Endurance Technologies IPO – Should you invest?

Endurance Technologies IPO ReviewEndurance Technologies IPO – Should you invest?

Maharashtra based, Endurance Technologies IPO would open for subscription on 5th October, 2016. Endurance Technologies Limited is in the business of manufacturing two and three wheeler auto components. The company revenues grew at 8% in the last 5 years. It has earned 5% margins in the last few years. Should you invest in an Endurance Technologies IPO? What are the risk factors an investor should consider before investing in such IPO’s?

About the company – Endurance Technologies Limited

They are the largest two-wheeler and three-wheeler automotive component manufacturer in India in terms of aggregate revenue for FY2015 from its selected product segments. They also have operations in Europe with highly-automated manufacturing facilities in Italy and Germany. Tier one companies are companies that directly supply to OEMs, and they are a tier one supplier to OEMs for most of its products. According to the Aluminium Casters' Association of India, they are the number one aluminium die-casting company in India in terms of actual output and installed capacity in FY2016. They are a complete solutions provider, providing end-to-end services by engaging its customers from conception to end-user delivery. Its development process includes design, development, validation, testing, manufacturing, delivery and aftermarket sale service for a wide range of technology-intensive auto component products leading to better customer satisfaction and diversification of its customer base. They are an innovation-driven company with strong focus on research and development ("R&D"), which allows to develop new products suited to customer requirements. For FY2015 and FY2016, company total revenue contribution from India was 71.5% and 70.1%, respectively, while its total revenue contribution from Europe was 28.5% and 29.9%, respectively.

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Issue details of Endurance Technologies IPO

IPO opens: 5-Oct-2016

IPO closes: 7-Oct-2016

Face Value: Rs 10 per share

Issue price band: Rs 467 to 472 per share

Issue size: Rs 1,161 Crores.

Market lot: minimum of 30 shares

Minimum investment: Rs 14,010 on lower price band

Lead Managers: Axis Capital and Citigroup Global Markets

Listing: BSE / NSE

Download Endurance Technologies IPO  Prospectus at this link.

Objects of the Endurance Technologies Ltd IPO issue

The Net Proceeds from the Issue will be utilized towards the following objects:

(a) To carry out the offer for sale (OFS)

(b) Achieve the benefits of listing of equity shares on the stock exchanges.

Company Financials (reinstated-Consolidated)

1) The company generated revenue of Rs 3,831.75 Crores  for the year ended Mar-12 and Rs 5,240.56 Crores for the year ended Mar-16.  

2) The company posted a profit of Rs 182.3 Crores for the year ended Mar-12 and profit of Rs 289.83 Crores for the year ended Mar-16.

3) Its restated-consolidated EPS for FY 2016 is Rs 20.6 and last 3 years average EPS Rs 18.7.

Financials of Endurance Technologies Ltd IPO

Reasons to invest Endurance Technologies IPO

1) Good revenue growth at 8% CAGR in last 5 years.

2) Consistent track record of organic and inorganic growth.

3) They are the largest two-wheeler and three-wheeler automotive component manufacturer in India in terms of aggregate revenue from its selected product segments.

4) Strong customer relationships with a wide variety of OEMs.

Reasons not to invest in an Endurance Technologies Ltd IPO

1) Low margins of 5% in last 5 years. 

2) Pricing pressure from customers may adversely affect company gross margin, profitability and ability to increase company prices, which in turn may materially adversely affect company business, results of operations and financial condition.

3) Company business is dependent on certain principal customers, especially Bajaj Auto Limited in India and FCA Italy S.p.A and its group companies in Europe, and the loss of such customers or a significant reduction in purchases by such customers could adversely affect company business, results of operations and financial condition.

4) They are heavily dependent on the performance of the automotive sector in India, particularly the market for two-wheelers in India. They are also dependent on the performance of the automotive sector in Europe for the company-wheeler market. Any adverse changes in the conditions affecting these markets can adversely impact company business, results of operations and financial condition.

5) They are highly dependent on the company management team and certain management personnel, especially  the engineers in company research and development team who are involved in the expansion of company research and development capabilities. Any loss of such team members or the inability to attract or retain research and development personnel may materially adversely affect company's business performance and research and development efforts.

6) Company's failure to identify and understand evolving industry trends and preferences and to develop new products to meet company customers' demands may materially adversely affect company business.

7) Company's success depends in large part upon company Promoter. If company Promoter is unable or unwilling to continue in his present position, it would be difficult to replace and company business, prospects and results of operations could be materially adversely affected.

8) They are subject to environmental and safety regulations that may adversely affect company business and they have been subject to environmental notices in respect of certain of company manufacturing facilities and may be subject to further notices in the future.

9) Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 17 onwards.

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Recommendation / Investment strategy – Endurance Technologies IPO

On the upper price band of Rs 472 and on FY16 EPS of Rs 20.6, P/E ratio works out to 22.9x. Similarly, on last 3 years EPS of Rs 18.7, P/E Ratio works out to 25.2x. Means company is asking the upper band of issue price of Rs 472 for a P/E ratio between 22.9x to 25.2x. Its peers like Mahindra Automative Ltd is trading at a P/E ratio of 67 (Highest) and Munjal Showa Ltd is trading at P/E ratio 11.65 (Lowest). Hence the upper price band of Rs 472 for this IPO is reasonably priced.

Company revenues grew at 8% CAGR in last 5 years. It generates low margins of 5%. The issue price is reasonably priced. Currently, I am neutral on this IPO. High risk investors with 2-3 years investment horizon can invest in this IPO. One may or may not expect listing gains at it depends on investor sentiment towards this IPO.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

Endurance Technologies IPO – Should you invest

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