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Steady performance in challenging quarter

Gabriel India (GABR IN) reported standalone revenue growth of 13.6% YoY at INR 9.2bn (outperforming 2W production growth of 8% YoY). EBITDA margin was flat YoY, in line with our estimates. Consolidated revenues grew 25% YoY aided by sunroof business while consol EBITDA and PAT grew by 30% and 46% YoY to INR 9.3bn and INR 600mn respectively. EBITDA margin for the sunroof business contracted QoQ, impacted by oneoff cost of INR 22mn pertaining to price settlements with customers. We retain our positive stance on GABR, given its product diversification roadmap and benefit from healthy 2W volume outlook. We reiterate Buy with raised TP of INR 666.

2W revenue growth outperforms industry production:

Standalone revenue improved 13.6% YoY to INR 9.2bn in Q3. Revenue growth for the 2W and PV segments improved 19.1% YoY and 13.6% YoY versus industry production growth of 8% for 2W and 2.8% for PV, respectively. Standalone EBITDA improved 11.7% YoY, with EBITDA margin flat YoY, primarily due to high raw material cost (+40bps YoY). Consolidated revenue was up 24.7% YoY to INR 10.2bn, led by scaling up of the sunroof business.

Acquisition of Marelli Motherson to expand product portfolio and consolidate suspension market:

GABR acquired assets from Motherson Marelli Auto Suspension (MMAS) parts for INR 0.6bn. Motherson Marelli Auto Suspension is primarily engaged in shock absorber, front forks and gas spring units. With the above acquisition, GABR is all set to bolster its position in the suspension business, leading to an additional 3.2mn shock absorber capacity and 1mn gas spring capacity. Also, with this acquisition, GABR has expanded its product profile with gas springs (new customers onboarded such as Renault and Stellantis). Growth potential for the Gas Spring business seems huge, with competitive intensity limited to a few players. MMAS is at EBITDA breakeven currently with minor PAT loss of INR 126mn as on FY24, and expects to turn it to profitability in the medium term.

Retain Buy with TP raised to INR 666:

We remain positive on GABR, primarily due to increased focus on product diversification, starting with the sunroof segment. The company will remain a beneficiary of the ongoing 2W growth (it has a 30% market share as on Q3FY25) and high growth in the e2W segment (80% market share in EV two-wheeler suspension business).

We expect PAT CAGR of 20% in FY24-27E, with margin expansion of 150bps to 10.2% by FY27E. With most of the capex cycle completed, we expect an FCF of INR 6.1bn in FY25E-27E, and improvement in ROE and ROCE to 21.6% and 24.8% by FY27E, respectively. So, we retain Buy with a higher TP of INR 666 from INR 647, based on 30x FY27E P/E, as we roll forward. We still factor in the sunroof business as a 49:51 JV and await clarity on Press Note 3 (PN3) government approval. We are yet to factor in Motherson Marelli Auto’s financials (which in the first year may add ~6% to FY26E standalone revenues while likely to be EBITDA and PAT neutral in the first year).

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