Buy Gabriel India Ltd For Target Rs.1,664 by Motilal Oswal Financial Services Ltd
New businesses set to outgrow legacy suspension business
* GABR’s reported revenue at INR 16.1b rose 23% YoY in 2QFY27 (in line with estimate), led by strong demand from 2W and PV segments (Base quarter nos have been restated for appropriate comparison).
* EBITDA stood at INR1.4b, up 12% YoY (in line with our estimate). EBITDA margin stood at 8.8% vs. 9.6% in 2QFY26 due to a spike in input costs on account of the West Asia crisis, lag effect in cost pass-through and the higher denominator effect.
* Adjusted PAT, including the restructured entities (Dana, Henkel, Anchemco, and Myutec), stood at INR1.2b (up 15% YoY), beating our estimate by 15% due to lower interest costs and higher other income.
* CFO for 1HFY27 stood at INR1.1b, while free cash outflow came in at INR10.5b due to the acquisition of HL Mando/Klemove.
* Demand outlook for the festive season remains healthy. We expect margins to improve over the coming quarters, driven by the pass-through of commodity price increases. With the HL Group acquisition completed in 2QFY27, we have incorporated its financials into our estimates for 2HFY27, resulting in a 12% upgrade to FY27E EPS. We roll forward our valuation to Sep’28E and assign a 35x multiple on EPS of INR47.6. Accordingly, we maintain our BUY rating with an unchanged TP of INR1,664.
Incremental updates
HL Group acquisitions completed:
* GABR completed the acquisition of a 28.99% stake in HL Mando Anand India on 11th Sep’26 and a 30% stake (less one share) in HL Klemove India on 25th Aug’26.
* The company raised INR10b through unsecured NCDs at 8.15% p.a. for a tenure of three years to part finance the acquisition.
Formed Seating JV:
* Gabriel India's board has approved a joint venture agreement on 6th Oct’26 with Faurecia Automotive Seating India (FASI), FORVIA's Indian seating subsidiary. The JV, proposed to be named Faurecia Anand Seating India, will be newly incorporated. FASI will hold a 50% plus one share and Gabriel 50% less one share. Closing is targeted by 31st Dec’26, extendable by mutual consent.
Transaction highlights
* Scope: The JV will develop, manufacture and market primarily passenger vehicle seats, both complete seats and components, sub-assemblies and systems. Seat mechanisms are carved out and stay with FORVIA as the IPintensive core. The mandate covers India and other mutually agreed geographies, which leaves optionality on exports.
* Seed business: Under a business transfer agreement, the JV will acquire FASI's existing seat-frames business as a going concern on a slump-sale basis, excluding mechanisms. The JV is therefore a new legal entity but starts with an operating revenue base, not a pure greenfield.
* Capital structure: Paid-up equity will be INR1b post-closing, contributed in two tranches:
* INR200m at incorporation, split at 51:49 ratio ? INR800m at closing, split equally
* GABR's total commitment is ~INR500m in cash, subscribed at par.
* Governance:
* Board of six, with three nominees from each partner.
* Chairman nominated by FASI, with a casting vote.
* COO appointed by FASI; Deputy COO by Gabriel.
* Voting is pro rata to shareholding, but reserved matters need the affirmative vote of both partners.
* Standard deadlock and event-of-default provisions apply.
* Ancillary agreements, to be executed after incorporation:
* A technical services and IP license agreement (TIPLA) with Faurecia Sièges d'Automobile (France) and Faurecia India.
* Management and corporate services agreements with both FASI and Anand Automotive (AAPL).
* Strategic rationale: For GABR, the JV diversifies it into a powertrain-agnostic category. For FORVIA, it supports a target of ~10% share of Indian seating within five years, framed as a first milestone under its IGNITE strategy. FORVIA secured its first Indian complete-seat program a few months ago. The partnership builds on a Clean Mobility relationship with ANAND dating back to 1991.
Other key updates:
* GABR's board declared an interim dividend of INR2.15/share for FY27.
Valuation and view
* The demand outlook remains healthy across all key segments in India, with sequential improvements in margins expected on account of the pass-through of input costs to customers gradually. With the HL Group acquisition completed within 2QFY27, we have incorporated its financials into our estimates for 2HFY27, resulting in a 12% upgrade to FY27E EPS. We roll forward our valuation to Sep’28E and assign a 35x multiple on EPS of INR47.6. Accordingly, we maintain our BUY rating with an unchanged TP of INR1,664. Further group consolidation and selective inorganic opportunities could provide additional upside to earnings over the medium term.
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