Endurance Tech rating- Buy: Firm’s the best play on the 2W industry

After a slow recovery post lifting of COVID-related restrictions, we believe that the underlying demand drivers for 2Ws are still intact and expect 2W demand to return to 6-8% CAGR over the next five years. We prefer ENDU over 2W OEMs as the best way to play the 2W industry, given that the company has a strong positioning with all OEMs and is the beneficiary of the underlying trend in premiumisation, scooterisation, and electrification.

ENDU has several levers to continue to grow faster than the underlying 2W industry, driven by: (i) cross selling and client mining; (ii) supplies to e-2Ws/3Ws, (iii) ABS; and (iv) brakes and clutches for over 200cc Bikes. This should help in increasing content per vehicle and narrow content gap between OEMs (BJAUT at 15-17% v/s RE at 11-13% v/s other OEMs at 5-7% v/s TVSL at 3-4%).

The company has seen good traction in its nascent Passenger Vehicle (PV) segment (~5% of standalone sales in FY20) in the Aluminum Die-casting business. ENDU is on the right side of both customers and technology. On the customer side, it is working with the fastest growing OEMs in the Indian PV industry. Based on existing orders from Hyundai/Kia, its revenue run-rate is expected to hit its peak annual run-rate of Rs 3.1 bn by Q4FY22 (v/s less than Rs 1 bn in FY20).

We estimate consolidated revenue/ Ebitda/PAT of ~8%/13%/18% CAGR over FY20-23E. The stock trades at 27.2x/22.3x FY22e/FY23e consolidated EPS. Maintain Buy with a TP of Rs 1,750 per share (28x Mar’23e consolidated EPS).