Reduce Endurance Technologies; target of Rs 1426: HDFC Securities

HDFC Securities' research report on Endurance Technologies

Endurance Q4 PAT grew 26% QoQ to INR 1.36bn on the back of recovery in Europe margin to 17.8% (+350bps QoQ) as well as improvement in India margin by 80bps QoQ to 11.9%. While Endurance standalone outperformed the domestic auto industry, its Europe business underperformed the Europe auto industry in Q4. Going ahead, domestic 2W OEMs continue to see weak demand in domestic and export markets and are likely to remain the key concern for Endurance. Further, while supply chain challenges seem to have eased out globally, the demand outlook remains weak in Europe, given the record high inflation and rising interest rates in the region. On the back of a gradual decline in input costs and a reduction in energy costs in Europe, we factor in consolidated margin improvement to 14% by FY25E (from 11.8% in FY23), which is still well below its previous peak of 16.3% in FY20.

Outlook

While we have factored in most of the key positives, the valuation at 29.6x FY24E earnings appears expensive. Reiterate REDUCE with a revised target of INR 1,426 (earlier INR 1,340), as we roll forward to FY25 EPS (unchanged target multiple of 25x).