Gabriel India Ltd Initiating Coverage Research Report By Angel

Gabriel India Ltd (Gabriel) is one of the leading manufacturers of ride control products viz shock absorbers, front forks and struts across automotive segments. It commands a market share of 25% in both two-wheelers and passenger vehicles and is the market leader in commercial vehicles segment with a 75% market share. Recovery in two-wheelers bodes well for Gabriel The two-wheeler industry, which contributes ~52% of Gabriel’s revenues, is poised to recover (we expect 7% CAGR growth over next two years on account of acceleration in urban markets (60% of 2W demand) due to better economic growth and further easing of interest rates. Also, the implementation of the Seventh Commission would result in ~23% pay hike for about 5mn central government employees & the expected subsequent hikes for 12 mn state government employees would aid demand recovery. (Implementation of Sixth pay commission in FY09 had contributed to 25% growth both in FY10 and FY11). Gabriel to outpace 2W industry on market share gains by key clients Gabriel is likely to outpace the two-wheeler industry growth on back of market share gains of its key clients viz Honda India, TVS Motors and Royal Enfield (which form 75% of 2W revenues) due to expansion of their distribution reach, new products and increased proportion of fast growing scooters. GIL is likely to register 9-10% growth in 2W as against industry growth of 7% Healthy growth in PV and CV segment to boost revenues We expect PV segment (27% of revenues) to grow a healthy 8% due to better OEM industry growth and entry into new platforms. CV OEM segment (9% of revenues) is expected to grow 15% over next two years due to higher freight availability. Aftermarket and export segments to be key growth drivers Increased shift towards branded product and new product introduction coupled with GIL strategy to initiate supplies to OEM’s overseas arms and taping aftermarket exports would result in 15% CAGR for both aftermarket and exports over next two years. Outlook and valuation: Two-wheeler recovery coupled with market share gains, healthy growth in passenger vehicle segment, increased focus on aftermarket and exports are likely to lead to a 10% CAGR in revenue for Gabriel over FY2016-2018 period. Gabriel’s margins are also expected to improve by 60bp in the next two years on back of operating leverage and cost control measures, resulting into 17% earnings CAGR over the next two years. GIL is a quality ancillary company with bright earnings growth, healthy return ratios and attractive valuations. We initiate coverage on Gabriel with Buy rating and target price of Rs101 (based on 16x FY2018E earnings).

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