Endurance Tech IPO opens: Should you subscribe?

NEW DELHI: The Rs 1,161 crore initial public offering (IPO) by auto ancillary firm Endurance Technologies hits the market on Wednesday.

The company on Tuesday finalised allocation of 73.83 lakh shares to anchor investors, including Goldman Sachs, Nomura, HSBC, Merrill Lynch and Government of Singapore, among others, at a price of Rs 472 per share, aggregating to Rs 348.52 crore.

The issue is an offer for share (OFS) for 2.46 crore shares, wherein promoter Anurang Jain will look to shed up to 53 lakh shares, while existing shareholders Actis Components and System Investments will offload up to 1.93 crore shares in the Rs 467-472 price band.

Bharat Forge, Munjal Showa, Mahindra CIE Automotive and Rico Auto are some of the major listed peers of the company. They enjoy an average PE of 28.29. Endurance Technologies would trade at 22.8 times its FY16 EPS at the upper end of the price band.

Here’s what experts said on the issue:

Centrum Broking: SUBSCRIBE
Centrum Broking has recommended a ‘subscribe’ rating on the IPO, citing the company’s consistent growth, healthy financials, high return ratios and attractive valuations.

“At the upper end of the price band at 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 with the peer group average of 13.0 times EV/Ebitda and 28.8 times PE. The company has been able to maintain healthy Ebitda margin of nearly 13 per cent over FY12-16), reduced its debt to equity from 1.25 times in FY12 to 0.42 times in FY16,” the brokerage said.

Reliance Securities: SUBSCRIBE
This brokerage believes that well-diversified customer mix, geography mix, product mix and vehicle segment mix allow the company to spread its reach and increase its penetration in domestic and global auto component segment.

“Considering its bulky size, large-sized OEM customers, premium motorcycle play, high-margin European business, healthy return ratios (nearly 20 per cent ROEs), sustainable EBITDA margin and organic as well as inorganic growth opportunity, we recommend to subscribe to the IPO with a long-term time horizon. At its upper end of the price band, the IPO is valued at 22.8 times FY16 EPS and 12.3 times FY16CEPS.

Angel Broking: SUBSCRIBE
The brokerage said the issue is fairly priced at the current valuation considering its growth initiatives, scalability in operations, focus on profitability and strong RoE profile.

“With its strong focus on cost control and automation, company has improved its gross margins as well as overall profitability. Endurance also enjoys nearly 22 per cent return on equity which is better than most of its peers,” said the brokerage.

RISKS:
The biggest risk for the company is its client concentration. The company generates more than a third of its revenues from Bajaj Auto. A slowdown in Bajaj Auto and two-wheeler segment in general may weigh on the company’s sales.

But Angel Broking said the company was taking derisking measures and adding more clients in India and Europe and the strategy is expected to reduce its client concentration significantly.

The company has restricted pricing power as it has an OEM-dependent business model. Reliance Securities said that margins of the company seems to be largely capped despite being stable. Forex risks are also there as the company generates 30 per cent of its business from overseas markets. Lastly, any increase in alumunium prices post risk to company’s bottom line.

ABOUT THE COMPANY
Endurance Technologies is engaged in design, development, validation, testing, manufacturing, delivery and aftermarket sales and service of a wide range of technology-intensive auto-component products. It supplies auto parts directly to original equipment manufacturers (OEMs).

The auto component maker has 18 plants in India and seven plants in Europe. It has 12 distribution centres and 256 distributors in India and exports products to 20 countries, directly and indirectly.


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