Gabriel India (GIL), the flagship company of Anand Group, is a pioneer in ride control products in automobiles such as Front forks and Rear Shox (used in 2W/3W), Struts and shock absorbers (in passenger cars), and Shock absorbers and cabin & seat dampers (for CVs). GIL has been growing on the back of the Indian Auto industry (especially 2W & PV) which has reported an excellent growth trajectory for the last couple of years. As GIL sources 83% of its revenues from OEMs, its growth is directly linked to the growth of the auto industry. Being an approved vendor to Indian Railways, GIL would also benefit from capex undertaken by the Indian Railways.
Over the past few years, GIL has generated strong free cash flows and strengthened its balance sheet by paying off debt. With 20% return ratios and strong free cash flow generation, GIL is a quality play on the domestic automobile industry. Currently, GIL trades at 13.7x P/E on FY21E basis, which is justified given the healthy financials. We initiate coverage on Gabriel India Limited with a ‘buy’ rating and price target of `170 (16x on FY21E EPS).
GIL has a diverse business model with revenues coming from all three segments i.e. two-wheelers, passenger cars and CVs. This helps the company in de-risking itself from dependence on one segment. GIL’s segment mix, over the past few years, has improved, with dependence on 2/3W reducing from 63% in FY15 to 56% in FY18.
The 4W mix has gone up from 37% to 44%, driven by new order wins in the PV and CV segments. GIL has new and repeat orders coming from major domestic OEMs across all segments. None of these customers contribute more than 12-15% to the total revenue.