Acquisition Of Stöferle And AURIC Shendra Plant Expected To Open New Opportunities In EV And German Markets

Key Takeaways

• Strategic acquisitions and expansions, including the German acquisition and AURIC Shendra plant, are expected to enhance revenue and profitability across multiple segments.
  
• Focus on partnerships, R&D expansion, and aftermarket revamp aims to boost revenue growth and competitive positioning in key markets.
  
• Economic slowdown, market concentration risks, and challenges in the European and EV sectors could impact Endurance Technologies' revenue and profitability.

Catalysts

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

• The acquisition of Stöferle in Germany is expected to enhance Endurance Technologies' revenue and profitability due to its strong customer base and vertical integration in machine manufacturing, creating additional business opportunities with German OEM customers. This will positively impact both revenue and EBITDA.
  
• Endurance Technologies' strategic expansions, such as the state-of-the-art AURIC Shendra casting plant, are set to capitalize on high-value opportunities in the EV segment with secured business from global customers, which is expected to boost future revenues and profit margins in the aluminum casting division.
  
• The partnership and technology agreement for the 4-wheeler suspension business with a leading Korean entity will position Endurance Technologies as a competitive player in a less crowded market, potentially expanding its customer base and enhancing revenue growth in the 4-wheeler segment.
  
• The company's focus on expanding its R&D capabilities, particularly in suspension technology, along with investments in advanced labs and innovation, aims to enhance Endurance's OEM customer trust and product share, contributing to future growth in revenue and net margins.
  
• The aftermarket business is being revamped with a special project in collaboration with a global consultancy firm to multiply sales through market spread, new product introductions, and strategic distribution, which is expected to significantly impact revenue growth.

Endurance Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Endurance Technologies's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 8.6% in 3 years time.
• Analysts expect earnings to reach ₹14.1 billion (and earnings per share of ₹100.35) by about March 2028, up from ₹8.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.4x on those 2028 earnings, which is the same as it is today today. This future PE is greater than the current PE for the IN Auto Components industry at 27.1x.
• 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 14.03%, as per the Simply Wall St company report.

Endurance Technologies Future Earnings Per Share Growth

Risks

• The downturn in GDP growth from 8.2% last year to an expected 6.4% in FY '25 signals an overall slowing economic environment, which could negatively affect consumer demand and ultimately impact Endurance Technologies' revenues.
  
• The European market has remained flat in car sales, with an overall decrease of 0.4% year-to-date, posing potential risks to future revenue growth and profitability from Endurance's operations in this market.
  
• The dependency on large OEMs like Bajaj and KTM poses concentration risk; any adverse developments with these key partners, such as financial restructuring, as seen with KTM, could directly affect Endurance's earnings and net margins.
  
• The volatility in the electric vehicle (EV) market and financial challenges faced by some EV OEM clients highlight potential risks in Endurance's future order pipeline and revenue projections in this segment.
  
• High inflationary pressures and energy costs in Germany could affect the cost structure and profitability of the Stöferle acquisition, potentially impacting the consolidated net margins of Endurance Technologies.

Valuation

• The analysts have a consensus price target of ₹2345.077 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 ₹2790.0, and the most bearish reporting a price target of just ₹1900.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹164.0 billion, earnings will come to ₹14.1 billion, and it would be trading on a PE ratio of 34.4x, assuming you use a discount rate of 14.0%.
• Given the current share price of ₹1960.75, the analyst price target of ₹2345.08 is 16.4% 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.