Endurance Tech listed as ‘top pick of the week’ by Axis Securities – key reasons

After an almost 9 percent jump in the stock since October, brokerage house Axis Securities has chosen Endurance Tech as its top pick of the week. This is on the back of strong order wins, capex & capacity expansion and export opportunities.

The brokerage has a ‘buy’ recommendation on the stock with a target price of ₹1,845, indicating an upside of 10 percent from its current market price of ₹1,679.70.

Endurance Technologies Limited serves as a comprehensive solutions provider, specialising in aluminum diecasting, suspension, braking systems, and transmission products. Distinguished as a Tier 1 supplier, the company caters to renowned Indian and global brands across the spectrum of 2-wheelers (2W), 3-wheelers (3W) and passenger vehicles (PV). The company started its operations with two die-casting machines in 1985 and has grown to 31 manufacturing facilities strategically located near OEMs (original equipment manufacturers) in India and overseas.

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Stock Price Trend

The stock has gained around 12 percent in the last 1 year and over 25 percent in 2023 YTD, giving positive returns in 7 of the 11 months in the current calendar year, gaining the most in June, over 10 percent, and shedding the most in February, down over 15 percent.

It has risen over 1 percent in the 2 sessions of December, extending gains after an over 5 percent jump in November.

Currently trading at ₹1,679.70, the stock is 4 percent away from its 52-week high of ₹1,750.95, hit on July 25, 2023. Meanwhile, it has advanced over 42 percent from its 52-week low of ₹1,179, hit on March 28, 2023.

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Earnings

In the September quarter, the company’s consolidated total income rose 8 percent YoY, led by Indian as well as European operations. Consolidated profit-after-tax (PAT), too, jumped 17.5 percent YoY to ₹154 crore in the quarter under review.

The selling, general & administrative expenses of Endurance Technologies declined by 2.91 percent quarter-on-quarter but increased by 21.89 percent year-on-year.

Similarly, the operating income of the company was down by 4.04 percent quarter-on-quarter but increased by 16.01 percent year-on-year.

The earnings per share (EPS) for the second quarter of fiscal year 2024 stood at ₹10.99, showing a 17.54 percent year-on-year increase.

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Investment Rationale

Strong order wins: In H1FY24, the company won new business orders worth ₹777 crore in India, taking the total cumulative order book for the last five years to ₹3,664 crore, informed the brokerage. This also includes a cumulative EV (electric vehicle) order of ₹620 crore.

Capex and capacity expansion plans: ABS (anti-lock Braking System) capacity increased from 4 lakh to 6.4 lakh units per annum. Alloy wheel capacity is expected to increase from 45 lakh to 55 lakh wheels per annum by April 2024. Successful trials at the Waluj plant for certain BMS (battery management system) boards are underway and a sample for BMS with optimised design is submitted to key OEMs. The management expects audit and validation followed by production in Q4FY24, said the brokerage.

Aftermarket & exports: Aftermarket sales in Q2FY24 stood at ₹125 crore, up 20 percent YoY. The company will start exporting to a total of 35 countries including Brazil, DR Congo, and Cameroon. The export sales in Q2FY24 grew by 12.6 percent YoY to ₹40 crore. This was majorly led by machine casting sales to Ford Motors in the UK and IVECO in Italy (including Case New Holland) and also from two-wheeler suspension exports for the KTM plants in Austria, China, and Southeast Asia, it noted.

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Outlook & valuation

Endurance Technologies is focused on building capacities to meet industry demand and increasing utilisation of existing facilities, said Axis. On account of the expected recovery in the EU business, demand pick-up in 2W EVs, production ramp-up by OEMs in premium 2W motorcycles, and demand recovery from rural markets in India, the brokerage believes the ramp-up of existing and new capacities to lead to operational efficiency. It likes Endurance as a play on auto, primarily due to its strong EV product portfolio, robust order book, and capacity expansion projects, the benefits of which are expected in H2FY25 and beyond.

Recommendation

On the back of the growth in 2W demand based on signs of recovery from rural regions and impending export demand, Axis values the stock at 27x (earlier 25x) on Dec’25E EPS to arrive at a TP of ₹1,845/share (earlier ₹1,690). The TP implies an upside of 10 percent from the CMP. It recommends buying the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.