Endurance Technologies’ Rs 1,155 Crore IPO Opens Today
Most brokerages have a ‘subscribe’ rating on the issue.
Auto ancillary manufacturer Endurance Technologies Ltd. is set to hit the primary market on Wednesday with a Rs 1,155 crore initial public offering. The price band of the IPO has been fixed at Rs 467-472 per equity share of face value of Rs 10. The issue closes on October 7.
The IPO is an offer for sale for 2.4 crore shares, which represents 17.5 percent of the total equity capital. Promoter Anurag Jain will look to shed up to 53 lakh shares or 3.8 percent stake, while existing public shareholder Actis Components and Systems Investment Ltd. will offload its entire 13.72 percent stake or 1.93 crore shares.
After listing, the company will have a market capitalisation of close to Rs 6,600 crore.
Business
In its draft prospectus, Endurance Technologies claims to be the largest two-wheeler and three-wheeler automotive component manufacturer in India in terms of revenue in their select product segments.
It is engaged in the 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 company has 18 plants in India and seven in Europe (Italy and Germany).
The draft prospectus also boasts of 25 trademarks, patents and designs and 52 trademarks, patents and designs applications pending for approval.
Expansion Plans
The company has commissioned one new manufacturing plan which will be completed by financial year 2017-18. It has also just set-up a machining plant in Germany which will be operational by end of financial year 2016-17. It is currently in the initial stages of planning an automotive proving ground in India, which will be operational by the end of 2018, the company said in its draft prospectus.
Acquisitions
In financial year 2006-07 the company acquired Amann Druckguss GmbH, a Germany-based company involved in manufacturing of high pressure die-casting and machined components. In financial year 2007-2008, Endurance bought an Italy-based company Fondalmec S.p.A, involved in the manufacture of metal parts. In 2015, it acquired a 100 percent stake in another Italy-based company FOA S.p.A, involved in the production of special automotive components. All three acquisitions were done via subsidiary companies of Endurance Technologies.
Revenue Sources
Nearly 83 percent of its revenue comes from the top eight customers. Of the top eight, Bajaj Auto accounts for 37.7 percent of its revenues. Other top customers include Royal Enfield, Honda, Yamaha, Fiat Chrysler and Daimler.
The majority of the company’s revenue comes from aluminium castings and machining followed by suspension. Revenue from the aluminium castings business grew at a compounded annual growth rate of 12 percent, while the suspension product business grew at 11 percent in the last three financial years.
Financial Highlights
- The net worth of the company as on March 31, 2016 was Rs 1,532.3 crore.
- At the upper end of the price band, i.e., Rs 472, the earnings per share (EPS) and price-earnings ratio (P/E) for FY16 stands at Rs 20.7 and 22.8 times, respectively. At the lower end of the price band, i.e., Rs 467, the P/E multiple stands at 22.5 times, according to BloombergQuint’s calculations.
- Revenue for financial year 2015-16 stood at Rs 5,240.5 crore, rising at a compounded annual growth rate of 8 percent over the past 5 years.
- Net profit for the same period stood at Rs 291 crore, growing at a compounded annual growth rate of 12.4 percent in the past 5 years.
- For the first quarter of financial year 2016-2017, the company’s revenue grew at 13 percent year-on-year to Rs 1,536.3 crore and net profit grew 9 percent year-on-year to Rs 83 crore.
Peer Comparison
The company’s only listed competitor in terms of similar market capitalisation is Mahindra CIE. The financial numbers listed below are not directly comparable as Mahindra CIE follows a different financial year. Bharat Forge is yet another competitor but its market capitalisation and revenue are much higher compared to Endurance Technologies.
Endurance Technologies’ return on networth is better than peers and it will trade at a cheaper forward price-to-earnings (P/E) ratio, according to data compiled by BloombergQuint. The company is likely to trade at a forward P/E of 20 times, while its peers are trading in the range of 29 to 34 times.
Shareholding
The existing public shareholder Actis Components and System Investments will sell its entire stake in this initial public offering while promoter Anurag Jain will reduce his stake to 28.42 percent.
Subsidiaries
Endurance Technologies has four wholly-owned subsidiaries in Italy and one wholly owned subsidiary in Germany.
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The company has a planned capital expenditure of Rs 397 crore to improve information technology, efficiency, and productivity. Of this, Rs 272 crore will be spent on its India business and the balance Rs 125 crore on its European operations.
Anchor Investor Allocations
The auto component maker allotted 73,83,906 equity shares to 24 anchor investors at Rs 472 per share. Smallcap World Fund Inc. was allotted 12.91 percent of the total anchor investor portion followed by Merill Lynch Markets Singapore Pte. at 6.03 percent.
Government of Singapore and Monetary Authority of Singapore were allotted 4.3 percent and 2.87 percent respectively, while Goldman Sachs India and Nomura Funds were allotted 4.3 percent each of the anchor investor portion.
ICICI Prudential Life Insurance, HDFC Standard Life Insurance and SBI Life Insurance were the three insurance companies who were allotted 4.3 percent each of the total anchor investor portion.
Brokerage Views
Anand Rathi recommends a ‘subscribe’ in the long term.
Endurance Technologies has consistent track record of organic and inorganic growth with revenue CAGR of 8 percent in last five years. We recommend subscribe on a “long term” basis given that at upper price band of Rs. 472 its PE at 22.8 on FY16 earnings and 20.7 on FY17e earnings.
Angel Broking has also rated the IPO a ‘subscribe’, but says the company’s revenue reliance on Bajaj Auto is a risk factor.
We recommend to ‘subscribe’ to this issue as it is fairly priced at the current valuation considering its growth initiatives, scalability in operations, focus on profitability and strong return on equity profile. We view Endurance as profitable franchisee and with higher scalability in its business.
ICICI Securities rates the issue ‘subscribe’. The brokerage says Endurance Technologies is better placed compared to peers and has shown stable financial performance.
Endurance Technologies has outperformed industry growth in the past with consistent free cash flow generation and strong return ratios . At the upper price band of Rs 472, the stock is available at 22.9x on FY16 EPS of Rs 20.6. We believe the company has a stable business model (strong customer base and diversified revenue) and financial performance.
Geojit BNP Paribas Research has a ‘subscribe’ rating on the issue with a medium to long term perspective.
Endurance Technologies has a track record of successful inorganic growth. Further, adequate cash reserves on the book provides the company a comfortable leeway for further inorganic growth. We are positive on the stock considering diversified product portfolio, long standing relationships with OEMs and continuous focus on new product development. At upper price band of Rs 472, it is available at 22.8x FY16 PE, which we believe is fairly priced as compared to peers.