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Transitioning to a multi-product company

The Board of Directors of Gabriel India (GABR IN) has approved a Composite Scheme of Arrangement, involving Gabriel India, Asia Investments Pvt Ltd (AIPL), and Anchemco India Pvt Ltd (Anchemco). This scheme will result into vesting AIPL’s automotive business undertaking, comprising Anchemco’s business (brake fluids, radiator coolants, diesel exhaust fluid / ad-blue, and PU/ PVC based adhesives) and investments in Dana Anand India Pvt. Ltd, Henkel ANAND India Pvt. Ltd and ANAND CY Myutec Automotive Pvt., Ltd into GABR. The deal is EPS-accretive by ~41% on FY25 financials, which is a positive. While all approvals are likely to be completed in the next 10-12 months, we have not yet factored this into our estimates. However, proforma, our FY27E and FY28E EPS is likely to increase by 36% and 33%, respectively, assuming a modest ~8-10% CAGR in profits for the acquired entities. We reiterate BUY with TP raised to INR 1,115 (from INR 666). GABR is one of our top picks.

Product diversification, a core catalyst: The group is combining and shifting its automotive businesses so that GABR becomes a larger, more diversified, and more competitive listed company. Additionally, with equity holdings in Dana Anand, Henkel Anand and Anand CY Myutec Automotive, GABR will also be involved in making drivetrain products, including transmissions for EVs, Body-In-White and NVH products and solutions and also automotive synchronizer rings and aluminum forgings. This strengthens its positioning as a preferred partner for global OEMs and expands its aftermarket presence.

The transaction will position GABR as the Anand group’s (parent company) growth engine, which aspires to reach revenues of INR 50bn by FY30 from ~INR 20bn currently. Short-term synergies are anticipated through leveraging GABR’s extensive aftermarket network for Anchemco products (AdBlue, brake fluid, coolant). GABR’s strong relationships with OEMs, particularly in the EV space, are expected to benefit aluminumforging. Medium-term synergies will focus on adding more technologies and expanding capabilities.

Reiterate BUY with a higher TP of INR 1,115: In our view, the greatest potential for re-rating for any auto ancillary company arises from transition from a single- to a multi-product portfolio. As highlighted in our thematic, ‘LACE effect 2.0’, auto ancillaries have outperformed OEMs in the past decade on four key counts: a) increasing products, b) expansion in segments, c) expansion in geographies and d) inorganic expansion. GABR is a play on all four. The deal is EPS accretive by ~41% on FY25 financials, which is a positive. While all approvals are likely to be completed in the next 10-12 months, we have not yet factored this into our estimates. However, proforma, our FY27E and FY28E EPS is likely to increase from INR 22.8/26.6 to INR 31/35.3 for FY27E/28E, assuming a modest ~8-10% CAGR in profits for the acquired entities. The target multiple on proforma financials is ~35x (in line with Endurance on FY27E) given that this diversification may continue going forward. The FY25-27E EPS CAGR on proforma financials is expected to be ~45%. We retain Buy with TP raised to INR 1,115 (implied FY27E multiple of 47x, on existing numbers). In our existing EPS we have still factored in 49% stake for Gabriel in sunroof JV.

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