BUY Gabriel India: AnandRathi Institutional Research

Gabriel India - Restrained two-wheeler volumes, improved profitability; Buy with a target price of Rs 105

Gabriel India's Q3 FY16 revenue declined 1.3% yoy to Rs. 3.54bn because of decreasing two-wheeler volumes. The margin, though, improved a slight 82bps yoy to 8.8% led by the better gross margin. The net profit during the quarter grew 10.1% to Rs. 177m.

Declining revenue. During Q3 FY16, Gabriel's sales slipped 1.3% yoy to Rs. 3.54bn on account of a decline in two-wheeler volumes. Two-wheelers brought in 63% of the company's nine-month revenue (60% in 9mFY15). The nine-month FY16 shares of passenger cars and CVs were, respectively, 26% and 11%. Of the nine-month revenue, OE brought 86%, exports 4% and the after-market 10%. Sales are likely to improve by the focus on exports and, increasingly, on customer.

Rise in operating margin. The Q3 FY16 operating margin came at 8.8% (up 82bps yoy) aided by a healthy gross margin (on account of the better product mix and falling commodity prices) and lower other expenses. For 9mFY16, the EBITDA margin improved 90bps yoy to 8.8%.

PAT grew 10.1% yoy. Aided by lower interest cost and the tax rate, net profit grew 10.1% yoy to Rs. 177m. With minimal debt in its balance sheet for 9M, interest cost declined 53% yoy. For 9mFY16, PAT jumped 15.3% yoy to Rs. 547m.

Strategy ahead. With the continuous debt reduction, simplification and automation efficiency are likely to improve. The company has created an SBU for each of its segments in order to focus on product mix, exports and the after-market expansion.

Valuation. To boost growth, Gabriel is looking at widening its customer and product bases, at tapping export markets more insistently and at growth in the replacement segment. We maintain Buy, with a price target of Rs. 105 (earlier Rs. 109), on account of being debt free and having a strong FCF we are valuing Gabriel at 14x FY18 EPS. Risks: Inadequate price hikes by OEMs, higher commodity prices, a prolonged demand slump, a delay in ramp-up by HMSI.

Shares of GABRIEL INDIA LTD. was last trading in BSE at Rs.86.6 as compared to the previous close of Rs. 88.45. The total number of shares traded during the day was 18483 in over 224 trades.

The stock hit an intraday high of Rs. 88.75 and intraday low of 86.55. The net turnover during the day was Rs. 1627542.

Source : Equity Bulls

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