Market share gains in India, Europe positive for Endurance Technologies

Consistent growth in the Indian two-wheeler and European car markets is key

Demand uptick from passenger vehicles and two-wheelers, market share gains in India and European operations, and an improved mix helped Endurance Techno­logies outperform peers, as well as analyst expectations in the December quarter. The company posted 24.4 per cent YoY sales growth, among the highest in larger listed auto component companies.

Higher content per vehicle and increasing orders from the existing, as well as new customers, led to the volume and sales outperformance. What stood out were the new order wins over the past nine months of Rs 440 crore, which is about 10 per cent of current sales.

The new orders came on the back of automakers looking at import substitution opti­ons; TVS Motor gave an order of Rs 200 crore for brakes, which were imported. Further, the company has participated in Rs 1,150 crore request for quote proposals and is expecting to win at least a third of the same.

Led by standalone operations, consolidated operating profit margins improved 137 basis points to 17.3 per cent. Domestic operations posted a 333 basis point YoY margin gain to 17 per cent, on the back of operating leverage, an improved product mix, cost-control measures, and incentives. Despite a dip in revenues, European operations (25 per cent of revenues) reported a steady margin performance. The increasing four-wheeler client base and a higher proportion of machining in the castings segment should aid profitability.

Analysts at Antique Stock Broking expect the company to outperform the two-wheeler sector growth, led by new customer additions, better client mining with existing customers, and entry into new products, such as anti-lock braking systems and machined products in casting. Its European subsidiaries should grow as passenger vehicles recover over FY21-23.

What should help on the market share front is capacity expansion. The company is doubling its disc brake assembly capacity, increasing its disc manufacturing by 80 per cent, and alloy wheel capacity by a third. 

In addition to strong dema-nd from the two-wheeler segment and market share gains, analysts at Phillip Capital believe higher penetration in hitech products and lightweighting trends in Europe should be beneficial for the firm from the medium-to-long-term horizon.

While prospects are robust, sustained volume growth in the Indian two-wheeler market and improvement in European demand are the key for the stock. Investors should await clarity on the same before taking an exposure.