Endurance Technologies Limited analyst Q&A

Thank you very much. We will now begin the question-and -answer session. Ladies and gentlemen, we will wait for a moment , while the question queue assembles. The first question comes from the line of Aditya Jhawar from Investec. Please go ahead.

Thanks for the opportunity, and congrats on a good set of numbers. My first question is on the PV Brakes business- It's a very encouraging start. If you can just let us know what could be the SOP, and broadly the order size. Based on this breakthrough, do you think that we could get access to other OEMs or do we still need a tech tie-up on this? That's the first question.

Yes. Of course, it's very heartening to note, because you need a first break to start the business. Right now, the drum brak e assembly business, I think the value is a small , maybe about ₹ 25 crores per annum. SOP will start end of Q4. As far as the collaboration is concerned, ultimately our aim is to go into advanced systems of braking like the ESP, for example, which is required for 4W. We have a collaboration with Beijing West industries for 2W ABS. And we are totally involved with them to try and introduce this. Of course, this will take some time , because there is a long lead time for the 4 W advanced braking systems, but we are totally focused on trying and increasing these orders in the 4W space.

Yes. Thank you for that. The second question is on our ABS opportunity. So, c learly, t his regulation change has come in our favor. If you can help us understand what could be the opportunity size in ABS plus the disc brake, and how is your discussion progressing with OEMs on this? Do you think that there could be some postponement of the timeline? Do you think that India would have enough capacity to support the ABS requirement for the 2W industry?

We are today engaged with most OEMs, because there are not many players. You have Bosch, Continental, Nissin, and Endurance. We are the only Indian Company doing ABS. And as I mentioned, at least 16 million, 2W, if not more, will need ABS. Of course, as per the draft from the Ministry of Road Transport and Highways, they are talking about January. But if I look at our past experience, normally the delay could be 3-6 months. But of course, we don’t know what will happen. We ex pect that we will get some clarification by next month. So, let's hope that happens. But definitely, I think this is here to stay. It could be 3-6 months of delay is what we feel, based on past experience. But we will have to wait and watch. As far as Endurance is concerned, of course, our capacity is 640,000. We are expecting a tenfold growth for sure. So, the commitments which we have already got from certain customers, we are immediately going ahead with 2 lines which will add another 2.4 million. These lines should be ready by March 2026. And as we engage , and as we get commitments, we will keep adding more lines. But for us, this opportunity is definitely 10 times. And I also expect the 2W industry to grow. Because as per figures for FY 30, even if we take a small growth, I think we should reach 29-30 million vehicles. So, today we are talking about a figure of 16 million on a 22 million units which we expect, both in India as well as in exports. But this industry will also grow. And so , at present, we feel it's a tenfold opportunity for us to go to at least 6.4 million, and then looking at technology and pricing, we will do our best to try and increase this in future. So, this is, of course, for Endurance, a real game-changer.

My final question is on CAPEX . If you can help us understand, how should we think about CAPEX for FY 26? In the presentation, you have included for the quarterly CAPEX . But for a full-year basis, how should we think about that number? And directionally, if you can give us a sense that what could be the CAPEX in 2027 and 2028 as compared to the last couple of years?

The CAPEX has been growing every year if you see a past track record. And we've been growing despite turbulent times, which I mentioned in my opening remarks. We have been growing, both in India as well as in Europe. Our Europe growth has also come through acquisitions. And also, these acquisitions make a lot of money for the Company. If you see Q1 in India, we have spent ₹ 286 crores on Capex. And as you know, there are 3 big projects which I have already mentioned. The big ones are the AURIC Shendra, starting in Q4. And then you have the AURIC Bidkin, which is starting in week 4 of this month. And also, we have the battery-pack plant, which is starting in January 26. And of course, we have our existing business expansion, which is going on. Looking at the capacities which we need to sweat, the CAPEX might be crossing ₹ 800 crores in this year. For FY 27, this figure is very difficult to say. We believe in sweating our assets , that's why you see operational efficiency is quite good , since the beginning. So, we only spend when there is a requirement to spend. But as we look at inorganic growth opportunities also, both in India and Europe, and which is actively going on as we speak, I don't see this figure going down in FY 27. And of course, we at Endurance will take all opportunities. We have now Aluminium Castings, the AURIC Shendra, which is a very good margin export plant, mainly with EVs to start with. It's a huge opportunity. Alloy Wheels is a large sales growth plan. Aluminium Forgings, is a new product segment which is coming up- we started as a backward integration. Battery pack in the new energy space is a good opportunity for the future. And of course, we don't supply all our products to all the OEMs . I just mentioned that we have really increased business for Brakes and Suspension in Suzuki. There were no scooter F ront Forks last year. Now we are doing 60,000 a month from April to June. As far as Hero MotoCorp is concerned, it was 5,000 brakes a month. Today we have gone to 30,000 to 35,000 brakes a month. TVS, we were doing 75,000 brakes a month, now it's 100,000 brakes a month. Royal Enfield Brake Disc per month have increased from 50,000 to 100,000. So, there is a lot happening and as we increase new customers to all our product segments, that will be the biggest growth driver, not just the industry volumes. So, we are very excited because of our strengths in process and product technology, the trust we have created with the OEM clients of 2 and 3W, and now starting on a new 4W journey. At the end of last month, we started production of solar suspension or solar tracking system. We won ₹ 200 crores order from a Spanish client, which will reach peak next year. And now, we are talking to somebody else. I mean there is a huge business opportunity for profitable growth in non-auto also. We are looking at non-auto inorganic growth also. And of course, when you talk about CAPEX, there would be high CAPEX now for the ABS. I have said more than ₹ 800 crores this year, but it could go higher. We'll see what really happens because ABS is also there. With ABS, there ar e new brake system which are coming. Because ABS requires a disc brake system and not a drum brake , and if it is above 50cc, all the drum brakes will convert to disc brake with ABS. Now, that requires a disc brake assembly system. So, based on whatever orders and business nominations we are getting , since ABS announcement, even the brake system orders are increasing. And that's why I mentioned that , in Chennai, we are planning to put up a brakes plant because we can't handle it in the existing two plants at Waluj. So, I would say there is a lot happening on the growth front at Endurance and we are really excited about that.

Just one clarification, if you have to summarize what you have just said that in terms of numbers, last year overall we spent about a little over ₹ 1,000 crore including Europe business in terms of CAPEX. This year we are talking about India CAPEX of north of 800 crores and Europe CAPEX, should we assume about a 550 crore number or is there an update on that? And what could be the total CAPEX in terms of absolute number?

See, there is a lot of money which has gone into Stöferle acquisition and which will go in the next five years like we said. We're exploring new acquisitions there. I would request Massimo to answer this CAPEX question?

In the first quarter of this financial year , we spent €9 million in terms of CAPEX for the ne w project with Stellantis and Mercedes, and also Volkswagen. For sure, in this financial year, the CAPEX will be lower compared to the previous year where we spent €51 million, due to the fact that in this moment the market is awaiting an official position from the European government for the incentives . This is positive f or us at Endurance, because we can use th is situation for expansion in inorganic growth that we are evaluating after the acquisition of Stöferle . The European market, is consolidating, and the business that we are in is part of this consolidation . But, for sure, the impact of the CAPEX for this financial year will be 50% compared to the previous year, and at a maximum of €20-25 million.

Thank you. The next question comes from the line of Pramod from InCred Capital. Please go ahead.

First, I wanted a clarification on this Europe sales. So, if you have to look at Stöferle, can you give a similar breakup in terms of EBITDA , where it stands now because you have given a breakup of sales addition, how much they brought this time?

Absolutely yes. W e closed this quarter with €103.2 million of turnover compared to €80.3 million of the previous financial year. So, we grew 28.5% of which Stoferle is €22 million. As Mr. Anurang Jain told you before, without the acquisition of Stöferle, the European Company grew more or less at 1%. We closed EBITDA at €18 million, which means 17.4% EBIDTA margin compared to €13.3 million in the previous financial year with 16.5% margin. And so, we grew €4.7 million, which is 35.1% YoY growth. In terms of net results, we closed with €6.4 million, which means 6.2% margin compared to €4.9 million of the previous financial year with 6.1% margin. We increased in terms of net result of €1.5 million, which is 31.3% YoY growth.

The second question is with regard to the A BS. Wanted to know , based on your experience in R&D over the last four years, what's the ideal timeline you would require to do R&D for this 100cc and come up with a product? And what cost efficiencies or product improvements can be brought in? Because these guys will look for a more economical solution. Would you feel you can be in a better position to give much better solution than the MNC players and how?

See, I think cost is a very big strength for us , because we have our own R&D. And as I have always said, it's not just the performance and durability we do on R&D, we do a lot of value engineering. And I have been saying in the past about backward integration- ABS, stainless steel braided hoses and valves which used to be imported are being done in- house today. The electronic control units should start from next quarter in-house. So, these are ways in which we lower the cost. Plus, when the volumes go up, your fixed costs are spread. That also brings down the cost. And I can only say that we are very strong as far as the cost controls are concerned. So, that's why, we feel very confident, based on the OEM confirmations we have got. We've already started the work, we are not waiting for the final norms to come from the Ministry of Highways and Road Transport. So, we are going ahead because we want to be ready with the capacity, which I said should be by March 2026. There are some long-lead machineries involved and we'll be very fast on the CAPEX. But that's the time it takes to set it up, and I don't think that capacity is there in India right now.

And you also supply CBS. So, incrementally it will be a CBS vanishing and ABS co ming for you, if I understand right?

It is not only ABS growth , and it took us a day to realize that there is also disc brake systems growth because ABS needs disc brakes, and not a drum brake. So, for example, if scooters had drum brakes, now they will have an ABS with a disc brake.

But you will lose out on the CBS, right? So, if I am able to understand it , and then gain on the ABS front?

When you have an ABS, it requires a disc brake assembly and caliper in disc. It doesn't need a drum brake. So, that becomes an added volume. And the reason for th e planned Chennai plant is that those volumes are also going up. So, based on that, we have immediately started and are planning to start the work there.

We are a complete solutions provider. We give the whole system, but what happens is that some customers have a step -by-step approach. So, like I said, we first start with the brake disc, and then get into the brake system. That is what happens sometimes. That's been a journey of last 20 years. First, in some, it was directly the system, while in others it started with a brake disc, and then the system.

Okay. And if I had to look at the current market size and the market share, how it has traveled for you, would you give some colour? What's the size of the market in terms of value?

Leaving the value apart, I just mentioned that we are gauging the market to be 16 million out of 22 million. Now, maybe th at's a conservative figure. I have seen some analysts reports talking about ₹ 2500-2750 per ABS as the price. Now you can gauge what the value would be.

Okay. Sure. And where is your market share currently, sir? And where do you expect to be post this new norm?

Right now, we were on track for 400,000, in a market of may be around 3,500,000. Now with expansion to cater to dual channel ABS needs, our capacity is now 640,000. We have immediate plans to add 2.4 million. The OEMs would like us to act with urgency keeping in mind the upcoming norms. That is why we are placing the orders for machinery and working with our supply chain. For further expansion, we are in talks. We are again going next week to meet a major customer. So, all actions related to greater participation in this market, are in process, but we are all waiting for the final norms . Finally, the new norms will be applicable in January or April, or July; that is an unknown. But some OEMs don't want to wait . So, they have already started giving commitments. That is the basis on which we are going ahead.

Okay. So, is it fair to say you have a single digit market share now, and which can be substantially moving up? Is that the fair understanding to have?

Right now, it is less than 15%, but we should now, with this higher volume. Our target is at least 25%, or higher number.

Okay, sure, sir. So, you are ambitious to ramp up. The last one is with regard to R&D capability, even though you have been seeding this with the R&D capability in the ABS front, how is it prepared to handle this rush of customers and how are you better placed on R&D and test track versus the others?

See, I don't like to comment about others. I would like to talk about ourselves. We are fully ready. I can only say that.

Yes, absolutely, a lot of learnings. Because you learn a lot from customers, your experience, cutting costs, improving efficiencies. Then the main thing is on the software part, the collaboration of software. We used to depend a lot on our collaborator, Beijing West Industries or BWI. Now with the test riders, and our internal team, we are able to do a lot ourselves. And that, I would say is one of the biggest learning. The speed, and the cost also comes down.

Okay. And I hope that should also substantially reduce your development time?

Yes, absolutely.

Thank you. The next question comes from the line of Arvind Sharma from Citigroup. Please go ahead.

Hi, good morning, sir. Thank you for taking my question. F irst question would be on the ABS part. So, just to confirm, your current capacity is 6, 40,000. And on top of it, you plan to add another 2.4 million. Is that right understanding?

Yes, absolutely.

Great. And any timeline for the 2.4 million, sir?

Yes, I said March 26 we'll be ready.

This Chennai facility that you talked about, that is also for ABS, I believe?

No, like I clarified in my opening remarks, that is being planned for disc brake assembly system, which is master cylinder, caliper, disc, brake disc, and brake hose.

Got it, sir. And there is one small clarification in the presentation when you give the 15.5% number of for disc brake in the pie chart, that includes your ABS, I believe?

Yes. That is total braking. Includes ABS.

Second question would be on Europe . Sorry, I did not get the exact Stöferle contribution this quarter, if you could repeat that, sir, in revenue and EBITDA?

So, we closed with €103.2 million of turnover compared to €80.3 of the previous financial year, and so it means €22.9 million increase in terms of turnover, of which €22 million is Stöferle. And speaking about EBITDA, €18 million was the actual for Q1 , compared to €13.3 million in the previous financial year. And so , it means €4.7 million difference, of which € 4.5 million is Stöferle. And so, without Stöferle, the profitability of the Company grew 0.6% in terms of the turnover and 0.2% in terms of percentage in EBITDA, as compared to the previous Financial Year.

Got it. Thank you so much. And just one last question, if I may ask. In the European ramp-up schedule that you gave in the presentation, there has been a very slight slowdown, especially in FY 26. Is that a reflection of the broader industry environment?

Yes. In this moment, it is very difficult to predict the next 18 months, as you can imagine. I can tell you only one thing. In Q1 of this financial year, the European market reached 25% share in electrical vehicles, BEV at 15.9, and PHEV at 9.2%, and this is an important signal. W e await the official position of the government s on the incentive. You have seen that Spain is the only market that is growing double digits compared to the previous year, only because there are incentives in the automotive sector. Everybody in Germany, France and Italy are waiting for this incentive, and this could be a booster for the future growth in the next 18 months.

The current revenue and EBITDA for Stöferle is only for the 60% stake. The remaining 40% is yet to come?

No, we are consolidating 100% of the result, also for the Indian GAAP. These are the rules, and so we are also considering as liabilities towards minorities, the potential €27 million that we will pay in the next 5 years due to the multiplicator of the EBITDA for the future 5 years. And so, in our figures, you will see 100% of the result.

Thank you. The next questi on comes from the line of Shagun Beria from Anand Rathi. Please go ahead.

Since the acquisition for Stöferle is 60%, there will be some minority interest. So, I want to check which line item is it reported in the consolidated financials. That is my first question? Next is, what is the opportunity size for D isc Brakes and Pads with the new norms? And what are the plans to expand market share with the new customers in ABS? Also, the CAPEX in terms of Disc Brakes and Pads and the market penetration for Disc Brakes currently?

For the first answer, I repeat that there are no minority interest in the acquisition of Stöferle. We are consolidating 100% of the results , and also 100% of the assets and are creating a liability towards future purchase of 40%.

At present, in 2W, Endurance has 43% market share in the Braking System. It is mainly Master Cylinder and Caliper. When you come to only Brake Disc, I think it is over 60%. Now, what is happening is ABS right now, our capacity is 640,000. As we are only doing single channel, it is 400,000 is what we are using. We will utilize our new 240,000 capacity we will realize mainly from the next quarter when we start the dual channel ABS. So, we will try and use up our 640,000 then. I also mentioned that the total market should be at least 16 million on a conservative basis for the use of ABS, as the draft rules talk about all vehicles above 50 cc including scooters. Now, in the 16 million, as Endurance, we have started with another 2.4 million, which we want to reach by March 26. And of course, our target would be 25% SOB where we want to reach first. And we’ll go step by step from there.

Thank you. The next follow -up question comes from the line of Aditya Jhawar from Investec. Please go ahead.

Under one of the comments, you mentioned about the Chinese OEM. So, is it included in the ₹ 300 crores order that we talked about in the presentation?

No, that ₹ 300 crores per annum is for the Batte ry Pack, which is for an Indian 2W OEM. What I talked about the leading Chinese OEM is for supply of Inverted Front Forks and Rear Monoshocks, which will start in this financial year. So, that was about our inverted front fork growth other than Bajaj, KTM, TVS and Hero MotoCorp. We are talking to almost everybody. And we have got this order from one of the top Chinese companies, a leader in bikes and that is for the inverted front forks and rear monoshocks. This will be exported to China. As of now, I don't have the Chinese order value, but it is quite a decent value. I can get back to you on this. But it will be more peak in FY 27, as we are starting only in next quarter end

For AURIC Shendra also, you said ₹ 300 crore order for e-4W application?

Actually, it is a coincidence. That ₹ 300 crore in Shendra is for 2 global OEMs , in US and Europe.

Thank you. The next question comes from the line of Mr. Nishit Jalan from Axis Capital. Please go ahead, sir.

You are mentioning that the size of ABS would be 16 million units. Now, if ABS is getting mandatory on every product higher than 50 cc, then will it not be applicable in entire 22 million units? Is it something we are missing here?

I h ave just taken out mopeds and some exports. We have taken a conservative figure of 16 million.

No, but the domestic market size itself will be like 20 million units plus, excluding the exports?

As per your figure it could be 19. We are conservatively saying 16 , so there is 3 million difference, but we will see how that goes. Major exports are to South America, Africa, Southeast Asia, and they don't have these ABS rules.

Correct. One last question on Europe- this Stöferle acquisition that we have done, this company seems to be very profitable, right? €4.5 million EBITDA on € 22 million topline . It was not a struggling company, right? So, why were they looking to sell? What is the total amount that we have paid to acquire 60% stake in this company?

We spent € 37.7 million to buy 60% of shares. Speaking about your statement regarding the profitability of the Company, for sure, I guarantee that the profitability of the Company is very high. For us, it w as a strategic acquisition, basically, for the consolidation of one customer, which is Mercedes. And you have to consider that this is a Company with only machining. You cannot compare the EBITDA of a company with only machining with a company that is also a foundry component. And so, the profitability of the company is 20% or 18.7%. It will continue to grow from a point of view in the future year s due to the fact that now, we are doing an important synergy between Endurance Overseas and Stöferle. Stöferle bought 100% of the foundry parts in the past. Now, we can produce these parts for them, and certainly we can add value. This was the strategy of the acquisition of the Company. Two years ago, we acquired an important business with BMW for €5 million turnover for a new transmission, 100% electric. At Stöferle, we did the machining of this component because they had the production capacity available, and we could move from Endurance GmbH to Stöferle for this project. This means that we can save more or less €3.5 million fixed assets in our balance sheet. These are the economies of scale that we are trying to do, and that we did in the past in the acquisition when you are obliged to grow in terms of in organic growth in a market that is not growing in terms of volume. And so, this is the only possibility to save and to survive and to increase and maintain our profitability.

Massimo, I just want to add that even there is a machine building capability, which we have acquired by acquiring Stöferle.

Sure. As you know, Stöferle produce s machines. And so, in terms of saving for the future CAPEX, it will be an important aspect for Endurance, because usually we are obliged to reinvest when we start a new business with our customers. With Stöferle, we can also learn about reusing of the existing production capacity to meet new needs of the market. You can imagine what it means to transform the existing production capacity of the internal combustion engine for future electric projects. We can save an important amount in our future assets.

Thank you. Ladies and gentlemen, we take that as the last question. I now hand the conference over to the management for the closing comments.

Well, I would j ust like to close this by saying that we are really focused on profit able growth. There are a lot of opportunities now. Our focus will be on offering high technology products at affordable prices, so that we can increase the range and the volumes of our pr oducts. Features that were earlier meant for 250-400 cc and we can bring them down to 125 cc. So, that will be our focus, to gain business by value engineering and giving more and more features to our customers, which we have done for the last 25 years. Thank you.

Thank you, members of the management team. Ladies and gentlemen, on behalf of Axis Capital Limited, concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.