Endurance Technologies - Auto and Auto Components

Endurance Technologies - Auto and Auto Components

Strong order wins to over shadow weak Q4 and FY 21 Poised for a Robust FY 22.

CMP                   :        Rs 870.75 (30.06.2020)

Target                 :        Rs 1105

Period                 :        12 Months

52 Week H/L      :         1202 / 562

Endurance Technologies Ltd.

Endurance Technologies Ltd., incorporated in the year 1999, is a Mid Cap company (having a market cap of Rs 12248.22 Crore) operating in Auto Ancillaries sector.

Endurance Technologies Ltd. key Products/Revenue Segments include Aluminium & Die Casting which contributed Rs 1908.92 Crore to Sales Value (35.23 % of Total Sales), Shock Absorbers which contributed Rs 1906.54 Crore to Sales Value (35.19 % of Total Sales).

Clutch Assembly (Parts) which contributed Rs 460.86 Crore to Sales Value (8.50 % of Total Sales), Alloy Wheels which contributed Rs 365.17 Crore to Sales Value (6.74 % of Total Sales), Others which contributed Rs 253.31 Crore to Sales Value (4.67 % of Total Sales).

Other Operating Revenue which contributed Rs 44.41 Crore to Sales Value (0.81 % of Total Sales), Components & Spares which contributed Rs 34.34 Crore to Sales Value (0.63 % of Total Sales).

Scrap which contributed Rs 18.13 Crore to Sales Value (0.33 % of Total Sales), Export Incentives which contributed Rs 12.28 Crore to Sales Value (0.22 % of Total Sales), Job Work which contributed Rs 8.09 Crore to Sales Value (0.14 % of Total Sales).

Power Generation which contributed Rs 1.21 Crore to Sales Value (0.02 % of Total Sales)for the year ending 31-Mar-2019.

For the quarter ended 31-03-2020, the company has reported a Consolidated sales of Rs 1596.75 Crore, down -2.67 % from last quarter Sales of Rs 1640.53 Crore and down -15.98 % from last year same quarter Sales of Rs 1900.36 Crore Company has reported net profit after tax of Rs 106.83 Crore in latest quarter.

Weak Q4 led by challenging macro environment in both the geographies:

Endurance’s Q4 numbers came below our as well as street’s expectations as revenues declined by 16% each in domestic standalone as well as consol business. On the domestic front, it was led by weakness in the 2W industry and the overall macros. 

It was also impacted slightly by the lock down which came into effect by the quarter end. Still, this decline was lower than the underlying industries (18% fall in 2W industry in FY 20) as the company continuously won business from its existing as well as new clients and improvement in content per vehicle. Domestic margins went down to 12.7% due to one-off CSR expenses of ₹70 mn, excluding which the margins came in at 15.3%. 

On the consol business, Covid related lockdown mainly in Italy and Germany led to an underperformance in topline. Margins fell to 14.9% as the company still bore the employee costs. Consol bottom-line de-grew by 28% yoy and 13.8% qoq on weak domestic business. European margins were strong at 21.4%, thus somewhat lifting up the consol margins. However, they were still down on yoy basis. 

During the quarter, the company acquired two companies despite challenging environment. – a). 99% stake in Adler (clutch, partner since 2001) for EUR3.5m, and (b) 100% in Grimmeca (braking; partner during 2004-09 and 2015-20) for EUR2.25m. These acquisitions provide Endurance with technology for >200cc motorcycles – a future focus area for the company. 

Covid-19 impacted the business in Q4 and continued vigorously in Q1. However, from June onward the production ramped up by 50% of Covid levels. Management expects production to reach pre-Covid levels in Q3 FY21.

Major order wins and order-backlog ensures strong FY 22:

The company’s new business wins in India stood at ₹5.8 bn in FY 20 (from HMSI, RE, TVS, Hyundai- Kia and HMCL) out of which 50% will start their execution by Q2 FY21. Furthermore, ₹12.8 bn worth RFQs is under discussion; conversion rate is 50%.

In EU, new order wins stood at EUR42.7m in FY20 from the likes of Audi, BMW, VW, Porsche, FCA, Maserati etc. In the last 2 years, Endurance won EUR110m worth orders – EVs (EUR30m from Audi and Porsche) and Hybrid (EUR80m from VW, Daimler, BMW, FCA and Maserati); execution has started this year and should reach peak volumes in 2023. RFQs worth EUR45m are under discussion with VW for EV/hybrid cars.

We expect near to medium-term revenues to be favorably impacted by the ramp-up of supplies of suspensions at HMCL/HMSI’s plants and increase in supplies of brakes to TVS. Expected foray of Endurance into HMCL and HMSI’s northern plants would increase the chances of higher revenues.

In the domestic die casting business, we expect recent order wins from Hyundai-Kia to ramp up (with a 6-month delay) from Oct 20 with the commissioning of the Vallam plant. We are aware that supplies of fully finished, machined castings tremendously help Endurance’s growth prospects and Endurance has a strong presence in this industry.

Commercial supplies of 2W ABS have been further delayed. Now, the company expects supplies only in 4QFY20. This would drive the high margin ABS business in FY 22. 

• Disc and clutch business for HMSI started in Q2 FY 20, while the front forks business for HMSI commissioned in Q4 FY20, due to which the share of HMSI in Endurance’s business increased from 8% to 13% yoy in FY 20. 

• The acquisitions of Adler and Grimmeca would help Endurance with high end technology for the supply of clutches and brakes in the >200 cc motorcycles and scooters. This business is expected to provide a fillip in FY 22 through supplies to its three main clients. 

• With the ‘Aatmanirbhar Bharat’ mission gathering steam, the company sees great opportunity in the CBS and Aluminum alloy wheels business in the domestic markets and shock absorbers for HMSI in South America and SE Asia which would replace Chinese vendors 

• We expect Indian operations to report revenue CAGR of 5% through FY20E-FY22E; while expecting margins to bounce back to ~16% by FY22E. 

• We expect EU revenue to continue to benefit from the growing order book. We also note the growing customer diversification and order wins in the electric/hybrid cars space. 

We anticipate EU operations to report revenue CAGR of 3% through FY20E-FY22E; while forecasting margins to continue to be aided by the growing proportion of value-added products and come in between 21-22% in FY22E. 

Margins to move upwards in FY 22 through increased business of value added products We foresee supply of an array of value added, high margin products in FY 22. ABS production starting in Q4 FY21 will add content per vehicle of higher cc 2W in FY 22. 

Increased business of front forks (price is 3x of shock absorbers) through higher business from HMSI will assist margins very well. Increased production of aluminum die castings and alloy wheels through capacity expansion at Vallam plant will yield higher profits for the company. 

Higher business in Europe through new business wins and increased business with existing clients in the high margin hybrid/EV businesses will augur well for the margins. We expect consol margins to range at 17-18% in FY 22. Outlook and valuation We expect FY 21E to be a very subdued year on the back of Covid-19. However, despite a washout Q1, with a long line-up of order wins and strong RFQs for the remaining three quarters of FY 21E and FY 22E, we expect a very strong FY 22E. 

Increasing orders from existing clients, new businesses in both India and Europe, higher content per vehicle and capacity expansions at a low capex will result in a robust bump up in FY 22 numbers. 

Profitability lift up, improvement in return ratios will be the result of higher product mix and risen electrification & hybridization in Europe. 

Endurance derives about 66% of its console top line from 2Ws and considering the rising importance of social distancing and personal mobility, we believe 2W industry to be preferred medium of transport and therefore Endurance shall be an attractive investment case. On the back of Covid and associated delay in various projects, we have pruned down our estimates and target price to ₹1,105. Maintain BUY (valued at 25x FY 22E earnings).

It has already reached 50% retrenchment price from its rock bottom fall. Now it has a strong potential to move up from the current level to upward.

Note: The analysis is based on the information received from the company fundamentals and its technical trends. Investing in securities always depending upon the market conditions and risk. 

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Gujarat Gas – Targets can be achived in a week...

Gujarat Gas Ltd:

Gujarat Gas Ltd., incorporated in the year 2012, is a Mid Cap company (having a market cap of Rs 21126.69 Crore) operating in Gas & Petroleum sector.

CMP (26.06.2020)        :           Rs 306.90

Target                           :           Rs 340.00

Stop Loss                      :           Rs 286.00

Duration                       :           1 week

Gujarat Gas Ltd. key Products/Revenue Segments include Gas Natural which contributed Rs 7927.55 Crore to Sales Value (99.56 % of Total Sales) and Other Operating Revenue which contributed Rs 34.93 Crore to Sales Value (0.43 % of Total Sales)for the year ending 31-Mar-2019.

For the quarter ended 31-03-2020, the company has reported a Consolidated sale of Rs 2666.63 Crore, up 3.99 % from last quarter Sales of Rs 2564.25 Crore and up 39.79 % from last year same quarter Sales of Rs 1907.55 Crore Company has reported net profit after tax of Rs 251.42 Crore in latest quarter.

 

This is a continuous dividend pay-out stock and recently it was announced 62.5% dividend for its shareholders.

 

The promotors are holding 61% of its shares and Foreign institutions, Mutual funds and other institutional investors are holding more than 33% shares in the company. Only 5.37% shares are only with General public.

Technical Analysis:

This Stock has given multiple breakouts on multiple time frame including four hourly, daily and weekly charts which suggest stock is bullish on all time frames.

Strong volume activity is witnessed at the time of breakout.

Momentum indicator RSI and MACD are ranging in positive territory. 

Lets start pick up the stock from the first day of the trade and get the fruits before the end of the week.

Note: The analysis is based on the information received from the company fundamentals and its technical trends. Investing in securities always depending upon the market conditions and risk. 

For trading and Fundamental & Technical training:

Exchequer Business Services: 

We provide trading platform and training to become successful investor/trader in stock markets.

We work with LKP Securities Ltd., (Source and resources)

Email: exchequer.bs@gmail.com

Mobile: 8651039124 (Whatsapp only)

Cochin Shipyard – Strong Q4 and going to be very strong Fy22

Cochin Shipyard Ltd., incorporated in the year 1972, is a Mid Cap company (having a market cap of Rs 3990.94 Crore) operating in Defense sector.

 

 

CMP (25.06.2020)        :          Rs 303.40

Target (12 Months)       :           Rs 350.00 +

Potential Returns          :           13%

 

Cochin Shipyard Ltd. key Products/Revenue Segments include Indigenous Aircraft Carrier which contributed Rs 1756.76 Crore to Sales Value (59.30 % of Total Sales), Ship Repairs which contributed Rs 831.97 Crore to Sales Value (28.08 % of Total Sales), Vessels which contributed Rs 373.42 Crore to Sales Value (12.60 % of Total Sales), Other Operating Revenue which contributed Rs .00 Crore to Sales Value (0.00 % of Total Sales)for the year ending 31-Mar-2019.

For the quarter ended 31-03-2020, the company has reported a Consolidated sales of Rs 816.69 Crore, down -8.86 % from last quarter Sales of Rs 896.09 Crore and up 3.69 % from last year same quarter Sales of Rs 787.61 Crore Company has reported net profit after tax of Rs 137.53 Crore in latest quarter.

 

 

 

Q4 numbers tad better than expectations

Cochin Shipyard Ltd (CSL) reported a healthy set of numbers in Q4 with topline growing by 3.6% yoy, though on a qoq basis they fell by 9%. 

The material costs saw a contraction in Q4 as they stood at 48.3%. Subcontracting costs dropped by 18.4% yoy in the quarter. 

EBITDA margins saw a solid surge at 20% v/s 14% yoy as the company reported strong ship repair margins at 27% on a strong execution and delivery in this business. 

Other income fell to ₹450 mn over ₹643 mn yoy. PBT grew by 14.8% yoy to ₹1.8 bn, while reporting strong margins at 22.6%. PAT came at ₹1.4 bn , which has grown by 42.5% yoy, while margins came at 17%. 

The company delivered a 1000 MT Cargo vessel for A&N administration. The company also delivered 8 RoRo vessels (2 are remaining) and one fishing vessel to TN fishermen. 

Impact of COVID was very well felt in the quarter for last seven days and in Q1, as a result of which the delivery of IAC will be further delayed to FY 22 from the planned date of Feb 2021. 

The company has announced ₹15/share of final dividend, taking FY20 dividend yield to 6.2% at ~30% payout.

COVID to impact Q1 severely, CSL to get back on track from Q2 and see a surge in FY 22.

We believe that the delivery schedule of FY 21 will be impacted by COVID. The first two months of Q1 being totally impacted, we expect a lackluster performance in the current quarter. 

In Q2, slowly things are expected to be back on track with restrictions getting relaxed and employees (most probably including migrated labor) getting back to work at full strength. 

In the last week of April, all of the company’s plants started functioning. Currently the company is working in two shifts with 50% of employees working in each shift and is planning to operate at full time shortly. 

The delivery of company’s flagship IAC project (~65% of shipbuilding revenues) is expected to get delayed to FY22 due to COVID.

The company now has an order book of ₹146 bn (4.3x FY 19 revenues) which includes ₹128 bn of IAC and ASWC projects and 5bn of ship repair projects among others. On the back of COVID, management has guided for almost a flattish revenues growth in FY 21, while a dip in profitability in the same period. 

CSL also mentioned that they have not received any compensation from the government in Q1, which indicates that we may see a more than expected dip in FY 21 numbers. Although the company may come back on track from Q2, still the damage done in Q1 isirrecoverable. The important delivery of IAC will also be pushed to FY 22, thus lifting the numbers of FY 22. 

Hence on low base of FY 21, we expect FY 22 to be a strong year. Doubling of capacities through investing in a new dry dock (full commissioning by Dec 22) will ensure smooth and timely manufacturing of new businesses in the medium to long term. 

Additionally, the company has also bid for various other big projects from the MoD through RFPs for NGMV, MPV and Offshore Patrol vessels collectively worth between ₹130-150 bn. 

Any order win out of these projects will further elevate the financials. Furthermore, IAC will keep on adding to the top line through Phase 2 and 3 of IAC projects till FY 24. Also in Q4 the company acquired a smaller shipyard at Malpe (Karnataka) to manufacture fishing vessels, which may add some value to the company.

 

 

 

 

Margins to be impacted in FY 21, FY 22 to see a good improvement on higher ship repair revenues.

The company earns 17% of top line from the ship repair segment (25% margins in FY 20 and 27% in Q4 FY20) in which CSL is the market leader. Going forward, the company is investing a capex of ₹4.36 bn in ISRF (International Ship Repair Facility) which has a capacity of repairing 70 vessels (revenues capacity of ₹6.5 bn) will be fully operational by Dec 21. The Mumbai ship repairing capacity was functioning at full swing pre-Covid and was on track to add the initially targeted revenues of ₹1 bn in FY 21. However now, with severe lock down observed in Mumbai, CSL now targets a reduced target of ₹750 mn for FY 21. Mumbai facility added ₹510 mn to the topline in FY20. Kolkata facility is still at a nascent stage but will start adding meaningfully to the top line soon.

On lower operating leverage and top line, the margins in FY 21 will fall accordingly. However, with higher contribution coming from ship repair business in FY 22 and superior employee efficiency ratio, we expect strong recovery in margins in FY 22.

 

 

 

Outlook and Valuation:

Although Q1 is expected to post a very subdued performance, we expect a better performance from Q2. The company highlighted that they have not received any contribution from the government in Q1 yet, but they have promised to pay 80% of its Q1 receivables in Q2. This would provide a good boost in the ensuing quarters. The company has got a sizeable order book for the coming 2-3 years. The prestigious IAC project will continue to add to the topline till FY 24. ASWC project, FPVs, fishing vessels, RoRo vessels will continue to add to the top line hereon.

Any win at the RFP shall add significantly to the topline. COVID will push the delivery of IAC to FY 22 which will lift up FY 22 numbers while reducing FY 21 numbers. Higher contribution from the non-cyclical, high margin ship repair business will continue to contribute more to the margins.

Increase in capacity at this business at the high IRR (10-11%) ISRF facility should augur well to the profitability. In line with the expected severely impacted Q1 we are reducing our FY 21 numbers, and now expect a 12% fall in bottom line. We are however reducing our FY 22E estimates slightly in line with FY 21E and slight uncertainty from the receivables from the government. 

However, with highest margins in the industry, competitive moat in the ship repair business, robust employee efficiency ratios, comfortable financial leverage we still like the company and maintain a BUY rating though with a slightly reduced target price of ₹350.

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AU Small Finance Bank – A strong growth potential stock

Au Small Finance Bank Ltd., incorporated in the year 1996, is a banking company (having a market cap of Rs 17113.02 Crore).

Au Small Finance Bank Ltd. key Products/Revenue Segments include Interest & Discount on Advances & Bills which contributed Rs 2348.01 Crore to Sales Value (79.62 % of Total Sales), Interest which contributed Rs 280.66 Crore to Sales Value (9.51 % of Total Sales) and Income From Investment which contributed Rs 274.09 Crore to Sales Value (9.29 % of Total Sales)for the year ending 31-Mar-2019.

The Bank has reported a Gross Non Performing Assets (Gross NPAs) of Rs 457.78 Crore (.00 % of total assets) and Net Non-Performing Assets (Net NPAs) of Rs 217.30 Crore (.00% of total assets).

For the quarter ended 31-03-2020, the company has reported a Standalone Interest Income of Rs 952.72 Crore, up 7.87 % from last quarter Interest Income of Rs 883.25 Crore and up 34.37 % from last year same quarter Interest Income of Rs 709.03 Crore. The bank has reported net profit after tax of Rs 122.32 Crore in latest quarter.

 

The Key points:

F   AU SFB’s Loan AUM increased by 37.2% YoY (7.1 % QoQ) to ₹ 298.7 bn with a major contribution coming from the Retail segment, which increased by 45.8% YoY. The Retail segment was primarily driven by a 11.5 times YoY increase in Housing loans, coupled with wheels and SBL-MSME segment which too supported retail asset growth by 32.7% YoY and 51.2% YoY, respectively.

·   More than 95% Secured Book, a key factor in maintaining contained credit cost.

·  AUBANK has built a strong presence across three lending segments – vehicle loans, MSME loans and SME loans. It has always focused on secured lending, which has enabled it to maintain strong control on asset quality across economic cycles. Unlike most other NBFCs that have received the SFB license, AUBANK does not have any exposure to the micro-finance segment or to unsecured personal loans. Given the collateralized nature of lending (~99% of loans are secured) AUBANK is able to maintain a strong control on its loss ratios in the event of a default.

 

 First 10 quarters of Bank – Building a Technology Led, Retail, Secured, Granular and Diversified Franchise:

• More than 14.50 lakh customers

• Loan AUM grew 38% y-o-y to INR 27,876 Crore and Deposits grew 72% y-o-y to INR 22,149 Crore

• 79% retail loan proportion; more than 95% secured; ~5 lakh avg. ticket size for retail loans

• Focus on Retail Term Deposits and CASA; Currently at 42% of Total Deposits.

Share holding pattern of the Company is as below. Foreign institutions have invested more than  28% of its stake. 

Category	No. of shares	Percentage
Promoters	94,118,392	30.95
Foreign Institutions	87,248,957	28.69
NBFC and Mutual Funds	33,647,831	11.06
Others	49,457,167	16.26
General Public	26,388,048	8.68
Financial Institutions	13,262,932	4.36

Conclusion : 

Overall AU Small Finance Bank has reported strong growth numbers in an environment where other banks are struggling to continue their day to day operations. On the top of that the bank has maintained strong liquidity surplus of Rs 49 Billion and also has LCR of 137% which indicates a comfortable liquidity position of the bank. Also, when banks such as Indusind Bank, RBL Bank etc have been seen large flux of withdrawal of deposits total deposits of AU Bank grew 34.7 per cent YoY/9.6 per cent QoQ to Rs 261.6 billion which shows more faith of the people.

With majority of loan book spread across Retail segment, in the current economy downturn the bank may take a hit in terms of spike in NPA’s , Provisioning , Profitability etc but we believe the bank is well placed to absorb that shock and growth significantly once the economy starts to recover thereby earnings getting to normalised levels faster than compared to its peers.

Recommendations:

The stock is presently trading at first retrenchment of 23.6 % of Fibonacci after downfall during march due to pandemic. Today (24.6.2020) the CMP is Rs 562.70 and expected to reach Rs 790/- within three months with the expected returns of 50%.

Hi why to late lets build up your wealth... 

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Adani Gas – A Good pic for short term gains in a week..

Adani Gas Ltd., incorporated in the year 2005, is a Large Cap company (having a market cap of Rs 15655.80 Crore) operating in Gas & Petroleum sector.

 

Adani Gas Ltd. key Products/Revenue Segments include Piped Natural Gas (PNG) which contributed Rs 950.42 Crore to Sales Value (52.12 % of Total Sales), Compressed Natural Gas (CNG) which contributed Rs 851.74 Crore to Sales Value (46.70 % of Total Sales), Other Operating Revenue which contributed Rs 9.59 Crore to Sales Value (0.52 % of Total Sales), Connection Income which contributed Rs 9.31 Crore to Sales Value (0.51 % of Total Sales), Transportation Income which contributed Rs 2.43 Crore to Sales Value (0.13 % of Total Sales)for the year ending 31-Mar-2019.

 

For the quarter ended 31-03-2020, the company has reported a Consolidated sales of Rs 462.25 Crore, down -5.50 % from last quarter Sales of Rs 489.17 Crore and down -.77 % from last year same quarter Sales of Rs 465.86 Crore Company has reported net profit after tax of Rs 122.07 Crore in latest quarter.

 

Fundamentals are very positive and the company is continuously in consistence raise in its sales, EBITDA and EPS.

 

Technical Analysis:

Stock has given fresh breakout from a rectangle pattern with good volume on four hourly chart.

 

Also prices are trading above ichimoku clouds which suggest trend is up.

 

Momentum indicator RSI and MACD are ranging in positive territory.

 

Recommendations:

 

Buy at CMP      : Rs 142 (19.06.2020)

Stop Loss        : Below Rs 135

Target             : Rs 152

Duratioon        : 1 Week

 

Note: The analysis is based on the information received from the company fundamentals and its technical trends. Investing in securities always depending upon the market conditions and risk. 

 

Exchequer Business Services. We provide platform for trading in Capital Markets and also training in Fundamentals and Technical Analysis.

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