MOSL: ENDURANCE TECHNOLOGIES (Buy)-In-line-Broad-based growth continues

Endurance Technologies: In-line; Broad-based growth continues

(ENDU IN, Mkt Cap USD2.4b, CMP INR1228, TP INR1450, 18% Upside, Buy)

• Consolidated revenue grew 23% YoY to INR19.4b (above est. of INR18.3b). EBITDA grew ~22% YoY, with margin contracting 20bp YoY and QoQ to 14.4% (v/s est. 14.8%) as lower staff cost and other expenses failed to fully off-set impact of higher RM costs. Adj. PAT was in line at INR1.25b, growing 26% YoY (flat QoQ).
• India business: S/A revenue grew ~26% YoY to ~INR14.4b (above est. of INR13.5b), growing faster than the underlying industry. This was led by continued market share gains with OEMs like HMSI, HMCL, RE, etc. EBITDA margin contracted ~40bp YoY (-60bp QoQ) to 12.9% (v/s est. 13.8%) impacted by RM cost pass-through of previous quarter. PAT grew 30% YoY to ~INR946m (v/s est. ~INR963m).
• EU business revenue grew 15% YoY to ~INR5b (v/s est. ~INR4.8b). Revenue grew 6.7% YoY in EUR terms, against European PV industry growth of 1.6%. Lower than est. RM cost led to EBITDA margin beat at 18.8% (est. 17.4%). EBITDA margin expanded 80bp YoY (+160bp QoQ). PAT grew 15% YoY to INR306m (est. INR278m).
• In 1HFY19, Revenue/PAT grew 23%/27% YoY, demanding residual growth of 21%/29%, respectively, in 2HFY19.
• Approved fresh issue of up to INR7.5b to restrict promoter holding to 75% (currently at 82.5%) and also to prepare for inorganic opportunities, if any.
• Key highlights from earnings call: (a) In 1HFY19, ENDU received new orders of INR7.3b in India business and EUR22.5m in EU business, (b) to cope with the high demand for rear disc brake assemblies, ENDU is increasing its total disc brake capacity by ~50%, with revenue potential of INR1.5b, (c) ENDU expects to grow at ~5% in Euro terms in the EU business in 2HFY19, (d) ABS launch is on track, with supplies expected to commence from Jul’19, and (e) India business capex should be over INR4.5b in FY19 (from INR4b earlier).