Growth in sight, Valuations appear reasonable, Maintain BUY!
During the quarter, operational performance was slightly better than our estimates. The revenue growth was driven by healthy volume growth and strong performance across segments, including the aftermarket business. For FY26, all segments registered double-digit growth, outperforming underlying industry growth. The aftermarket and export segments witnessed a QoQ decline due to supply chain challenges arising from gas shortages, leading the company to strategically prioritize production for OEM customers. The SOP for the Hero business is expected around Q2FY27E, while discussions for additional business opportunities with the customer are ongoing. For FSD shock absorbers, development activities are underway with Tata Motors, alongside discussions with a couple of other customers. Sunroof business reported revenue dip of 7.5% on QoQ basis because of lower-than-expected sales in models of Kia Syros. For sunroof, beyond existing order wins from Korean customers, no new RFQs were secured during Q4. However, discussions continue with both existing and prospective customers. Management remains confident of acquiring new customers which will help to diversify itself from mere few customers currently, thereby leading to stronger growth. We model in volume growth estimate of ~18% CAGR from FY26-28E in the sunroof business. In the suspension (base) business, new business wins are contributing well to the volumes. Here, we are modelling CAGR growth of 11%/10% for 2W3W/PV from FY26-28E.
Outlook:
• The sunroof business’s 12-14% EBITDA margin is sustainable in the long run, with a focus on localization and doubling capacity by adding a new line in the coming year. • The outlook for high-margin exports is healthy.
• The company is on track to achieve a double-digit EBITDA margin at the standalone level over next couple of years.
• Recent merger, new JVs will further diversify companies’ business for sole product to multiple businesses (fasteners, lubricants), which provides additional levers for growth.
We believe earnings growth will accelerate over the next three years, driven by increased scale, a favourable mix, improvements in the sunroof segment, stable commodity prices, and the benefits of the Core90 program. Apart from solar dampers, we have also incorporated new strategic acquisitions & recent JV with JINHAP Korea numbers into our estimates. In our last update, we had said the stock looks attractive & despite volatility led by West Asia tensions, the stock has seen decent upside from last quarter levels & we still see room on the upside. We value the stock on March 28E & assign 33x (earlier 30x) to EPS of Rs 39.7 & arrive at a target price of Rs 1,309 per share. Maintaining our BUY rating on the stock.
Q4FY26 – Better 2W/3W & CV segments
• Revenue in line with est., while EBITDA/Adj. PAT slightly above est. by ~2.5/2.2% respectively. Consolidated revenue at 12.1bn was largely in-line with estimates. The consolidated EBITDA margin stands at 9.3%, 14bps above expectations. Adj. PAT was slightly above est. by ~2.2% on better operational performance and higher other income.
• During the quarter, gross margins declined QoQ due to higher material costs and an adverse product mix. Commodity inflation is expected to continue exerting pressure, although cost recovery from customers across businesses is anticipated. Consolidated margin stood at 9.3%, slight 31bps higher than our estimates because of higher margins in sunroof business than estimates. The sunroof margins for the quarter stood at 14.6% in Q4FY26 vs 13.5% in Q3FY26.
• Q4FY26 market share in 2W/3W & CV has remained largely intact across segments. Gabriel’s market share in 2W/3W & PV is 32%/25% in Q4FY26 (same as compared to last quarter). Also, CV market share remained intact at 88%.
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