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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