Buy Gabriel India Ltd For Target Rs1,381 By Elara Capital
Strong order wins pave way for recovery
Gabriel India’s (GABR IN) standalone Q3 revenue grew 15.9% YoY to INR 10.7bn (consolidated revenue up 15.9%). The company expanded its OEM presence by onboarding Hero MotoCorp with one model under development (SOP expected by end of Q1FY27). Consolidated EBITDA margin improved slightly by ~10bps YoY to 9.1% in Q3. Other expenses increased by 24% YoY to INR 1.3bn due to technology support for localization for sunroof, restructuring cost and increase in royalty by ~190bps. Importantly, recent order wins in the sunroof business is encouraging, which was a concern in Q2 and reason behind the sharp share price correction. We reduce our FY26E-27E EPS by 9-10% but maintain Buy with revised TP of INR 1,381.
Robust order wins in 2W and PV to support growth trajectory: GABR continues to build a strong order pipeline with multiple order wins in the 2W and PV segments. In the two-wheeler segment, the company expanded its OEM presence by onboarding Hero MotoCorp with one model under development (SOP expected by end of Q1FY27) along with securing additional inverted fork business from TVS, Bajaj and Kawasaki. In the sunroof segment, GABR won new orders from Hyundai for two new models across three model variants, translating into annual revenues of INR 1.2bn and volumes of 130k units with expected SOP from Dec ’27. Additionally, the company secured first development order for upside down front forks for European e-bikes with SOP from Q3FY27. GABR’s two-wheeler segment grew 13% in Q3, lagging industry production growth of ~15%, mainly due to: a) higher growth reported by Hero MotoCorp (GABR currently has no presence in Hero, and b) difference in model mix. With the EU-India FTA and US-India trade deals materializing, the export and solar dampener businesses are expected to see a recovery, especially in the US.
Sunroof – FY30-31 revenue target on track: In Q3, the Sunroof segment reported revenues of INR 1.1bn (+16% YoY) with EBITDA margin of 13.5%. A sequential drop in EBITDA margin of 300bps was attributed to additional expenses related to technology, localization support for new business wins and royalty increase by ~190bps. Additionally, GABR aims to improve localization for the sunroof segment to 60% in the next 1.5 years from current 33%. Importantly, the management sounded confident of not only recovering the lost business of Hyundai Creta ICE, by recent order wins but also growing on the same. It is also on track to meet the INR 10bn revenue target for the sunroof business by FY30-31.
Reiterate BUY with a pared TP of INR 1,381: We are encouraged by the announcements for new orders in sunroof business from Hyundai-Kia, which was a concern in Q2 and the key reason behind the sharp fall in share price. Also, the new order wins from HMCL gives visibility of sustained market share in 2Ws. The greatest potential for a 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 counts: a) increasing products, b) expansion in segments, c) expansion in geographies and d) inorganic expansion. GABR is a play on all four. That said we lower our FY26E-28E pro forma EPS estimates by 9-10% and thus, revise our TP to INR 1,381 (from INR 1,470) on 40x FY28E EPS, as we roll forward by a quarter. Retain BUY.
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SEBI Registration number is INH000000933
