Key takeaways
4Q was weak. Shrinking demand across most auto segments bore down on
Gabriel’s 4Q results. Its FY13 revenue grew 6.8% yoy; its 4Q revenue was up
3.9% yoy. The 4QFY13 EBITDA margin was 6.4% and, due to depressed
demand conditions, did not replicate the normal trend of a sharp qoq uptick
in 4Q, unlike in previous years.
New HMSI plant to add to growth. Honda Motorcycles & Scooters India
(HMSI) has inaugurated its plant near Bangalore in Karnataka, which would
drive growth for Gabriel over and above the average industry growth. Gabriel
is one of the major suppliers to HMSI of both shock absorbers and front
forks. Because of sluggish two-wheeler demand, management expects
4QFY13 revenue to be sustained in 1QFY14. However, from 2Q when
HMSI’s production at the new plant is in full swing, management is optimistic
of better growth. As a cautionary take however, the two-wheeler industry
demand scenario improvement would play an important part.
Focus on internal efficiencies. Gabriel has started focusing sharply on
innovation, reducing costs, working capital and overheads, and improving
productivity. Measures have also been taken on the working-capital side
because of which there has been significant improvement. Hence, Gabriel
could reduce inventories and receivables by `210m. Decent profitability and
lower interest cost also helped reduce its debt by ~`400m in FY13.
Our take. Additions to the customer base, exports and steady replacement
sales are future growth drivers. We maintain a Buy, with a price target of `27
(at a PE of 7x Sep’14e; the present PE is 6x FY14e). Risks: Inadequate price
hikes by OEMs, increase in commodity prices, prolonged demand slump,
delay in ramp-up by HMSI.
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4Q was weak. Shrinking demand across most auto segments bore down on
Gabriel’s 4Q results. Its FY13 revenue grew 6.8% yoy; its 4Q revenue was up
3.9% yoy. The 4QFY13 EBITDA margin was 6.4% and, due to depressed
demand conditions, did not replicate the normal trend of a sharp qoq uptick
in 4Q, unlike in previous years.
New HMSI plant to add to growth. Honda Motorcycles & Scooters India
(HMSI) has inaugurated its plant near Bangalore in Karnataka, which would
drive growth for Gabriel over and above the average industry growth. Gabriel
is one of the major suppliers to HMSI of both shock absorbers and front
forks. Because of sluggish two-wheeler demand, management expects
4QFY13 revenue to be sustained in 1QFY14. However, from 2Q when
HMSI’s production at the new plant is in full swing, management is optimistic
of better growth. As a cautionary take however, the two-wheeler industry
demand scenario improvement would play an important part.
Focus on internal efficiencies. Gabriel has started focusing sharply on
innovation, reducing costs, working capital and overheads, and improving
productivity. Measures have also been taken on the working-capital side
because of which there has been significant improvement. Hence, Gabriel
could reduce inventories and receivables by `210m. Decent profitability and
lower interest cost also helped reduce its debt by ~`400m in FY13.
Our take. Additions to the customer base, exports and steady replacement
sales are future growth drivers. We maintain a Buy, with a price target of `27
(at a PE of 7x Sep’14e; the present PE is 6x FY14e). Risks: Inadequate price
hikes by OEMs, increase in commodity prices, prolonged demand slump,
delay in ramp-up by HMSI.
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