Kotak downgrades Endurance Tech to ‘sell’, lowers target price

Kotak expects Endurance earnings likely to be reduced as its key customer Bajaj Auto’s performance to get impacted amid slowdown in two wheeler export geographies, especially Africa and South Asia

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Brokerage firm Kotak Institutional Equities downgraded Endurance Technologies Ltd to ‘sell’ from ‘add’ and reduced its target price to Rs 1,325 a share from the current market price.

At 9.20am, the scrip was trading at Rs 1,424 on the BSE, down 0.07 percent from its previous close. It declined 16 percent so far this year.  The stock was down for four consecutive sessions and lost around 7 percent in this period.

Kotak expects Endurance earnings likely to be reduced as its key customer Bajaj Auto’s performance to get impacted amid slowdown in two-wheeler export geographies, especially Africa and South Asia. Kotak expects Bajaj Auto’s two-wheeler export volumes to decline by 8 percent year-on-year in FY23 estimates given inflationary pressures coupled with depressed incomes in Africa.

Endurance Tech derives 80 percent of standalone revenue from the two-wheeler segment while Bajaj Auto contributes over 45 percent of its revenues.

“Given severe rainfall deficit in key markets of Uttar Pradesh and Bihar (25-30 percent of domestic two-wheeler industry volumes), we expect retail sales in the upcoming festive season to remain muted. Ramp-up of order wins across ABS and alloy wheel segments as well as foray into new products (driveline shaft, BMS and non-auto casting) will drive growth for the company; however, weak two-wheeler demand trends, especially in rural India and export geographies, will considerably impact the standalone performance,” Kotak Institutional Equities said in its recent note.

Kotak said it has cut the FY2023-25 consolidated EPS estimates by 4-5 percent due to 3 percent cut in standalone revenue assumptions.

“Near-term challenges remain in the EU region amid rising inflation and geopolitical concerns; however, the bigger concern for the company is rapid pick-up in electrification trends in the PV segment across the EU region,” the Kotak report said.