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In Q2FY24, Gabriel India delivered slightly below expected performance. Revenue came at Rs. 8.64bn grew by 7.7% YoY/ 7.3% QoQ (vs CEBPL est. of Rs.8.9bn) led by lower aftermarket sales. Gross margin expanded by 173bps YoY to 24.7%, however compressed by 49bps QoQ due to commodity indexation. EBIDTA during the quarter increased by 24.8% YoY to Rs. 738mn and margin for the quarter jumped by 117bps YoY to 8.54%. PAT increased by 28.4% YoY to Rs.470mn. On Sunroof, the company has received some RFQs, and the current capacity is expected to reach 50-60% of the first-line by FY25. Additional capacity can be added within 3-4 weeks. Supply to KIA will start in January 2025, with the first line dedicated to Hyundai starting from Jan-24.

Improving technical capabilities: The company is upgrading its exciting tech centre (noise testing machine) in Chakan to meet the requirement of upcoming vehicles in EV category and at the same time it has also set up the tech centre in Belgium for PV (Passenger Vehicles) to conduct testing for semi-active suspension. It is strategically located near Germany and France, with easy access to talent.

Diversification into Sunroof to reduce single product dependency: GIL has a leadership position in the suspension systems, supplying and catering to all segments such as 2W, 3W, PV, CV, and railways and is also having support from parent Anand Group. In order to foray into a new edge product which is agnostic to power terrain technology and healthy growth prospectus, GIL has forayed into Sunroof system. Demand for sunroofs remains robust. The price difference between panoramic and normal sunroofs is almost double and current import content is 50-60%. The company has technical collaboration and alliance with Inalfa Roof Systems (51:49) for manufacturing sunroofs in the domestic automotive market. The company has received some RFQs, and the current capacity is expected to reach 50-60% utilisation of the first-line capacity by FY25. Additional capacity can be added within 3-4 weeks time. Supply to KIA will start in January 2025, with the first line dedicated to Hyundai starting from Jan-24.

Outlook & Valuation: We continue to maintain our positive view on the stock due to: 1) the key beneficiary of demand recovery in the 2W segment; 2) foray into high growth and power terrain technology agnostic product like sunroof system; 3) scaling up the technological capabilities; 4) steady revenue visibility in the aftermarket (export leading the show); 5) increasing share of business in PV segment; and 6) winning new orders from E-2W OEM and expanding capacity. We introduce FY26 to factor in the full impact of the Sunroof business. We maintain OUTPERFORM rating on GIL with a TP of Rs.404, based on 22x on FY26E EPS.

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