Recommendation from Auto Ancillaries

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

GABRIEL INDIA: IN A FAST FORWARD MODE

HERE IS WHY
✓Strong presence in aftermarket
✓Leading position in the emerging
✓EV segment Export on the rise

The equity market seems to be on slippery ground once again. However, one sector that has been outperforming is automotive. The year-tilldate BSE Auto index has outperformed Sensex by 16 per cent. One of the reasons for such outperformance is that the Indian automobile sector is showing sign of recovery and reaching pre-pandemic sales volume after facing many challenges over the last few years such as slowing economic growth, soaring crude prices, semiconductor shortages and supply chain disruptions. Industry experts believe that India’s automotive market is poised for single to doubledigit growth across segments. 

One of the companies that are going to benefit out of the current recovery situation is Gabriel India. Established in 1961, the company is engaged in the manufacturing of ride control products in India which include axle dampers, shock absorbers and others like forks covering the wide range of suspension systems and has become the most trusted brand for such products. It now manufactures more than 500 models across every automotive segment, ranging from two-wheelers to railways.

For the financial year ending FY22 its two and three-wheelers segment contributed 65 per cent to the revenue followed by passenger cars (22 per cent), commercial vehicle and railways (11 per cent) and the aftermarket (2 per cent). Its top three customers in each of the categories are TVS Motors and Yamaha in the two and three-wheeler segments, Maruti Suzuki and Mahindra and Mahindra in the passenger car segment, Ashoka Leyland and Tata Motors in the commercial vehicle segment and railways.

Gabriel India enjoys a dominant position with the domestic OEMs as well as replacement market. Based on its FY22 presentation, the company commands a market share of 25 per cent in the two and three-wheeler industry, 23 per cent in the PV segment and 85 per cent in CVs. Gabriel India is well-placed to exploit the electric vehicles (EV) segment in India. The company has almost 50 per cent market share in EVs. It is already engaged with Okinawa, Ampere, Ather, TVS and Ola for two-wheelers and Bajaj Auto, Mahindra and Mahindra and Tube Investment among three-wheelers. Recently it won a letter of interest from Hero Electric for a new model, which is expected to be launched in the second half of FY23. Many cities have reached EV penetration of 17 per cent in FY22. With the launch of the Hero Electric model and Ola volumes going up, GIL’s market share in EV is expected to increase further

Export has been one of the key focus areas for the company and has unlocked some key marquee customers which would aid in driving export volumes. Overseas revenue grew by 64 per cent in FY22 to ₹101 crore. The company witnessed strong sales growth in in the first quarter of FY23. Revenue for the company increased to ₹720.9 crore as compared to ₹451.8 crore in Q1FY22, showing a yearly growth of 59.6 per cent. EBITDA in the same period doubled and increased to ₹50.9 crore with margin of 7.1 per cent as compared to ₹23.2 crore in Q1FY22. Profit after tax too saw a substantial rise from ₹12 crore for Q1FY22 to ₹33 crore for Q1FY23. We believe the company will continue with its good show and hence readers can BUY the stock at its current price as it is available at a PE ratio of 18.8x compared to long-term average of 21.2x.