This Small Cap Auto Stock Has 27% Potential Upside, “BUY” Suggests Sharekhan

The brokerage’s take on Gabriel India Ltd

In its latest report, Sharekhan has analysed that "Gabriel India Limited (GIL) continues to gain market share across segments, viz. two & three-wheeler (2W & 3W), passenger vehicle (PV) and commercial vehicle (CV), led by its established client relationship and focus on acquiring new clients. The company has developed strong capabilities and is prepared well to benefit from the rising penetration of electric vehicles (EVs), especially in the two-wheeler space. The company has been selectively identifying partners in the e-2W and e-3W segments, given a large number of new entrants. The company is developing products for electric vehicle OEMs such as OLA Electric, Okinawa, Ather Energy, TVS Motors among e-2W OEMs, and Bajaj Auto, M&M, Tube Investment of India among e-3W OEMs. The management is optimistic on the growth outlook for the medium term, led by a positive forecast for automobile sales."

The research report of the brokerage also states that "The company has won new domestic and export orders across segments in FY2021 and expects its business from Maruti Suzuki to improve substantially in FY2022. We remain positive on Gabriel, owing to its leadership position and brand recall in the suspension components of the domestic automotive industry and a key beneficiary of improving automotive demand. Based on the company's well-thought and workable strategies and its inherent capabilities, we expect Gabriel's net earnings to post a 52.9% CAGR over FY2021E-FY2023E, driven by a 17.3% revenue CAGR during FY2021EFY2023E and a 250 bps rise in EBITDA margin at 8.8%."

Sharekhan has also claimed that "Riding on strong relationships with large OEMs and acquisition of new clients, the company continues to increase and maintain its market share across segments, with 25% market share in 2W&3W segment, 21% in PV segment and a 75% market share in the CV segment, including aftermarket sales. Gabriel is well-positioned to benefit from the rising penetration of EVs, especially in 2W and 3W segments, where the company has developed strong relationships with leading and promising companies. The company is developing products for electric vehicle OEMs such as OLA Electric, Okinawa, Ather Energy, TVs among e-2W OEMs, and Bajaj Auto, M&M, Tube Investment of India among e-3W OEMs. Gabriel is a sole supplier to Ola Electric for suspension components in India, which promises to be a strong EV player in 2W space."

According to the brokerage house "Propelled by the strong outlook for its clients, we expect Gabriel's net earnings to post a 52.9% CAGR over FY2021E-FY2023E, driven by a 17.3% revenue CAGR during FY2021E-FY2023E and a 250 bps rise in EBITDA margin at 8.8% in FY23E."

Buy Gabriel India Ltd With A Target Price of Rs. 173 Suggests Sharekhan

The brokerage firm has said that "Gabriel is witnessing strong traction from domestic and global OEMs, as automotive demand recovers, driven by a strong brand recall and leadership position in suspension components. The outlook remains positive, driven by normalisation of economic activities and a rollout of COVID-19 vaccinations in the country. Incremental revenue is likely to improve, driven by client additions, new product launches, sector expansion, increasing domestic and global penetration, and value additions in its products. OPM would expand led by cost reduction, increased localisation, operating leverage, and enhanced value addition. We believe Gabriel will report a strong earnings CAGR of 52.9% over FY2021E-FY2023E, driven by a 17.3% CAGR during FY2021E-FY2023E and a 250 bps rise in EBITDA margin at 8.8% in FY23E."

According to the brokerage's point of view "The stock has corrected ~11.5% in the last one month and provides an attractive entry point for investors. The stock trades below its historical average at a P/E multiple of 15.3x and EV/EBITDA multiple of 8.4x its FY2023 estimates. We maintain a Buy rating on Gabriel with an unchanged PT of Rs. 173, factoring in recovery in automotive demand, its preparedness to benefit from the adoption of e-2Ws in India and comfortable valuation multiples."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.