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MOSL: ENDURANCE TECHNOLOGIES (Buy)-All round miss; India hurt by RM cost, EU by semiconductor shortages

ENDURANCE TECHNOLOGIES: All round miss; India hurt by RM cost, EU by semiconductor shortages

(ENDU IN, Mkt Cap USD3.4b, CMP INR1816, TP INR2100, 16% Upside, Buy)

 

Wins orders in EVs and non-Auto; Semiconductor shortage in the EU to ease from 1QCY22

• 2QFY22 was impacted by RM cost inflation and semiconductor shortage. The near term outlook was impacted by weak 2W demand and the semiconductor shortage in India and the EU. However, recovery in underlying 2W demand, improvement in the EU business from 1QCY22, and possibility of new product technology are potential catalysts for the stock.
• We cut our FY22E/FY23E EPS estimate by 12.5%/2% to factor in weak 2W OEM demand and impact of the semiconductor shortage in India and the EU business. We increase our P/E multiple to 30x (from 28x earlier) to reflect newer revenue streams like non-Auto in die-casting, brakes and transmission for over 200cc Motorcycles, etc., which are not yet factored into our estimates. We maintain our Buy rating with a TP of INR2,100 per share (30x Sep’23E EPS).

 

Margin impacted by higher RM cost, operating deleverage

• Consolidated revenue grew 8% YoY and 11% QoQ to INR18.9b (est. INR19.8b). EBITDA declined by 9% YoY (+6% QoQ) to INR2.6b (est. INR3b). Adjusted PAT declined by 8% YoY (+11% QoQ) to INR1.3b (est. INR1.5b).
• India business: Standalone revenue grew 19% YoY and 30% QoQ to INR15b (est. INR15.4b). India 2W industry volumes fell 4.5% YoY, whereas ENDU’s India revenue grew 16.5% in 2QFY22 (high single-digit growth excluding the impact of metal prices and government incentive). EBITDA margin fell 200bp YoY (+80bp QoQ) to 14.2% (est. 15.5%) on higher RM cost. Adjusted PAT grew 8% YoY and 52% QoQ to INR1.2b (est. ~INR1.4b).