This Small-Cap Automobile Co. Well Placed To Benefit From EV Penetration, Buy Stock For 36% Gains

Sharekhan maintains a positive view of Gabriel India Limited (Gabriel). It expects the company to continue to outpace the industry's growth, given its dominant position in suspension components, new launches by OEMs in automotive segments, and increased traction for electric vehicles (EV) in India.

The brokerage with a positive view recommends "buy" Gabriel's sock for a target price of Rs 217/share. Considering the target price, if you buy the stock at the current market price, it could give you gains of up to 36% in 12 months. Gabriel is a small-cap Automobile sector company having a market capitalisation of Rs 2,297.58 crore.

Stock Outlook & Returns

The shares of Gabriel last traded at Rs 159.95/share, down 6.71% as compared to its previous close on NSE. Last month on November 29, the stock hit its new 52 week high at Rs 200.90, while its 52 week low was recorded on 12 May 2022 at Rs 102, respectively. 
 
The stock in the past 5 days fell 15.44%, while in 1 month it fell 11.14%, respectively. However, it has given 18.97% positive returns in the past 1 year and 32.24% positive returns in the past 3 years, respectively. It fell 17.23% in the past 5 years. 

Well-placed to benefit from EV penetration

Gabriel is well-positioned to benefit from rising penetration of EVs, especially in the 2W, 3W and PV segments, where the company has developed strong relationships with leading and promising companies. The company is developing products for EV OEMs such as OLA Electric, Okinawa, Ather Energy, and TVS Motor among e-2W OEMs, and Bajaj Auto, M&M, and Tube Investment of India among e-3W OEMs. Gabriel to also benefit from new launches by Maruti Suzuki, M&M and Volkswagen in the SUV segment. 

Dominance in market shares to remain intact

Riding on strong relationships with large OEMs and the acquisition of new clients, the company continues to increase and maintain its market share across segments, with 32% market share in the 2W and 3W segment, 23% in the PV segment, and an 89% market share in the CV segment, including aftermarket sales. 

Robust earnings growth

Propelled by a strong outlook for its clients and future-ready products, we expect Gabriel's net earnings to post a 42.8% CAGR over FY2022E-FY2024E, driven by an 18.3% revenue CAGR and a 220-bps rise in EBITDA margin to 8.5% in FY2024E from 6.3% in FY2022. 

Valuation - Maintain Buy with an unchanged PT of Rs. 217

Gabriel is witnessing strong traction from domestic and global OEM, as automotive demand recovers, driven by strong brand recall, and a leadership position in suspension components. The outlook remains positive, as economic activities normalise. 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. Operating profit margin (OPM) is expected to expand, led by cost reduction, increased localisation, operating leverage and enhanced value addition. "We believe Gabriel's business performance will continue to outperform the industry, driven by its leadership position and preparedness to benefit from faster EV adoption. The stock is available at attractive valuations of 12.2x P/E multiple and 7.1x EV/EBITDA multiple its FY2025E earnings. We reiterate Buy rating on Gabriel with a 12-month PT of Rs. 217," the brokerage has said. 

According to sharekhan, the key risk to the buy call would be Pricing pressures from automotive OEM customers can impact profitability. 

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.