On strong footing, healthy growth lies ahead…
About the stock: Gabriel India (GIL) is a global top-10 shock absorber manufacturer serving 2-W, 3-W, PV, CV, railway and aftermarket segments.
• FY23 revenue mix – ~63% 2-W/3-W, ~23% PV, ~12% CV & railways
• FY23 market share – 32% in 2-W/3-W, 23% in PV, 89% in CV & railways
• FY23 Channel mix – 84% OEM; 12% Replacement market; 4% Exports
Q3FY24 Results: Reports steady performance, margins continue to inch-up Net sales for the quarter came in at ₹ 814 crore, up 14% YoY. EBITDA in Q3FY24 stood at ₹70 crore with corresponding EBITDA margins at 8.6%, up 10 bps QoQ. Consequently, PAT came in at ₹43 crores up 48% YoY. GIL has won new platforms at TVS Motors (Scooter+ EV), Bajaj Auto (Platina), Tata Motors (EV) and 2nd source supplier for Maruti Swift at MSIL. This will lead to industry leading growth going forward. On the Sunroof JV, the plant is now commissioned & is expected to operate at rated capacity by FY26E.
Key Investment thesis
• Increasing prominence in PV-SUV space, structurally positive: Gabriel India has been a prominent shock absorber player domestically and has been 2-W/3-W heavy with this segment constituting ~65% of sales and PV constituting ~20-22% of sales. In the recent past however, GIL, has gained traction in the PV space with this segment now constituting ~24% of its sales with intent to raise it to ~30% over next few years. Interestingly, within PV space the company realizes ~64% of sales from the SUV sub- segment which is witnessing healthy demand traction with its domestic market share in SUV domain pegged at ~35%. Increasing share of PV-SUV space in GIL’s overall sales pie is structurally positive. EV agnostic product profile and vision to be among the top 5 shock absorber players globally by 2025 are other structure positives providing long term comfort.
• Healthy financials; Cash rich B/S: Capital efficiency and healthy balance sheet has been the key USP at Gabriel thereby providing good margin of safety. GIL’s b/s has a net cash surplus of ~₹300 crore as of FY23 and on consistent basis (ex-Covid period) being clocking healthy double digit (~15%) return ratios. Going forward, we expect Sales/PAT at GIL to grow at a CAGR of 10%/24% over FY23-26E with RoCE at ~22% by FY26E.
Rating and Target price
• We assign BUY rating on Gabriel India amidst structural levers in place for industry leading topline growth, double digit margin endeavour, capital efficient business model, healthy cash rich B/S, EV agnostic product profile, gaining prominence in PV-SUV space, foray into premium segment offering (i.e., sunroof systems) and leadership position in E-2W/3W space.
• We assign a target price of ₹440 for GIL valuing it at 25x P/E on FY26E
Click here to download IDirect Gabriel India Co Update Feb24
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