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Buy Endurance Technologies: India business drives consolidated performance in Q1FY18

Motilal Oswal | 10 Aug, 2017  | Follow Author | Add to my Favourites 
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Consolidated performance in-line

- India business drives consolidated performance:
Consolidated net sales grew 7.6% YoY to INR15.5b (our estimate: INR15.8b), led by India business. Consolidated EBITDA margin expanded 80bp YoY (flat QoQ) to 13.8% (our estimate: 13.7%), led by internal cost control initiatives and ramp-up in supplies to domestic customers.

- Ramp-up with HMSI, RE and Yamaha drives India business: Standalone revenue grew 11.8% YoY (v/s 7.8% increase in domestic 2W industry volumes), led by strong growth with HMSI, Royal Enfield (RE) and Yamaha. However, moderation in aftermarket sales due to GST restricted growth. EBITDA margin expanded 30bp YoY to 12.6% (our estimate: 11.8%), supported by lower other expenses. Higher tax restricted PAT growth to 22% YoY to INR679m (our estimate: INR602m).

- EU business – better mix drives margins: EU revenue declined 0.7% in INR terms to INR4.7b (our estimate: INR5.2b). In EUR terms, growth was 5.6% (v/s 1% PV industry growth). Margin improved 110bp YoY (declined 180bp QoQ) to 16.4% (our estimate: 17.4%), driven by better mix. EBITDA was INR766m v/s our estimate of INR910m. Lower other income dented PAT (INR286m v/s our estimate of INR409m).

- Earnings call highlights: (a) ENDU expects its ABS product to be ready by January 2019 (in tie-up with BWI Group); (b) Aftermarket sales impacted due to GST, expect recovery in coming quarters; (c) Expects to penetrate products like CVT, brakes, and clutches with new customers like HMSI and HMCL over the next two years; (d) Won contract to supply components for EV application from Porsche; (e) Die casting business to benefit from EV, as product platform has 20-year lifecycle v/s IC engines’ 7-8 years.

- Valuation and view:
We cut our EPS estimates by 4.5% for FY18 and 2.7% for FY19, as we cut EU business earnings and factor in increase in RM costs. We believe ENDU offers strong growth potential, driven by newer products and technology. We retain P/E multiple at 25x Sep-19E due to higher visibility on growth drivers beyond FY19. Maintain Buy with TP of INR1,055.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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