Buy Gabriel India Ltd : EV immune product profile, bullish stance retained - ICICI Direct
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Buy Gabriel India Ltd For Target Rs.160
EV immune product profile, bullish stance retained
About the stock: Gabriel India (GIL) is a global top-10 shock absorber manufacturer serving 2-W, 3-W, PV, CV, railway and aftermarket segments.
* FY21 revenue mix – ~67% 2-W, 3-W, ~21% PV, ~12% CV & railways FY21 market share – 25% in 2-W, 3-W, 18% in PV, 75% in CV & railways
* On-boarded EV players in 2-W, 3-W space & is sole supplier for Ola Electric.
Q1FY22 Results: GIL posted muted Q1FY22 results.
* Net sales at | 453.6 crore were lower by 21.9% QoQ
* Margins declined 300 bps sequentially to 5.5%
* Consequent PAT fell 56.7% QoQ to | 12 crore
What should investors do?
The stock price has grown at modest ~3% CAGR from | 115 levels (August 2016), having done slightly better than Nifty Auto index.
* We retain BUY rating on mix & margin gains and large EV opportunity
Target Price and Valuation: We value GIL at 20x P/E on FY23E basis for a revised target price of | 160 per share (earlier target price |150).
Key triggers for future price performance:
* We build 16.3% net sales CAGR in FY21-23E on post-Covid OEM rebound, new order wins and market share gains
* EV-proof products; potential to be outsized beneficiary of 2-W electrification
* Lowered breakeven levels, cost focus and higher share of aftermarket and exports from current levels to aid margin improvement to 8.5% by FY23E
* Net cash b/s (~| 250 crore cash & liquid investments); ~14% of market cap
Alternate Stock Idea: Apart from GIL, in auto ancillary coverage, we like JK Tyre.
* Walking the talk on b/s deleveraging, sweating of assets & capital efficiency
* BUY with a target price of | 180
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