design, development, validation, testing,
manufacturing, delivery and after-market sales
services for a wide range of technology-intensive
auto component products.
In India, it manufactures a diverse range of
technology-intensive automotive components for the
two and three-wheeler segments. ENDU also
manufactures specified components for four-wheeler
passenger vehicles, light commercial vehicles (LCVs)
and heavy commercial vehicles (HCVs).
Their products and services in India include:
o Raw and machined aluminium castings, such as
high-pressure, low-pressure and aluminium alloy
wheels for motorcycles.
o Suspension, such as shock absorbers for scooters,
motorcycles and three-wheelers, front forks for
motorcycles and scooters and hydraulic dampers
for quadricycles.
ENDURANCE TECHNOLOGIES : INITIATING COVERAGE
o Transmission, such as clutch assemblies, cork and
paper-based friction plates for motorcycles and
three wheelers and continuous variable
transmission assemblies (CVTs) for scooters.
o Brake 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.
o Aftermarket services to cater to the replacement
market.
ENDU also has operations in Europe with automated
manufacturing facilities in Italy and Germany. Tier 1
companies are those that directly supply to OEMs
(original equipment manufacturer), and they are a
Tier-one supplier to OEMs for most of their products.
The company has 26 plants across India, Italy and
Germany. The firm have 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).
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 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Competitive Landscape
Segment Competitors
In India, Sunbeam, Rico Auto Industries, Sundaram Clayton, Jay Hind Industries,
Aluminium casting Rockman Industries. In Europe, LTH Castings, GF Automotive, Handtmann, Nemak
and KSM Castings
Aluminium Alloy wheels (two Wheelers) Enkei Wheels, Rockman Industries as well as international competitors from China
Braking Systems (two wheelers & three
ASK Auto, Allied Nippon, Brembo, Bosch Continental, NISSIN
Wheelers)
Telescopic front forks/shock absorbers
Gabriel, Munjal Showa, Showa India
(two-wheelers)
Clutch assemblies (two-wheelers and
FCC, Makino, Exedy, RICO
three-wheelers)
CVTs (two-wheelers) FCC, Exedy (transmission systems)
Source: Company, HDFC sec Inst Research

Presence Across All 2W OEMs: Filling Product Gaps

Product Presence Bajaj Hero HMSI RE Yamaha Suzuki H-D Remarks
Cylinder heads Y N N Y N N N
Crown handle N N N N Y N N
Crank Case Y Y Y Y Y N Y
Handle bars 3 wheeler Y N N N N N N
Transmission cover Y Y Y Y Y N Y
Grip N Y Y N N N N
Alloy wheels Y N N N Y Y N
Shock absorbers Y Y Y Y Y Y Y
Front forks Y Y Y Y Y Y Y
Clutch assemblies Y N Y Y N N N under testing
CVTs N N N N N N N under testing
Friction plates Y Y Y Y N N N under testing
Disc brake assemblies Y N N Y N N N under development
Rotary brake discs Y N N Y Y N N under development
Hydraulic drum brake (3 wheelers ) Y N N N N N N
Asbestos free brake shoes (3 wheelers) Y N N N N N N
Tandem master cylinder (3 Wheelers) Y N N N N N N
Source: Company, HDFC sec Inst Research

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 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Income Statement (Consolidated) Balance Sheet (Consolidated)

(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 49,170 52,406 57,470 63,571 71,853 SOURCES OF FUNDS
Growth (%) 16.7 6.6 9.7 10.6 13.0 Share Capital - Equity 176 176 1,407 1,407 1,407
Material Expenses 29,712 30,534 33,390 36,617 41,315 Reserves 11,243 14,366 17,215 20,735 25,023
Employee Expenses 4,206 4,785 5,345 5,849 6,539 Total Shareholders Funds 11,419 14,542 18,621 22,142 26,430
Other Operating Expenses 9,204 10,318 11,207 12,396 13,939 Minority Interest 107 - - - -
EBITDA 6,049 6,770 7,529 8,709 10,059 Long Term Debt 5,983 6,228 5,028 3,828 2,628
EBITDA Margin (%) 12.3 12.9 13.1 13.7 14.0 Short Term Debt 1,657 1,869 1,419 969 519
EBITDA Growth (%) 11.9 11.9 11.2 15.7 15.5 Total Debt 7,639 8,097 6,447 4,797 3,147
Depreciation 2,269 2,508 2,706 2,916 3,139 Net Deferred Taxes (208) (234) (234) (234) (234)
EBIT 3,780 4,262 4,822 5,793 6,920 Long Term Provisions & Others 176 473 473 473 473
Other Income (Including EO TOTAL SOURCES OF FUNDS 19,132 22,879 25,308 27,178 29,816
325 334 384 423 465
Items) APPLICATION OF FUNDS
Interest 510 464 473 365 258
Net Block 13,705 16,766 17,155 17,239 17,300
PBT 3,595 4,132 4,734 5,850 7,127
CWIP 216 818 818 818 818
Tax (Incl Deferred) 1,055 1,222 1,420 1,755 2,138
Goodwill 1,108 1,448 1,448 1,448 1,448
RPAT 2,540 2,909 3,313 4,095 4,989
Investments 10 10 10 10 10
EO (Loss) / Profit (Net Of Tax) 48 - - - -
LT Loans & Advances 1,321 1,230 1,353 1,488 1,637
APAT 2,492 2,909 3,313 4,095 4,989
Total Non-current Assets 16,361 20,273 20,785 21,004 21,214
APAT Growth (%) 18.6 16.8 13.9 23.6 21.8
Inventories 3,858 4,067 4,460 4,934 5,576
Adjusted EPS (Rs) 17.9 20.6 23.5 29.1 35.4
Debtors 5,795 5,928 6,928 7,838 8,859
EPS Growth (%) 23.3 14.8 14.3 23.6 21.8
Other Current Assets 686 972 1,761 1,796 1,832
Source: Company, HDFC sec Inst Research
Cash & Equivalents 703 1,413 1,914 2,950 4,946
Total Current Assets 11,042 12,380 15,062 17,517 21,212
Creditors 6,665 7,384 8,030 8,708 9,843
Other Current Liabilities & Provns 1,605 2,390 2,510 2,635 2,767
Total Current Liabilities 8,270 9,774 10,539 11,343 12,610
Net Current Assets 2,771 2,606 4,523 6,174 8,603
TOTAL APPLICATION OF FUNDS 19,132 22,879 25,308 27,178 29,816
Source: Company, HDFC sec Inst Research

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 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

Cash Flow Statement (Consolidated) Key Ratios (Consolidated)

Rs Mn FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 3,595 4,132 4,734 5,850 7,127 PROFITABILITY (%)
Non-operating & EO items 48 - - - - GPM 39.6 41.7 41.9 42.4 42.5
Interest expenses 510 464 473 365 258 EBITDA Margin 12.3 12.9 13.1 13.7 14.0
Depreciation 2,269 2,508 2,706 2,916 3,139 APAT Margin 5.1 5.6 5.8 6.4 6.9
Working Capital Change (1,072) 661 (785) (750) (582) RoE 23.5 22.4 20.0 20.1 20.5
Tax Paid (1,055) (1,222) (1,420) (1,755) (2,138) RoIC (or Core RoCE) 14.5 14.1 14.2 16.1 18.8
OPERATING CASH FLOW ( a ) 4,295 6,543 5,707 6,627 7,804 RoCE 16.1 15.7 15.4 16.9 18.4
EFFICIENCY
Capex (3,509) (5,255) (4,150) (3,465) (3,775)
Tax Rate (%) 29.3 29.6 30.0 30.0 30.0
Free cash flow (FCF) 787 1,287 1,557 3,162 4,029
Fixed Asset Turnover (x) 1.6 1.5 1.5 1.5 1.6
Investments (111) (347) - - -
Inventory (days) 28.6 28.3 28.3 28.3 28.3
Non-operating Income 518 544 - - -
Debtors (days) 43.0 41.3 44.0 45.0 45.0
INVESTING CASH FLOW ( b ) (3,102) (5,058) (4,150) (3,465) (3,775) Other Current Assets (days) 5.1 6.8 11.2 10.3 9.3
Debt Issuance/(Repaid) (817) (15) (1,650) (1,650) (1,650) Payables (days) 49.5 51.4 51.0 50.0 50.0
Interest Expenses (510) (464) (473) (365) (258) Other Current Liab & Provns (days) 11.9 16.6 15.9 15.1 14.1
FCFE (540) 808 (565) 1,146 2,121 Cash Conversion Cycle (days) 15.4 8.3 16.6 18.5 18.6
Share Capital Issuance (17) - 1,231 - - Debt/EBITDA (x) 1.3 1.2 0.9 0.6 0.3
Dividend (64) (296) (165) (110) (125) Net D/E (x) 0.6 0.5 0.2 0.1 (0.1)
FINANCING CASH FLOW ( c ) (1,408) (776) (1,057) (2,125) (2,034) Interest Coverage (x) 7.4 9.2 10.2 15.9 26.8
NET CASH FLOW (a+b+c) (215) 709 501 1,037 1,995 PER SHARE DATA (Rs)
EO Items, Others (48) - - - - EPS 17.9 20.6 23.5 29.1 35.4
Closing Cash & Equivalents 704 1,413 1,914 2,950 4,946 CEPS 33.8 38.5 42.8 49.8 57.7
Source: Company, HDFC sec Inst Research Dividend 0.9 1.2 2.8 3.5 4.3
Book Value 81.1 103.3 132.2 157.2 187.7
VALUATION
P/E (x) 37.4 32.6 28.5 23.0 18.9
P/BV (x) 8.3 6.5 5.1 4.3 3.6
EV/EBITDA (x) 16.7 14.9 13.1 11.0 9.2
EV/Revenues (x) 2.1 1.9 1.7 1.5 1.3
OCF/EV (%) 4.2 6.5 5.8 6.9 8.4
FCF/EV (%) 0.8 1.3 1.6 3.3 4.4
FCFE/Mkt Cap (%) (0.6) 0.9 (0.6) 1.2 2.2
Dividend Yield (%) 0.1 0.2 0.4 0.5 0.6
Source: Company, HDFC sec Inst Research

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 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

RECOMMENDATION HISTORY
Date CMP Reco Target
Endurance TP
22-Feb-2017 670 BUY 744
750
700
650
600
550
500
450
400 Rating Definitions
Jan-17

Feb-17
Nov-16

Dec-16

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 ENDURANCE TECHNOLOGIES : INITIATING COVERAGE

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