Gabriel India
A weak 3Q, but outlook good; Buy
Key takeaways
Weak OEM sales on low demand. Decline in demand across most auto
segments have weighed down on Gabriel India’s (Gabriel) ytd performance.
After robust growth in past three years in autos (22% CAGR), FY13 was
subdued (at ~3%) with a weak trend expected to sustain in FY14. However,
Gabriel recorded ~3% growth in 1H, and we expect ~7% growth in revenues
in FY14 (expectation of 9.9% in 3QFY14), mainly due to business from new
two-wheeler customers like Honda Motorcycle, Mahindra Two Wheelers. The
proportion of two wheelers in sales has increased from less than 50% in FY13
to ~55% in 9MFY14.
Lower EBITDA. We expect revenue growth of 9.9% yoy to `3.3bn. Our
EBITDA margin expectation is 6.3%, 20bps higher yoy, flat qoq. While
EBITDA is expected to be 13.1% higher yoy, we expect profit of `95m (5.9%
lower yoy).
Our take. Gabriel is focused completely on innovation and raising
productivity, and reducing costs, working capital and overheads. It has also
taken measures to improve the working capital cycle, results of which have
begun to show. Debt reduction is also a focus area for the company, where
results are now being visible. Additions to the customer base, exports and
steady replacement sales are future growth drivers. Despite lower vehicle
demand, Gabriel has sustained a decent, > 6% EBITDA margin, which can
be boosted further by operating leverage and higher contribution from more
profitable segments like exports and replacement. We maintain Buy, with
target of `27 (at PE of 7.25x Mar’15e; current PE is 6.4x FY15e).
Risks. Inadequate price hikes by OEMs, higher commodity prices, prolonged
demand slump.
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A weak 3Q, but outlook good; Buy
Key takeaways
Weak OEM sales on low demand. Decline in demand across most auto
segments have weighed down on Gabriel India’s (Gabriel) ytd performance.
After robust growth in past three years in autos (22% CAGR), FY13 was
subdued (at ~3%) with a weak trend expected to sustain in FY14. However,
Gabriel recorded ~3% growth in 1H, and we expect ~7% growth in revenues
in FY14 (expectation of 9.9% in 3QFY14), mainly due to business from new
two-wheeler customers like Honda Motorcycle, Mahindra Two Wheelers. The
proportion of two wheelers in sales has increased from less than 50% in FY13
to ~55% in 9MFY14.
Lower EBITDA. We expect revenue growth of 9.9% yoy to `3.3bn. Our
EBITDA margin expectation is 6.3%, 20bps higher yoy, flat qoq. While
EBITDA is expected to be 13.1% higher yoy, we expect profit of `95m (5.9%
lower yoy).
Our take. Gabriel is focused completely on innovation and raising
productivity, and reducing costs, working capital and overheads. It has also
taken measures to improve the working capital cycle, results of which have
begun to show. Debt reduction is also a focus area for the company, where
results are now being visible. Additions to the customer base, exports and
steady replacement sales are future growth drivers. Despite lower vehicle
demand, Gabriel has sustained a decent, > 6% EBITDA margin, which can
be boosted further by operating leverage and higher contribution from more
profitable segments like exports and replacement. We maintain Buy, with
target of `27 (at PE of 7.25x Mar’15e; current PE is 6.4x FY15e).
Risks. Inadequate price hikes by OEMs, higher commodity prices, prolonged
demand slump.
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