ABS Delays And High Capex Will Depress Margins In India

Key Takeaways

• Heavy investment in ABS and international expansion faces risks from potential regulatory delays, weakening demand, and industry shifts toward electrification and regionalized supply chains.
  
• Exposure to legacy product segments and rising ESG standards threaten profitability, margin stability, and the company's progress in emerging EV and overseas markets.
  
• Regulatory tailwinds, product innovation, global diversification, and sustainability investments position Endurance Technologies for sustained revenue growth, margin expansion, and reduced market dependence.

Catalysts

Manufactures and supplies automotive components for original equipment manufacturers in India and internationally.

• While Endurance is rapidly expanding ABS and disc brake capacity to meet anticipated regulatory-driven demand, the risk of a significant regulatory postponement or reversal looms large. If the implementation of ABS mandates is delayed or diluted, this could lead to substantial underutilization of recently built capacity, sharply reducing asset efficiency and return on invested capital, and putting downward pressure on net margins and cash flows.
  
• The company's heavy capital expenditure program-surpassing 800 crore rupees in India this year alone and paired with large, ongoing inorganic investments in Europe-creates long-lasting fixed cost pressure. If future volume growth falls short of expectations due to macroeconomic weakness, regulatory delay, or disruptive shifts toward technologies Endurance is less exposed to, depreciation and finance charges may erode profitability and strain free cash flow for multiple years.
  
• Despite management's emphasis on diversification, Endurance remains deeply concentrated in the two-wheeler and legacy ICE segment for core India business. As global electrification accelerates and advanced EV architectures dominate, traditional product lines risk obsolescence, raising the threat of structurally impaired revenue growth and margin compression if Endurance's EV component scale-up stalls or underperforms.
  
• Escalating global trade barriers, geopolitical tensions and a potential move toward regionalized auto supply chains may significantly hamper Endurance's export growth and overseas integration ambitions. This macro backdrop raises the risk of stranded European assets, reduced utilization, and increased operating costs, undermining consolidated revenue growth and group profitability.
  
• Intensified ESG compliance standards and the push by global automotive OEMs toward in-house development or new local sourcing could trigger higher compliance and capex burdens while simultaneously eroding Endurance's pricing power and client base, jeopardizing long-term earnings resilience and sustainable net margins.

Endurance Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Endurance Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Endurance Technologies's revenue will grow by 13.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.1% today to 8.1% in 3 years time.
• The bearish analysts expect earnings to reach ₹14.3 billion (and earnings per share of ₹101.55) by about August 2028, up from ₹8.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 31.3x on those 2028 earnings, down from 46.8x today. This future PE is greater than the current PE for the IN Auto Components industry at 30.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.28%, as per the Simply Wall St company report.

Endurance Technologies Future Earnings Per Share Growth

Risks

• The upcoming mandatory shift to ABS and disc brakes for all 2-wheelers above 50cc in India is likely to be a structural game-changer, with Endurance being the only Indian ABS manufacturer positioned to capture a meaningful share (~25%) of what could be a more than 16 million unit market, leading to significant multiyear revenue growth and improved earnings visibility as regulations are implemented.
  
• The company's rapid ramp-up in high-value new product segments such as battery management systems, electric vehicle motor housings, suspension systems, and 4-wheeler brakes-coupled with strong order flows from marquee global and domestic OEMs-indicates diversification into areas with secular tailwinds, which can drive both topline growth and margin expansion over the long term.
  
• Continued technological innovation and successful adoption of value engineering in R&D has fostered cost leadership and product customization, enabling Endurance to effectively compete with global majors and win incremental share, which supports margin resilience and sustained improvements in net profit.
  
• International expansion through strategic M&A, evidenced by the successful integration and high-profitability of the Stoferle acquisition in Europe and new customers like Mercedes and BMW, has reduced the company's dependence on the Indian two-wheeler market and broadened its revenue base, providing stability and upside to consolidated earnings.
  
• Significant investments in capacity creation, automation, and ESG initiatives (such as green buildings and renewable energy adoption) position Endurance favorably to benefit from the long-term global shift to electric and environmentally compliant vehicles, enhancing its attractiveness to OEMs and increasing the potential for higher, more sustainable profits in the years ahead.

Valuation

• The assumed bearish price target for Endurance Technologies is ₹2140.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Endurance Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹3108.0, and the most bearish reporting a price target of just ₹2140.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹176.0 billion, earnings will come to ₹14.3 billion, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 14.3%.
• Given the current share price of ₹2857.7, the bearish analyst price target of ₹2140.0 is 33.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.