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Healthy growth prospects, inexpensive valuations…

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.

* FY22 revenue mix – ~65% 2-W, 3-W, ~22% PV, ~13% CV & railways

* FY22 market share – 25% in 2-W, 3-W, 23% in PV, 85% in CV & railways

Key highlights:

* Robust bookings at its key clients like Maruti Suzuki for the recent launches in the SUV space, namely new Brezza and Grand Vitara (cumulative bookings>1.5 lakh units) as well as M&M for XUV700 leading to outsized gains for the company resulting in market share gains, robust sales growth

* Secular growth at its key client in the 2-W space viz. TVS Motors with the company reporting single digit MoM growth in 2-W segment in YTD FY23 with volumes for August 2022 coming in at 3.2 lakh units, up 5.3% MoM. Even Bajaj Auto posting healthy volume prints in August 2022, up 13% MoM

* GIL at the forefront of ongoing electrification trend and has on boarded various EV 2-W,3-W OEMs as clients and is sole supplier for Ola Electric

What should investors do? The stock price has de-grown at ~4% CAGR from ~| 206 levels (September 2017), underperforming Nifty Auto index in that timeframe.

* We maintain BUY rating on the stock amid EV proof product profile; healthy growth prospects, strong capital efficiency and debt free b/s

Target Price and Valuation: Revising our estimates, we now value GIL at 18x P/E on FY24E for a revised target price of | 205/share (earlier target price | 170).

Key triggers for future price performance:

* We build 16.8% net sales CAGR in FY22-24E on new client addition and expected pick-up in sales volumes across all segment over FY22-24E

* EV-proof products; along with major EV players as clients with leading market share in EV suspension space (~>= 60% market share)

* Stabilised RM price, cost focus, increasing share of aftermarket and exports from current levels to aid margin improvement to 7.6% by FY24E. Corresponding return ratios are seen improving to 16-19% by FY24E

Alternate Stock Idea: Apart from GIL, in our OEM coverage we like M&M.

* Focused on prudent capital allocation, UV differentiation & EV proactiveness

* BUY with a target price of | 1,550

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