MOSL: ANNUAL REPORT THREADBARE (ART) | ENDURANCE TECHNOLOGIES FY18- All-round improvement, subsidiary traction intact

ANNUAL REPORT THREADBARE (ART) | ENDURANCE TECHNOLOGIES FY18: All-round improvement, subsidiary traction intact

Endurance Technologies’ FY18 annual report highlights a strong operating performance. EBITDA grew 22% to INR9.3b in FY18, led by a strong performance at the standalone level, driven by continued growth in the domestic 2W/3W sectors. However, we note that subsidiaries had outperformed over the last few years (barring FY18), led by ramp-up of operations in Europe. This is evident from EBITDA margin expansion of 565bp to 17.8% at subsidiaries over FY14-18 (margin shrank marginally by 20bp to 12.7% at standalone level over the same period). Consolidated earnings-to-cash conversion stood at 102.6% (FY17: 88.5%), primarily aided by negative working capital requirement at subsidiaries. Cash conversion cycle (CCC) for subsidiaries stood at -17 days from 52 days in FY14, while standalone CCC deteriorated to 33 days from 14 days in FY14. Negative CCC of subsidiaries, along with profitability growth, has led to high cash being constituted in capital employed (~22%), dragging the return ratios (RoIC at 18.4%, higher than RoCE of 15.9%).

• Subsidiaries growth better than standalone: While standalone growth stood higher than subsidiaries in FY18, margin improvement in subsidiaries has been better than standalone over the past four years. Subsidiaries recorded a four-year CAGR of 26% in EBITDA and 21% in profitability, higher than 10% (EBITDA) and 16% (profits) at standalone. This led to a rise in subsidiaries’ share in consolidated EBITDA to 36.4% from 24.7% in FY14. Slower growth in profitability than EBITDA at subsidiaries was primarily due to higher depreciation.
• Negative working capital at subsidiaries boosts OCF: Consolidated operating cash flow increased to INR7.2b in FY18 from INR5.1b in the previous year. Earnings-to-cash flow conversion was high at 102.6% (FY17: 88.5%), aided by superior cash conversion of subsidiaries. OCF generated by subsidiaries increased at a five-year CAGR of 33.7% (to INR3.7b), significantly higher than 5.9% (to INR3.5b) at standalone.