Endurance Technologies: Investors advised to consider the stock on dips

Market share gains, better product mix other triggers

The stock of Endurance Technologies has gained 56 per cent since its lows in April on the back of expectations of a faster recovery in two-wheelers, new order wins, and market share gains. Further, two European acquisitions in the June quarter would enable it to enter the higher-segment bikes space and expand its client base.

The immediate trigger has been the recovery in rural incomes, which, coupled with the need for personal mobility solutions, should boost demand for the two-wheeler segment. Endurance, which supplies braking, transmission, and suspension parts to two- and three-wheeler makers is expected to benefit from this trend. 

Sales data of June indicate that the two-wheeler segment has already achieved 85-90 per cent of pre-Covid levels in wholesale despatches. Analysts expect entry-level two-wheelers to see some traction, which should help players with a large rural franchise such as Hero MotoCorp. 

The share of Hero MotoCorp in the two-wheeler pie of Endurance saw a big jump in FY20 and is a positive trend. Bajaj Auto and Eicher Motors, too, are expected to benefit from the long-term uptick in demand for premium motorcycles. The three two-wheeler makers are the biggest clients of Endurance and account for a lion’s share of domestic two-wheeler business.

 

 

Another trigger is the rise in content per vehicle. Analysts at CGS CIMB expect the company to offer its anti-lock braking product, which given its low-cost advantage, will drive new client acquisitions. Auto makers looking at local sourcing options due to the China situation and a rising share of business from Hero, Honda, and KTM should enable the firm to gain market share in the suspension segment.

The two European acquisitions will help the company enter the 200cc+ motorcycle business. It will make it easier for the company to enter the clutches and brakes segment of large bikes in Indian and European markets. Analysts at Nirmal Bang Research believe that this is part of a strategy to improve value addition and enhance the product mix of the business. 

The shift to lightweight materials should also help, given that Endurance is the largest aluminium die cast manufacturer in the country. 

While the company is expected to outperform peers and has a strong balance sheet, given the recent run up, investors can look at the stock on dips.