Endurance Technologies Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Manish Oswal from Nirmal Bang Securities Private Limited.

I have a question on the Slide # 12 of the presentation where the scooter segment has seen a decline of 4.4% while industry volume is 12.4% . In the last quarter, there was very strong growth. So, any spillover effect? Can you comment on this line item , why there is a decline in this particular quarter?

I think this decline is mainly due to the dec line of Honda Motorcycles and S cooters. As you know, they have had a degrowth. HMSI is the second largest OEM customer, and when they get impacted, we also get impacted. If you see the previous financial year, when they grew, we did very well. HMSI is a market leader for scooters, so it does have an impact.

The next question is from the line of Aditya Jhawar from Investec.

Congrats on a resilient quarter. My first question is on the standalone business, the India business, where we saw a Y-o-Y basis margin compression. If you can explain that, if you can quantify what could be the impact of aluminum pass-through, a nd what would be the other variables to drive this Y-o-Y margin compression?

We did get a flavor of that when the Managing Director spoke. W e did have a compression in margin. When we compare with our product sales, there is close to a 1.36% increase in material cost. And this is coming predominantly , about 40%, from aluminum price increase. Also, strategically we have been consuming some material for our R&D projects, because we are getting a lot of suspension orders, and also we are getting ready for the upcoming legislation on ABS. And there have been some seasonal effects. Generally, in Half – I we have this benefit in terms of turnover discount. Last year, we had it in the first half. This year they have been moved to the second half, so, there have been some seasonality effects. In effect, I would say that close to 40%-50% of that is from the commodity side, some part of it is the additional consumption due for our R&D projects, and some of it is the seasonality aspect of some one -timer effects in the last year same quarter, and some of them which have been postponed to the upcoming quarters in this year. And the other aspect which was also mentioned by the Managing Director in his opening remarks, is the employee cost. W e have spent on employee cost for strategic reasons, and this will have a gestation impact where these additional people are in Sourcing, Strategy functions, and R&D function, which are important for our upcoming growth plans. And the third one is on the special project s under Other E xpenses, we did spend a bit on the consultant's cost and the associated travel and other deployment costs of the strategies to reduce the material costs and also to increase our Aftermarket sales. And this would continue for the next 2 quarters at least. So, we are beginning to see the impact of some of the initiatives, which we are taking for future growth and also the future cost competitiveness.

Yes, that's good to know. So, do we expect that next financial year we will be back to historical margin trajectory for the standalone business? Is it fair to assume that some of these headwinds might no longer be there?

Yes. We are very, very focused on that, and we will put all our efforts to improve the product mix also. That's clearly our target as we go forward. As we believe in only profitable growth, but I think this raw material cost increase and these 2 special projects as well as our investment in people for the future was very important for us. So, here we don't look at just the margin percentage, we look at the future of the company, and that's very important for us going forward.

Next question is on our ABS expansion plan. So, where are we in terms of the expansion plans and incremental discussion with customers? What kind of timelines you are anticipating for the regulation to get implemented?

Right now, we have a capacity of 640,000, which I said we will reach in Q4 based on the line of sight we have on schedules from our customers by Q4 of this year. We have ordered a 1.2 million capacity ABS line, which we will install by Q1 of next financial year. We expect the guidelines to come this month, and I think the capacity utilis ation of the line which we have ordered will be based on the lead time to implement these new guidelines. But today definitely we have a line of sight to use that line, but we will have to see the timeline which is finalized under this new guideline. And the second 1.2 million line - we will order based on the final guideline. We are talking to all the OEMs on the AB S and there are not many suppliers . So, we are very, very optimistic about this new business, going forward.

We have made some inroads into 4W proprietary products. It's been already spoken in last couple of investor meetings. 4W Suspension is very much on our cards, and we are very close to getting into one of the OEMs now. As you know it's a technology product, and OEMs will only take it when you prove your competency. We are ver y close to getting into a leading OEM of India. The second one is also in the queue. So, as we get closer to it and we get a l etter of intent, you will come to know about it. But there can be exciting news in the near future, on this front.

If you can give outlook for the European business, medium term outlook, and any impact of this Nexperia chip issue that they are anticipating on the production line?

In Europe, the quarter closed with an increase of 7.7% in terms of vehicle registration. But if you analyze the production of vehicles, it continues to go down. This means that the market is growing only because they are reducing stock with discounts. The expectation for the future months is that the market remains stable. In this situation, at Endurance, we are performing, in line with the market, with an increase of 7.8% without Stöferle, as compared to the previous year. And our higher sales are not from stock, but from more production compared to the previous year. And we continue to be optimistic for the future 2 quarters, because the expectation is that market stability will continue. In Europe, we await the governments’ position on the new June 2026 Green Deal. We anticipate the situation to remain largely stable until then. Speaking about the situation regarding the component shortage, there are no issues from our customers. We have received indications from Stellantis and Volkswagen Group, that constitute approx 50% of our customer portfolio. So, at the moment, we don't see any problem.

Thank you. The next question is from the line of Viraj from SiMPL. Please go ahead.

So, what technology, we are looking for in the business in 4W suspension? Is the competitive intensity quite high? How should we understand profitability in this segment for us?

It's a tough business to get into. We are a late entrant, rather, we have not entered the 4 W suspension as yet. There are established players in the market. But as you know, we always strive to give best value to our customers by way of the frugal technology. As we told you in the last time, we already have a technology partner from Korea, that is very formidable. And we fe el their technology will be highly suited for the Indian cars, especially the small size cars. And we will definitely bring some value through local expertise. Our engineering is also equally strong in suspension. As you know, we are market leaders in 2W. So, there will be a lot of horizontal deployment from the learning of 2W. And we are pretty sure that we will crack into certain major markets, major customers in the passenger vehicles, and also make decent kind of the profitable proposition to the compan y. So, we are confident about it.

You talked about inverted front forks. What will be our market share there, just to get a perspective? And what is the adoption we are seeing in the industry?

I would not know the market share , but it definitely is a high majority. In front fork, we are, I think, at 43% of the market. And in shock absorbers, we are 44% of the market. This is as of Q2. In Inverted fork, we are definitely higher because there are very few players. We had the first mover advantage with our technology with KTM in 2008. Bajaj Auto, of course is also increasing its requirement, we are also starting with Hero Motocorp as well as with a Chinese OEM in Q1 FY '27, and we are in touch with almost every OEM on the inverted front fork.

Last question. On the solar damper side, you talked about us talking to further few large OEMs. Any color you can give in what stage the discussions are, and how big business can be for us in next, 3 to 4 years?

Okay, so this is relatively a new addition to our portfolio , and we have already started bulk supplies to this market as one of the fastest entrants into this segment. We know there is competition in this segment as well, but I think the way we ha ve gotten into it has been well appreciated by the customer, their confidence has gone up. So, we will grow this business very rapidly. Last time, I mentioned that the market potential is huge. Without floating any number, I can tell you that it can be a very significant part of our total business. It all depends upon how well we are able to garner customer support. T here are multiple players in this space, one Spanish company is already with us, and we are going to 2 more companies. We are in deep discussions, if that works out, the size of this business could be very significant.

So, over a 5-year period, can it be like 10% or 15% of our business? Does it have that kind of a potential to be, you know?

Of our total business? No, no, no. I don't want to say any number at this stage. It's a bit too premature, but I can only say the potential is huge.

Thank you. The next question is from the line of Rajit Aggarwal from Nilgiri Investment Managers.

Good morning, sir. This question is related to the European business, and also on the overall margins. So, the European business sequentially has seen a decline in turnover, whereas the last quarter, there was an industry-wide degrowth, this quarter the industry has actually grown. And despite that, sequentially, our numbers are lower. At the same time, the margins seem to be higher. How do we read these numbers?

Okay. So, speaking about the 2nd Quarter of the European operation, we closed with EUR 88.7 million turnover compared to EUR 66.9 million of the previous financial year, with an increase of 32.7%. In terms of EBITDA, EUR 15.8 million, 17.8% compared to EUR 10.7 million, 16% of the previous financial year. In terms of net results, we grew 36%. Net profit EUR 3.9 million, 4.4%, compared to EUR 2.9 million the previous year, 4.3%. The company grew without considering Stoferle, more or less 6% in terms of turnover, and 7% in terms of EBITDA. If you compare this quarter with the pre vious quarter, the reduction is only due to the normal seasonality of the business in Europe. In fact, we closed with EUR 88.7 million turnover, compared to EUR 103 million of the previous quarter, of Q1 FY 26, but the market went down 13.3% compared to the previous quarter. In the European Union, 2.5 million new cars were registered in this quarter compared to 2.9 million in the previous quarter. This is normal for Europe, because the 2nd Quarter of the financial year, there is a typical slowdown because of holidays. You can't compare it to the first quarter. This has been the pattern in the past as well, and you can check.

Thanks a lot for the clarification. And the follow -up question was on the margins. So, the margins of this quarter, are they going to continue for European business? Will the trend be the same?

We will try to do the best. For sure, this is our target. We are growing more than 47% in terms of EBITDA compared to the previous financial year. The EBITDA rate is 17.8%. Speaking about energy prices, please consider that it continues to have 3x the energy cost and the gas compared to pre-Covid situation. So, from my point of view, the pe rformance is really, really good. And the expectation for the future months is to maintain and to improve the profitability.

The presentation did mention that there were certain tooling orders in this quarter. So, if those were to be removed, then what would be the margins in the European business? Because tooling orders, I am assuming, are generally higher margin orders.

It depends, because in tooling you can have 10% to 40% of the trading margin. It depends on whether we are speaking about tooling of foundry or tooling for the machining. Because , when you make important investments, you receive 15% to 20% of contribution from the customer. But we don't consider the tooling profitability, we consider only the industrial profitability. It is correct to say that in Q2 of the previous financial year, we had an important impact in terms of turnover due to tooling. And if you adjust for this, the real increase of turnover compared to the previous year has been 7.8%, compared to a market that grew 7.5%. This is the reason why we say that we are growing more than the market. And on top of this, our increase in turnover is from real production, as you can imagine. For the registration, as I told you before, the market is only de-stocking the dealer. Because the vehicle production continues to go down. Just t o give you an idea, the German market, which is the major market in terms of production in Europe, lost around 4% of production compared to the same quarter in the previous year.

Can you quantify the amount of tooling orders in terms of Euro or INR?

The existing tooling order could be something like EUR 14 million.

No, I am sorry. The revenue from tooling in Q2?

EUR 1.9 million is the reduction in tooling sales in Q2 compared to the previous quarter.

What will be the CAPEX in Q3 and Q4?

Speaking about Europe, more or less, it is EUR 22 million. Our expectation is to reach EUR 30 million to EUR 32 million in the total financial year.

In India, standalone business, we may be closing the year with close to INR 750 to INR 800 crores, and we already have done INR 460 crores in the first half.

So, there will be an incremental INR 300 to INR 350 crores.

Yes. Mainly it's in 3 new plants, which are coming up this year.

Thank you. The next question is from the line of Mr. Nishit Jalan fro m Axis Capital Limited. Please go ahead.

On the India business, on the 4W side, we have been winning a lot of orders, but our revenue has been stuck at around 5% to 6% of total revenues. How do you see revenue scaling up in this business over the next 2 years? Will the contribution from this business go up meaningfully from here on? And my second question is on Europe. In Europe, earlier you used to say that, a lot of EV business is coming in, where investments initially will be higher? So, we should start looking at our EBIT margin. Your depreciation expenses have gone up substantially. Is it because of EV investment?

In Europe, I confirm that the increase in depreciation in the quarter is due to the start of the important investment we have made for Stellantis and Volkswagen. And there will be another step-up increase of depreciation in the next quarter for the start of the new lines for Volkswagen 1.5 L gasoline. This is due to the important investment we have made in the past, but it's not an issue because we are growing more or less 1.6% in terms of cash profit. And so, if we are able to increase the EBITDA in line with the increase in depreciation, it means that the payback of th ese investments is aligned with our expectations. I don't see any kind of problem.

You mentioned that the depreciation is increasing because of some startup costs. So, is it going to be the normal run rate, or you will see depreciation coming off beyond once the plant starts, or it's going to stay around the similar levels?

It will be the normal trend.

As far as India is concerned, we have won since FY 22, INR 3,953 crores of business, out of which we have realized around INR 1,440 crores last year. And this year, we will do about INR 1,160 crores of this business. And the balance will be in the next 2 years. I said we will reach a peak of INR 3,500 crores per annum in FY 28 versus INR 3,953 crores. That's the line of sight we see, which is there. I also said we will win further more than INR 1,500 crores against the INR 4,200 crores we have of RFQs. This is the line of sight which we have. We are also winning mainly for AURIC Shendra plant. If you see the casting orders for electric vehicles, we have already won INR 456 crores from 4 customers. Apart from that, we have also won another INR 355 crores of orders this year, which is for 4W castings. We also won the driveshaft proprietary business of about INR 24 crores per annum last year. Now we have won the drum brakes order. And we are really focusing on growth on the proprietary business, which is taking a bit of time, but definitely step by step, like in 2 W, we will gradually build up the business. We plan to do so with our strength on technology and on cost. I am not worried about the growth. I think we have to focus more on product mix and cost control, and that's why we are trying to see that w e take more and more profitable business in the future. I am very, very confident of the way things are going.

Thank you. The next question is from the line of Jinesh Gandhi from Oaklane Capital. Please go ahead.

Anurang, a question on Maxwell. Given that we are broad -basing that business from pure play BMS now to also having other electronic components, are we also thinking of broad-basing beyond e2W, broad-basing beyond autos, given opportunities which are opening up in energy storage and other areas?

We have done a forward integration to Battery Packs, that is going to start in January 2026 with one major OEM EV customer. Everybody wants to see our cylindrical assembly line of Battery Packs running. And that will help us to get into the non-auto, because when they see such a good, automated line, which is imported from China and will be commissioned by next month. Then seeing is believing, and then potential customers get confidence. These kind of projects are still new in India. EV is still a new area. Battery Pack s and EV business has really caught up post - COVID. So, still initial space, but we are very, very confident of our technology, of our cost competitiveness, whether it's on BMS, and whether it's on Battery Pack. I mentioned about our innovation cell, how we are able to value, engineer our products, both on the BMS as well as Battery Pack space. Our sourcing is very strong. W e are very confident of really scaling up this business in future. The potential value of the business on Battery Packs is huge, as you know. So, that can really scale up our sales in future. Rs 300 crores is just from one platform. So, there's a lot happening, and as we talk, there's a lot more new business we are talking about.

Battery Pack on auto side, obviously, will get benefits from the start of assembly operations. How far are we from product preparedness as well as getting orders for energy storage?

We definitely know what type of BMS we have to offer. Our R&D cell is fully aware of it. It's a question of just getting the business. We know what kind of equipments we have to order, the product, the cost competitiveness. We are fully aware. So, main targ et is focus is not on the technology side, whether it's a process or the product. The main focus is to get the business.

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the Management for closing comments.

I just want to say that we, at Endurance are fully committed to profitable sales growth. We have done that since the IPO in October 2016, and we will continue to do so. There will be a huge focus on, of course, technology- process and product, huge focus on financial improvement. So, this will always be our focus. So, just want to say that. Thank you.

Thank you very much, sir. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us today, and you may now disconnect your lines.