Endurance Technologies Limited analyst Q&A

Thank you very much. We will now begin the question-and -answer session. We will take our first question from the line of Aditya Jhawar from Investec. Please go ahead.

Congratulations on the big breakthrough on Suspension. Can you elaborate in terms of the likely outcome of this tie-up - OEMs, order size and Capex required for this project?

Aditya, first of all, thank you for asking this very relevant question. And I think the investor community has always been very curious about what we do in the 4W proprietary product lines, where our presence was not there so far. So , this breakthrough of getting into S uspension has happened very recently , with a global company who is having diverse interest s, other than Suspension as well. They are market leaders for one of the largest car manufacturer globally. And we have been able to make a deal with them , in terms of providing end-to -end product technology. You see the s uspension for 4 W is a very complex product. The entire vehicle stands on this particular part, and it is supposed to do many things , other than absorbing shocks. It is also supposed to do the vehicle dynamics. And entry into this high-end product technology is only possible if we have a very formidable partner. And we found this company in Korea. And this news is very exciting for most of the OEMs. Wherever we have gone, they have been very happy about it. The Suspension space in India is very less crowded. There are not many players. Hardly 1 or 2 players are there, and OEMs are looking for very formidable companies, who can offer products that are affordable, and also world-class. So, the current status is that the license agreement has been signed successfully. And with OEMs, tech review discussion s are going on . Our team is v ery busy in finalizing the product configuration. And if all goes well , in terms of techno-commercial s, we are going to set up a greenfield facility very soon, which will probably be India's finest shock absorber facility.

So, as of now we are in discussion stage with OEM for orders. And the greenfield facility, any CapEx that you would like to talk about? And where would it come up, would it be Chennai?

We have finalized the location, but I think I may talk about that in the next call. We have finalized land also. But there are certain things ongoing.

On Maxwell, the performance has been quite encouraging , both on growth and profitability perspective. So, if you can throw some light on what kind of customer base currently, and on any new addition in customers? And what is the plan of ramp up of Maxwell business in the next couple of years?

Aditya, we have been focusing very closely into Maxwell's operations . The R&D function of Maxwell has a significant level of products in their pipeline , which cater to a wide range of applications. We are focusing on projecting this product range, which go for multiple customer configurations, and which have enhanced safety in them. N ow, we have only few customers to whom we are supplying on a ma ss production basis. But the quotations are going out to a wide range of customers, who produce 3W, and 2W. That, along with the motor control unit which we spoke about earlier, and some ventures which are allied to the Battery Management Systems are also in progress right now. And we do see good interest from some customers on these product lines , and we should see growth going forward. And as and when they become mature, we will be very happy to make announcements.

The Europe performance was pretty solid, and very encouraging. Can you talk about any new incremental orders that came for execution in this quarter? Also, if you can just explain the reason of such a strong performance in Q3? And if you can particularly talk about the outlook for our European business and overall industry for the medium term.

The situation in Europe in terms of the market is not promising. As you are aware, the demand is very low. In last few months, the volume has been stable, compared to the previous financial year. But let me say, as Endurance, we are in a different position , thanks to the business acquisition over the last 5 years. Please consider that we acquired EUR 244 million. We invested EUR 160 million in Capex in the last 5 years. And so, the future is absolutely positive. I am optimistic for the next quarter. We grew double digits in the past three quarters, and the expectation for the future is more or less the same. For sure, the acquisition of Stöferle can strengthen our position with our customer , because it's absolutely strategic. And let me say, I want to underline that this acquisition is part of the strategy started during the COVID period. It's not a decision of the last 2 months. Every month, starting from 2022, with our colleague in India, particularly with Rhea Jain, we have had several meetings to discuss different process to reinforce our product and customer portfolio in Europe. And let me say that the process of acquisition is not finished In parallel, we have had several meetings with Rohan Jain, more so with Ingenia, to share our expertise with our Indian plant s, and to quote profitable new business for Europe and also for India. We don't want to lose any opportunity to grow and increase synergies. And let me say, you will see in our new plant in India for automotive and automotive components, we are installing high level of technology and automation, state-of-the-art technology. The large volume of new orders in the last 5 years is the key reason why Endurance is performing very well. I want to underline that we closed the previous quarter with 21% increase of turnover, 27% of EBITDA, and 17.5% of net result. And these are results that are possible onl y because we acquired a lot of business in different segments. We had a headstart in winning orders for EV and Hybrid segment, which added to our existing product range in the internal combustion engine. We are performing very well with a high-level of profitability, and with a level of technology that is not reachable for everybody, because you have to spend a lot of money. We had made EUR 160 million of investment in the last 5 years. And so, let me say, I am absolutely optimistic for the future.

Thank you. We'll take our next question from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.

On the 4W suspension agreement which we have done. So, there would be an anchor customer in form of Korean OEMs. Just any inputs on whether that anchor customer is currently having single source of supplies for suspensions and we'll be a second source supplier?

We will definitely be a second source supplier , unless there are some new models looking at how we do in performance in future. But right now, definitely for the customers we enter in India, we will be as a second source.

Yes.

Secondly, you also talked about the 4 W braking business. So, any inputs on who is the technology partner ? And how should one think about the ramp-up in that segment as well , because that again is a very large opportunity?

As we go along , we will share more data, but we will definitely start the 4W Brakes business. Our target is the last quarter of the next financial year , because it takes time for testing and development. But that is something which is already at advanced stage , and that 's going to happen for sure.

Is there any technology partner for 4W braking or we have done it in-house?

The technology for the high-end braking systems will likely come from BWI, who is already a partner as you know for the 2W ABS. We are at a fairly advanced stage in talks with them.

Thank you. We will take our next question from the line of Shagun Beria from Anand Rathi . Please go ahead.

Yes. Thank you for the opportunity , and congratulations on a good set of numbers. So, on the recent acquisition of Stöferle, can you just help us understand and elaborate more on what this acquisition brings to the current business, in terms of products, technologies and customers? And also, how should one look at the revenue growth for this entity over medium term, and also the EBITDA and PAT profitability?

On 12th of December, we signed the SPA with the Stöferle family. Now, we are waiting the confirmation from the Authority of Antitrust in Europe , because this is a strategic supplier for our customer. This acquisition helps Endurance reinforce our position in one of our major customers. And so, we are waiting the answer from the authority , but I presume that within the end of this financial year, we can close the transaction. The Company was a strategic competitor of Endurance in the transmission component, and they have a high level of technology, also due to the fact that they produce their own machines. This aspect is absolutely important for us , because as you know we invested a lot of money in machining centers in the last few years. Now, inside of our company we will have also the expertise to reuse the existing production capacity by refurbishing machines. This is absolutely strategic for us, in parallel with the acquisition of Ingenia that can improve the automation in the process. The Company has a total turnover of EUR 80 million, and EBITDA that is more or less 18 %- 20% - EUR15 million-EUR16 million of EBITDA. The company purchase is on cash free debt free basis. And the acquisition will reinforce our position in the very difficult Germany market, because you can be competitive only with high level of volume. And the product portfolio of Stöferle is very similar to the existing portfolio of Endurance. It means that they are in 60 % of their product range sole supplier ; and the rest 40%, they were competitor of us . A nd so, it means that as we reinforce the product portfolio , we will also strengthen our position as sole supplier in the supply chain of our customer. We will become sole supplier for 80% of our product range in Endurance. The family at Stöferle understood very well that the only possibility for their business to survive was to make synergy with strong partners like us, and they are very happy because the morale in the team in Germany in our existing pants at Massenbachhausen and in Stöferle’s Laupheim plant is absolutely positive.

The state incentives that you had mentioned earlier , INR 80 million, would that be booked in Q4?

The remaining INR 80 million under the 2013 scheme will be booked in FY26 and FY27. For the 2019 scheme , we are at a stage where we have submitted our applications and our documentation is complete. We are waiting for the eligibility certificate from the government, and it will be subject to the receipt of eligibility certificate that we would book any amount in Q4. And I can only tell you that our applications are complete, and we are at an advanced stage, but we have to wait. Once we get the eligibility certificate, we will make an announcement.

About the TLA that you mentioned with the Korean player for 4 W and suspension - we didn't have much presence in 4W suspension? And which are the key customer wins that are expected from this TLA?

About the customers, we are not allowed to mention the names yet.

I really appreciate the investor community's interest in the 4W Suspension business, which we are going to get into. This Korean partner has been handpicked and identified with lot of internal deliberations, that who is the right company who can work with us in India , and provide the niche and affordable technology. India market i n 4W is very cost competitive, and we have to be mindful of the fact that we cannot bring something which is a rocket science, something that will not sell in the country. The average price of a car in India is close to $10,000 , which is very low, but the demands of the products are extremely high. We needed a partner who is actually going to help us meet these requirements. There are already some formidable players. One player is definitely very strong in India, and we will be the second source in most of the OEMs to start with. But let me tell you that for the new platforms, we will get RFQs very soon, where we will be the first supplier, and this company's name is so formidable, the OEMs have absolutely no hesitation to work with Endurance.

Can you also talk about the new large order of 2.4 billion for E 4-wheeler applications from the likes of Valeo and Yazaki?

You are talking about our new project , AURIC Shendra which is starting in June ' 25. For this plant, the orders which we have got is INR 0.7 billion from Valeo, and there is of course a very large customer whom we cannot name, from whom we got INR 1.5 billion business. And as we talk, we are in touch with more customers, and as we get the orders and when we are allowed to speak about them, we will speak during these investor calls. We are at advanced stage with a few other customers. So, right now, the business which has been won for the AURIC Shendra plant INR 2200 million, and this will be increasing , because we have target ed efforts. And of course, our focus was to get into customers we don't have ; mainly in exports; try and improve our profit margins in the casting business; and we are very , very excited about this move , because we are a very strong player. We process almost 120,000 metric tons of aluminium. We are the largest in the country as far as aluminium die casting is concerned. We have strong engineering capabilities, and a tool room, and are very innovative. This Mahindra award we got for innovation, was for the hydraulic lifter which is used behind the tractor . It used to be a cast iron part . I think it was 30 kg, we have lowered the weight to 4 kg or 5 kg. It led to h uge savings. We are getting new opportunities from customers, who are looking at our strengths. At Shendra, we are very excited to be in this new area, new customers, export customers, higher profit margins. These orders are mainly for EVs, that is also an exciting part. So, w e are in a very good space.

Thank you. We will take our next question from the line of Pramod Amthe from Incred Equities. Please go ahead.

On E-Axle- traditionally the conventional transmission used to be made by 4-wheeler companies in-house. So, this completely opens up a new opportunity for you, because of EV? Second, what is the content you are supplying to the E-Axle, what type of parts; and what is the scope of expanding this content within the E -Axle, because many of the players are yet to localize E-Axle in India?

I would like to clarify that in this order, we are not going to supply the E-Axle. We are supplying die casting machined parts for the E-Axle, to Valeo who will supply the complete assembly to the Mahindra EV. So, ours is still an aluminum casting business. It's not an E-Axle business.

There is a tremendous scope. All the customers we are getting into, the scope is just tremendous. Whether it's EV, ICE, hybrid, there's a huge requirement, because aluminum is a light-weighting material. And why we went into more of export-oriented and parts with sophisticated machining is, we want to increase our margins in our aluminum casting business. In fact, our focus is to make the new castings margin higher than our proprietary business.

In 4W suspension, many of the 4W OEMs are very closely working with their own country - based partners, and India is more ruled by Japanese than the Koreans. So, does it restrict your market presence because of your partner being Korean?

I don't think so. We are very optimistic. We are in touch with many companies, including also Japanese OEMs. So, we will make all efforts to see that we can make inroads, based on our cost competitive technology products, and the performance which we will offer. So, we will do our best to see that the Korean entity doesn't come in the way of Japanese companies.

Thank you. We will take the next question from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.

Regarding ABS for 2Wcan you talk about the progress with respect to how is acceptance of our products with customers beyond Bajaj and RE, in the sense that where are we in terms of RFQs and testings, and those things?

I will not give you the customer names. We are in touch with all the OEMs . With 2 other customers, we are at quite an advanced stage. And it's for dual channel, as well as single channel. We want to launch a dual channel ABS , which we hope to do, if not in this quarter, then in the next quarter.

Does Stöferle have any debt on its books?

The agreement is to buy the company without cash and without debt. As I told you, this is one of the most profitable companies in the European market. They made EUR 15 - 16 million of EBITDA, considering EUR 80 million of turnover. They do only machining. But as you know, machining for us is the added value of our process. And in the future, we wi ll decide for the potential backward integration also with the high-pressure die casting component. But we will buy the company without financial debt.

Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference over to Management for closing comments. Over to you Sir.

I want to thank everybody for their time on this call. Thank you.

Thank you. On behalf of Axis Capital, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.