EUR 120.00 For Business Accounts Only

MOSL: ENDURANCE TECHNOLOGIES (Buy)-Below est.-Weak India revenues impact consol. Performance

Endurance Technologies: Below est.; Weak India revenues impact consol. performance

(ENDU IN, Mkt Cap USD2.1b, CMP INR1077, TP INR1261, 17% Upside, Buy)

 

• ENDU's 3QFY20 performance miss is a reflection of the weak volume environment for 2Ws. Thus, there was a 15% revenue miss in the India business, resulting in 10% consol. PAT miss, despite commendable profitability. While near-term outlook for the 2W industry is weak, ENDU should outperform due to new customers and content increase.
• We have lowered our EPS for FY20/21E to factor in the near-term weakness in the 2W industry. However, we maintain Buy as the near-term weakness would be transitory but scope for content increase is structural. 

Strong profitability despite weak revenues in India

• revenue/EBITDA/PAT grew -9.5%/3%/12% to ~INR16.4b/INR2.6b/ INR1.24b. 9MFY20 revenue/EBITDA/PAT grew -6%/5%/18%.
• India business: S/A revenues declined ~12.5% YoY to ~INR11.6b (v/s est. ~INR13.7b), impacted by weak 2W industry volumes and commodity price pass through (-4% impact). EBITDA margins came in at 14.1% (in-line), an expansion of 200bp YoY (-110bp QoQ), due to the improving mix. QoQ margin decline was due to higher incentives in 2QFY20 (seasonally higher in 1H). PAT grew 17% YoY (-34% QoQ) to INR902m (v/s est. INR1,060m), due to lower Interest, higher other income and lower tax.
• EU business op. performance was in line. Revenues were flat at INR4.8b (in-line). In EUR terms, revenues grew 4.3%; adjusted for commodity and forex, revenue grew ~7%. EBITDA margins expanded 120bp YoY (+50bp QoQ) to 20.2% (in-line), driven by mix improvement. Lower tax boosted adj. PAT to ~INR338m (v/s est. ~INR319m), flat YoY/QoQ.