New AURIC Factories And Electronics Ventures To Accelerate Revenue Growth And Increase Profit Margins

Key Takeaways

• Expansion into aluminum castings and alloy wheels is expected to drive revenue growth with diversified customer interests and operational improvements.
  
• Ventures into electronics and enhanced braking systems exhibit a strategic focus on innovation to boost earnings by tapping into emerging markets.
  
• The company's growth strategy faces risks from market reliance, customer concentration, industry shifts, and ambitious expansion that could impact revenue and margins.

Catalysts

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

• The construction of a new factory in the AURIC Shendra Industrial Area focused on 4-wheeler and non-auto machine aluminum castings is progressing well, with significant interest from domestic and export markets. This indicates potential future revenue growth from diversified customer portfolios.
  
• The new factory for 2-wheeler alloy wheels in the AURIC Bidkin Industrial Area, building on the success of the alloy wheel plant in Chakan, promises to double existing volumes with operational improvements and automation, likely enhancing both revenue and net margins.
  
• The suspension segment is expanding capacity to fulfill a large order for Suzuki scooters, with best industry 4.0 tools being deployed. This expansion is expected to drive revenue growth through increased capacity utilization.
  
• The braking segment is expanding with the introduction of 2-channel ABS and enhancement in product capabilities, such as the in-house manufacturing of ABS valves, anticipated to increase both revenue and profit margins due to higher demand for safety-enhanced products.
  
• The strategic venture into electronics, especially with battery management systems gaining traction, indicates a forward-looking approach to capturing new markets and improving earnings by leveraging new technology sectors.

Endurance Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Endurance Technologies's revenue will grow by 16.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 8.6% in 3 years time.
• Analysts expect earnings to reach ₹14.7 billion (and earnings per share of ₹104.63) by about January 2028, up from ₹7.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹16.8 billion in earnings, and the most bearish expecting ₹10.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.5x on those 2028 earnings, down from 35.7x today. This future PE is greater than the current PE for the IN Auto Components industry at 27.5x.
• 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 13.53%, as per the Simply Wall St company report.

Endurance Technologies Future Earnings Per Share Growth

Risks

• Endurance Technologies' reliance on rapid expansion projects, like the 4-wheeler and non-auto aluminum castings, carries execution risk which might affect revenue projections and profit margins if delays or cost overruns occur.
  
• The slowdown in 4-wheeler and commercial vehicle sales, particularly in key markets like Europe, presents a risk to sustained revenue growth given the company's investment in these segments.
  
• The company's dependency on a few large customers like Bajaj Auto for significant portions of its revenue can pose a risk to earnings if any customer's demand fluctuates.
  
• If the global shift towards electric vehicles (EVs) progresses slower than anticipated, especially for 2-wheelers, this could impact the growth and financial projections of Endurance's investments in that space.
  
• Expansion into electronics and drivetrain products involves technical and market uncertainties, potentially impacting cost and net margins if the products do not perform as expected or fail to be cost-competitive.

Valuation

• The analysts have a consensus price target of ₹2550.38 for Endurance Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹3200.0, and the most bearish reporting a price target of just ₹1875.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹171.6 billion, earnings will come to ₹14.7 billion, and it would be trading on a PE ratio of 35.5x, assuming you use a discount rate of 13.5%.
• Given the current share price of ₹1953.85, the analyst's price target of ₹2550.38 is 23.4% higher.
• 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.