Endurance Technologies Q2 FY26: Strong Revenue Growth Masks Margin Pressure

The September quarter results reveal a company navigating the complexities of rapid expansion whilst grappling with margin pressures. Whilst Endurance delivered its highest-ever quarterly revenue at ₹3,582.82 crores—marking an 7.95% sequential improvement and 23.01% year-on-year surge—profitability metrics tell a more nuanced story. The operating margin excluding other income contracted marginally to 13.31% from 13.37% in Q1 FY26, whilst the PAT margin compressed from 6.82% to 6.34% over the same period.

This disconnect between revenue exuberance and margin moderation has prompted a re-evaluation of the stock's premium valuation, with shares trading at 43.46 times trailing twelve-month earnings—a multiple that sits above the auto components sector average of 39 times. The company's investment rating currently stands at "HOLD" with a Mojo score of 68 out of 100, reflecting balanced fundamentals offset by valuation concerns.

Financial Performance: Revenue Strength Meets Margin Headwinds

Endurance Technologies' Q2 FY26 performance showcases impressive top-line momentum underpinned by robust demand across its product portfolio. Net sales climbed to ₹3,582.82 crores, representing the company's strongest quarterly performance on record. This sequential acceleration of 7.95% from Q1 FY26's ₹3,318.89 crores demonstrates sustained operational momentum, whilst the 23.01% year-on-year expansion reflects market share gains and capacity utilisation improvements.

However, the margin trajectory warrants closer scrutiny. Operating profit before depreciation, interest, and tax (PBDIT) excluding other income reached ₹476.84 crores, translating to a 13.31% margin—marginally below Q1 FY26's 13.37% and significantly trailing the 14.26% achieved in Q4 FY25. This compression suggests rising input costs or competitive pricing pressures that have partially offset volume-led operating leverage benefits.

The PAT margin contraction from 6.82% to 6.34% quarter-on-quarter reflects not only operational margin pressure but also higher depreciation charges, which surged to ₹180.02 crores in Q2 FY26 from ₹164.43 crores in Q1 FY26—a 9.48% sequential increase attributable to capacity expansion initiatives. Employee costs rose to ₹297.48 crores from ₹295.18 crores, maintaining relative stability as a percentage of sales at approximately 8.3%.

Operational Excellence: Capital Efficiency Amidst Expansion

Endurance Technologies' operational performance reflects a company in expansion mode, balancing aggressive capacity additions with capital efficiency imperatives. The company's return on equity (ROE) stood at 14.46% for FY25, representing a meaningful improvement from the three-year average of 13.28%. Whilst this ROE level demonstrates reasonable capital productivity, it lags behind several auto component peers, suggesting scope for enhanced operational leverage as new capacities mature.

The company's return on capital employed (ROCE) presents a more compelling picture at 20.86% for FY25, comfortably exceeding the three-year average of 18.26%. This metric—calculated as earnings before interest and tax (EBIT) less other income, divided by capital employed net of cash and current investments—reflects Endurance's ability to generate healthy returns on its core manufacturing assets. The elevated ROCE relative to ROE indicates judicious use of leverage, with the company maintaining a net debt-to-equity ratio of negative 0.15, effectively positioning it as a net cash enterprise.

Employee productivity metrics reveal controlled cost management, with employee expenses at ₹297.48 crores in Q2 FY26 representing 8.30% of sales—marginally higher than Q1 FY26's 8.89% but well within historical ranges. The absolute headcount-related costs have grown in line with revenue expansion, suggesting effective workforce scaling without disproportionate cost inflation.

Industry Context: Navigating Auto Sector Cyclicality

Endurance Technologies operates within India's auto components sector, which has witnessed a structural transformation driven by premiumisation trends, electric vehicle adoption, and export opportunities. The company's 23.01% year-on-year revenue growth in Q2 FY26 significantly outpaces the broader sector's performance, indicating market share gains and successful product portfolio expansion.

The Indian automotive industry has demonstrated resilience despite global headwinds, with passenger vehicle sales maintaining steady growth trajectories and two-wheeler demand recovering from pandemic-induced disruptions. Endurance's diversified exposure across suspension systems, transmission and engine components, and aluminium die-casting positions it to capitalise on multiple growth vectors within the automotive value chain.

However, the sector faces headwinds from raw material cost volatility, particularly aluminium and steel prices, which can compress margins during inflationary periods. Additionally, the transition towards electric vehicles presents both opportunities and risks—whilst creating demand for new components, it simultaneously threatens to obsolete certain traditional powertrain products. Endurance's strategic investments in EV-compatible technologies position it favourably for this transition, though execution risks remain.

Peer Comparison: Valuation Premium Demands Justification

Endurance Technologies' valuation metrics warrant careful examination relative to auto component sector peers. Trading at 43.46 times trailing twelve-month earnings, the stock commands a modest premium to the sector average of 39 times, yet appears attractively valued compared to peers such as Tube Investments (93.82x), Uno Minda (68.84x), and Bharat Forge (61.42x).

The company's price-to-book ratio of 6.64 times sits below the peer average of approximately 9.3 times, suggesting relative value from an asset-based perspective. However, this discount partly reflects Endurance's lower ROE of 13.28% compared to the peer average of approximately 16%, indicating that the company generates below-average returns on shareholder equity despite its robust operational performance.

Endurance's competitive positioning benefits from its net cash status (debt-to-equity of negative 0.15), contrasting favourably with leveraged peers such as Bharat Forge (0.50) and Uno Minda (0.40). This balance sheet strength provides strategic flexibility for acquisitions, capacity expansion, and weathering cyclical downturns without financial distress. The company's dividend yield of 0.37%, whilst modest, reflects a conservative payout policy that prioritises reinvestment for growth over immediate shareholder returns.

Valuation Analysis: Fair Value with Limited Upside

At the current market price of ₹2,683.40, Endurance Technologies trades at multiples that suggest fair valuation with limited near-term upside potential. The P/E ratio of 43.46 times, whilst below some high-growth peers, appears elevated given the company's 13.10% one-year return and margin compression trends. The PEG ratio of 3.20—calculated by dividing the P/E multiple by the earnings growth rate—signals expensive valuation relative to growth prospects, as values above 2.0 typically indicate premium pricing.

The enterprise value-to-EBITDA multiple of 21.62 times reflects market optimism about future earnings potential, yet appears stretched when juxtaposed against the company's recent margin trajectory. Historical valuation analysis reveals that Endurance has oscillated between "Fair" and "Expensive" categories throughout 2025, with the current "Fair" designation representing a balanced assessment that acknowledges both growth potential and valuation constraints.

The stock's 52-week range of ₹1,555.65 to ₹3,078.95 illustrates significant volatility, with the current price positioned 12.85% below the peak but 72.49% above the trough. This positioning suggests that whilst the stock has recovered substantially from its lows, it remains well off recent highs, potentially reflecting market scepticism about near-term margin recovery prospects.

Shareholding Pattern: Promoter Stability, Institutional Interest

Endurance Technologies' shareholding structure reflects strong promoter commitment and gradually increasing institutional participation. Promoter holding has remained rock-solid at 75.00% across the past five quarters, signalling unwavering confidence in the company's long-term prospects and eliminating concerns about management exit or dilution.

Foreign institutional investor (FII) participation has demonstrated consistent growth, rising from 9.54% in September 2024 to 13.84% in September 2025—a cumulative increase of 4.30 percentage points over four quarters. This steady accumulation by sophisticated global investors suggests growing conviction in Endurance's structural growth story and competitive positioning. The quarter-on-quarter increase of 0.30% in Q2 FY26 continues this positive trend.

Conversely, mutual fund holdings have declined from 7.93% in September 2024 to 5.35% in September 2025, representing a 2.58 percentage point reduction. This divestment by domestic institutional investors may reflect profit-booking after the stock's strong run or reallocation towards other opportunities within the auto components space. Insurance company holdings have similarly contracted from 4.81% to 3.21% over the same period, reinforcing the pattern of domestic institutional caution.

The divergence between FII accumulation and domestic institutional selling presents an intriguing dynamic—foreign investors appear to favour Endurance's long-term growth narrative and export potential, whilst domestic institutions may be concerned about near-term margin pressures and valuation. The absence of any promoter pledging eliminates governance concerns and underscores the family's financial strength.

Stock Performance: Volatility Amidst Long-Term Outperformance

Endurance Technologies' stock performance reveals a tale of two timeframes—impressive long-term wealth creation punctuated by recent volatility. Over the past year, the stock has delivered 13.10% returns, modestly outperforming the Sensex's 8.75% gain with a positive alpha of 4.35 percentage points. This performance, whilst respectable, pales in comparison to the company's medium and long-term track record.

The two-year return of 67.25% significantly exceeds the Sensex's 29.93% gain, generating alpha of 37.32 percentage points and demonstrating Endurance's capacity to create substantial shareholder value during favourable market conditions. The three-year and five-year returns of 80.18% and 156.09% respectively further underscore this wealth creation potential, with the stock delivering alpha of 43.27 and 62.75 percentage points over these horizons.

However, recent performance has been lacklustre. The stock has declined 5.97% over the past week and 3.38% over the past month, underperforming the Sensex by 7.35 and 6.23 percentage points respectively. This near-term weakness likely reflects investor concerns about margin compression evident in Q2 FY26 results, elevated valuations, and broader market volatility affecting cyclical sectors.

Technical indicators paint a mixed picture. The stock currently trades below all major moving averages—5-day (₹2,813.58), 20-day (₹2,875.35), 50-day (₹2,877.08), 100-day (₹2,775.38), and 200-day (₹2,411.59)—suggesting near-term bearish momentum. The overall technical trend classification of "Mildly Bullish" reflects this ambiguity, with the stock having transitioned from "Bullish" to "Mildly Bullish" on October 17, 2025.

The stock's high beta of 1.35 indicates elevated volatility relative to the broader market, with annualised volatility of 33.90% significantly exceeding the Sensex's 12.26%. This volatility profile categorises Endurance as a "High Risk Medium Return" investment, suitable primarily for investors with above-average risk tolerance and longer investment horizons capable of weathering cyclical fluctuations.

Investment Thesis: Quality Business at Fair Valuation

Endurance Technologies' investment proposition rests on four pillars: positive near-term operational momentum, good fundamental quality, fair valuation, and mixed technical signals. The company's Mojo score of 68 out of 100 reflects this balanced assessment, positioning it firmly in "HOLD" territory where the risk-reward equation favours patience over aggressive accumulation.

The positive financial trend classification stems from record-high quarterly revenue, operating cash flow, and PBDIT, demonstrating robust operational execution. The "Good" quality grade acknowledges healthy long-term growth (17.79% sales CAGR, 19.49% EBIT CAGR), strong balance sheet (net cash position), and zero promoter pledging. However, the "Fair" valuation assessment recognises that at 43.46 times earnings and a PEG ratio of 3.20, the stock offers limited margin of safety for new investors.

Outlook: What to Watch

The investment case for Endurance Technologies hinges on the company's ability to translate robust revenue momentum into sustainable margin expansion whilst navigating the auto sector's transition towards electrification. Several key factors will determine whether the stock can justify its premium valuation and deliver attractive returns from current levels.

For existing shareholders, the stock's long-term wealth creation track record (156% returns over five years) and strong fundamental quality justify continued holding despite near-term volatility. The company's net cash position, zero pledging, and record cash generation provide downside protection, whilst ongoing capacity expansion positions it for sustained growth as automotive demand recovers.

However, fresh investors should exercise caution given the "Fair" valuation assessment and elevated PEG ratio. The stock offers limited margin of safety at current levels, with meaningful upside contingent on margin recovery that remains unproven. A more attractive entry point would emerge either through price correction towards ₹2,400-2,500 levels (approximately 10-12% downside) or through sustained margin expansion demonstrating pricing power and operational efficiency gains.