Moneycontrol
you are here: HomeNewsBusinessIPO
Oct 06, 2016 07:58 AM IST IST | Source: Moneycontrol.com

Endurance Technologies IPO opens: Should you subscribe?

The Aurangabad-based company aims to mop up nearly Rs 1,162 crore (at higher end of price band) by diluting 17.5 percent stake through the issue that will close on October 7. It already raised Rs 348.52 crore through anchor investors' portion on Tuesday, the day before issue opening.

Moneycontrol Bureau

The 2.46 crore equity shares' IPO of Endurance Technologies, the auto component manufacturer, has opened for subscription with a price band of Rs 467-472 per share on Wednesday.

The Aurangabad-based company aims to mop up nearly Rs 1,162 crore (at higher end of price band) by diluting 17.5 percent stake through the issue that will close on October 7. It already raised Rs 348.52 crore through anchor investors' portion on Tuesday, the day before issue opening.

It is an offer for sale of up to 1.93 crore equity shares by Actis Components and System Investments and up to 53.17 lakh shares by Anurang Jain, founder and managing director of the company. Hence, the company will not receive any proceeds from the offer.

Considering Endurance's strong business model, financial position (return on equity & return on capital employed over 20 percent during FY13-16), track record of organic and inorganic growth, customer relationships with big clients in India as well as Europe, R&D capabilities and the largest two-wheeler & three-wheeler auto component supplier in India, analysts from top brokerage houses gave thumbs up to the issue.

While recommending to subscribe, Angel Broking says it believes the issue is fairly priced at the current valuation considering its growth initiatives, scalability in operations, focus on profitability and strong return on equity (RoE) profile.

At the higher end of the price band, company is asking for a valuation 22.9x of its FY16 EPS of Rs 20.6. This valuation looks at par with its peers, it feels.

KR Choksey has maintained a positive view on the company with long term upward bias and expects the company to deliver healthy profitable growth going forward. It advised investors to subscribe the IPO and remain invested in Endurance's long term story.

Asit C Mehta, which also recommended subscribing the issue for medium to long-term time horizon, believes it is available at discount to its peer such as Motherson Sumi (32.81x FY16 EPS), Bharat Forge (32.98x FY16 EPS), and at par with Gabriel India (22xof FY16 EPS).

Endurance commands greater brand image in its product portfolio compared with its peers. It has a stable and long-term relationship with leading original equipment manufacturers (OEMs), which command greater market share in the Indian two and three wheeler segments. Focus on aftermarket sales service, which is high margin business, improving demand of scooter and moped among female and student customer, decreasing ownership cost places the company in a sweet spot to tap growth opportunities, Asit C Mehta says.

Incorporated in 1999, the company is prominently 2-wheeler and 3-wheeler component supplier in India and 4-wheeler auto component supplier in Europe. It has 25 manufacturing facilities of which 18 are in India and 7 are in Europe (5 plants in Italy and 2 in Germany). Its India business has been an organic growth story while European business is fully acquired. It derives 70 percent revenue from India and 30 percent from Europe.

The company is expected to commission an additional machining plant in Germany in current financial year. It is currently in the initial stages of planning an automotive proving ground (test track) in Aurangabad, Maharashtra, which it is expected to be operational by the end of 2018.

It is also planning on setting up a new plant at Halol (Gujarat), which it is expected to complete in FY18 for the supply of suspension parts to Hero.

Its largest customer in India is Bajaj Auto that contributed 40 percent to net revenue, followed by Royal Enfield, Honda Motorcycle and Yamaha. In addition to that, it also supplies products to Hero Motocorp, Mahindra & Mahindra, Tata and Suzuki. In Europe, its largest customer is FCA Italy SpA and it is also a supplier to Daimler.

Currently it operates in five segments namely die-casting (that contributed 62.8 percent to revenue in FY16), suspension (23.3 percent), transmission (5.5 percent), brake systems (4.6 percent) and aftermarket (3.8 percent). The company has 4 patents, one design registered for an aluminium wheel casting and has applied for 39 patents and 3 design registrations for a wide range of products.

Endurance is the largest aluminium die-casting company in India and has strong market share in its other products. The die-casting market is expected to grow at a CAGR of 8-10 percent between FY16-FY19 whereas market for suspension, transmission and brake systems is expected to grow at a CAGR of 14.3 percent during the same period, Angel Broking says.

The brokerage house believes that there is ample scope of growth from here considering recovery of Indian automobile industry has been better than expected.

JHP Securities expects 2-wheeler industry to grow at 13.6 percent CAGR between FY16-18 which is expected to aid growth for Endurance. Two-wheeler business contributed 55 percent to consolidated revenue in FY16.

The auto ancillary company has strong record of financials with revenue and net profit growing at a CAGR of over 8 percent & 12 percent during FY12-16 and 11.5 percent & 20 percent during FY14-16, respectively. In FY16, profit, revenue and EBITDA grew by 16 percent to Rs 292 crore, 6.5 percent to Rs 5,241 crore and 11 percent to Rs 711 crore compared with FY15, respectively.

It reduced its debt to equity ratio from 0.60 percent in FY15 to 0.42 percent in FY16 due to focus on high margin replacement market and European market where the cash flow generation is better.

Endurance has strong business in Europe, with net revenue from operations growing from Rs 1,098.68 crore in FY14 to Rs 1,566.65 crore in FY16, a CAGR of 19.4 percent. It entered into Europe with the acquisition of Endurance Amann (German subsidiary) in FY07 and Fondalmec (Italian subsidiary) in FY08.

Aditya Birla Money Research, ICICIdirect, Nirmal Bang, Ajcon Global, Centrum Wealth Research, JHP Securities, SPA Securities, Hem Securities, NVS Wealth Managers and GEPL Capital also advised subscribing the issue but there are some risks to the issue.

Religare says Endurance's business is highly dependent on Bajaj Auto in India and FCA Italy SpA in Europe (which contributed over 40 percent and 15 percent to revenue in FY16, respectively). The loss of such customers or a significant reduction in purchases by such customers could adversely affect the business.

The company is heavily dependent on the performance of the automotive sector in India (particularly two-wheelers industry) and Europe (for four-wheeler market), it says.

GEPL Capital says the 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.

According to Centrum Wealth Research, increase in price of aluminium can have significant impact on company's profitability while ICICIdirect says unfavourable input price and currency movement can also have impact on its prospects.

The book running lead managers to the issue are Axis Capital and Citigroup Global Markets India. Equity shares are proposed to be listed on the BSE and NSE.
Sections
Follow us on
Available On