Centrum has a subscribe rating on Endurance IPO
Wed, 05 Oct 2016 10:11:49 -0600
It is the largest aluminium die-casting company in terms of actual output and installed capacity in FY16 in India
Centrum Wealth Research has a subscribe rating on the Endurance Technologies IPO. ETL is present in the two- and three-wheeler automotive component segments.

It is the largest aluminium die-casting company (in terms of actual output and installed capacity in FY16) in India. Business verticals for the company include aluminium die-casting (63 per cent of FY16 consolidated revenue), suspension (23 per cent), transmission components (5 per cent), braking systems (5 per cent) and aftermarket service (4 per cent).

In India (70 per cent of FY16 revenue), ETL is focussed on two and three wheeler segment while in Europe (30%) it caters to the four-wheeler segment. Despite the sluggish growth in automotive industry during FY12-16, ETL reported revenue CAGR of 8.1 per cent, Ebitda and PAT at 7.1 per cent and 12.4 per cent, respectively.

At the higher end of the price band of Rs 472, the stock is valued at 10.4 times EV/Ebitda and 22.8 times PE on FY16 basis which is at a discount compared to the peer group average of 13.0 times EV/Ebitda and 28.8 times PE.

“ETL has been able to maintain healthy EBITDA margin of 13 per cent (FY12-16), reduced its debt-to-equity from 1.25 times in FY12 to 0.42 times in FY16. Further it has high return ratios (above 20 per cent) over FY13-16. Given ETL’s consistent growth, healthy financials and attractive valuation, we suggest investors to subscribe to the IPO,” the brokerage said.

The price performance of the IPO may be impacted by the prevailing market sentiment at the time of listing. The IPO consists of an offer for sale (OFS) of 1.93 crore shares (13.7 per cent stake) by Actis Components and Systems Investments (a Private Equity Firm) and 0.53 crore shares (3.8 per cent stake) by promoters.

The entire IPO consists of OFS and the company will not receive any funds from the issue.

Crisil expects two-wheeler (2W) segment in India to grow at 8-10 per cent per annum, over FY16-19. ETL has long standing relationship with key Indian 2W original equipment manufacturers (OEMs) like Bajaj Auto (41 per cent of ETL’s FY16 revenue), Royal Enfield (6 per cent) and Honda. Its other customers in the Indian two-wheeler market include companies like Yamaha, Hero, M&M, Suzuki, Harley Davidson, etc.

It has been consistently expanding its product offerings to these customers which could help in maintaining its growth momentum.

In Europe, ETL predominantly caters to four wheeler OEMs, focusing on Engine and Transmission Components. Its key customers in Europe, are FCA Italy (15 per cent of ETL’s revenue) and Daimler AG.

ETL intends to ramp up its European business (CAGR of 16.2 per cent over FY12-16) and aftermarket service (CAGR 17.6 per cent over FY14-16) which has seen a strong growth momentum.

It has done significant capex (Rs 600 crore over FY14-16) in Europe with an aim to achieve profitable growth and expand into high margin products.

An increase in price of aluminium can have significant impact on ETLs profitability; high client concentration; Bajaj Auto (41 per cent) and FCA Italy (15 per cent) accounted for 55 per cent of FY16 revenue. Loss of business form any of these could have a significant impact on the company, the brokerage said.

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