Gabriel India Limited (GABR IN) - Shift in strategy to accelerate the growth - Initiating Coverage - CSEC Research

Shift in strategy to accelerate the growth

Gabriel revenue grew at a 6.3% CAGR to INR 15,291mn between FY12-17. The growth was sluggish due to slowdown in economy and muted auto industry sales during the same period. However, we expect revenue to grow at a CAGR of 13.3% to 19,261mn over next two years led by shift in strategy and revival in auto industry. GIL has increased its focus in aftermarket and export business which has grown significantly in past 4 years, subsequently. GIL margin has improved from 6.9% in FY13 to 9.4% in FY17. We expect margin to improve further led by growth in aftermarket, export, and higher capacity utilization.

GIL increased focus on aftermarket and shift from the B2B to a B2C paves the path for growth

Gabriel India is increasing its focus from B2B to B2C player; reducing its dependence on OEMs by focusing on aftermarket segment business. Gabriel's distributor / retailer network has grown from 350/5,000 in FY13 to 500/10,000 FY17. In FY17, fresh product launches took the count up to 500 products and eight new product lines. GIL has strengthened its brand and retailer connects through the execution of Elite Retailer program across various regions. In the first phase, 500 premier retailers have been selected for this program and are expected to reach another 1,500 by 2018. Revenue share from aftermarket segment has increased from ~8.5% in FY10 to 13% in FY17. GIL's aftermarket segment revenue has grown at a CAGR of 16% to INR 2,189mn, over past 4 years and is expected to increase at a CAGR of 24% to INR 3.3bn between FY17-19E.

Exports strategy is bearing fruits

Exports account for 4% of revenues, and exports to all major regions i.e. North America, Europe, Australia and Asia-Pacific leveraging its existing relationship with global OEMs. The revenue from export has grown at a robust pace at a CAGR of 24% in past four years to INR 667mn. Export revenues in the overall mix doubled from mere ~2% in FY10 to 4% in FY17. Over the next three years, the company is aiming to increase its revenue share from exports to 10%. The Company has been leveraging its relationship with global OEMs present in India to expand its global business. We expect export revenue to grow at a CAGR of 24% over FY17-19E to INR 1bn, led by new orders and entry into the new market.

GIL to be a key beneficiary of auto sector demand revival

83% revenues coming from OEMs, GIL will be key beneficiary of demand revival in the automobile sector. In the past four years, the two wheelers, three wheelers, passenger vehicle and commercial vehicle witnessed sluggish growth of 5.9%/2.1%/6.8% and 4.3% CAGR, respectively. Gabriel has significant exposure in 2Ws (55% of revenues), passenger vehicle (32% of revenues) and CV & Railways (13% of revenues). We forecast the revenue from OEM to grow at CAGR of 11% to INR 17.2bn over FY17-19E led by the double digit growth in automobile sector.

Valuation: We expect Gabriel's earnings to grow at a healthy CAGR of 13.3% over FY17-FY19E, better than last five years (FY13-FY17) CAGR earnings growth of 6.0%. Gabriel's balance sheet has improved substantially in the past few years and we foresee further strengthening with strong free cash flow and no major capex. At the CMP of INR 210, the stock trades at a PE of 25.7X on FY19E EPS. We initiate coverage on Gabriel India Limited with BUY rating and a price target of INR 248 (upside potential of 18%). We value the stock on DCF basis, implying a P/E of 30.3X FY19EPS.

Shares of GABRIEL INDIA LTD. was last trading in BSE at Rs.212.25 as compared to the previous close of Rs. 214.1. The total number of shares traded during the day was 38871 in over 538 trades.

The stock hit an intraday high of Rs. 213.7 and intraday low of 212. The net turnover during the day was Rs. 8255204.

Source : Equity Bulls

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