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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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