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Centrum Broking
Gabriel India (Buy)
CMP: ₹144.75
Target: ₹170
The company’s after market revenues have grown at a CAGR of 11 per cent over the last five years and currently account for 13 per cent of the top-line (FY18). The company is expecting a healthy double-digit growth in the after market space and is aiming to increase after market revenues from the current level of 13 per cent to 15 per cent over the next two years.
GIL has been continuously improving its EBITDA margins to the tune of 250 bps over the past 5 years on sheer expansion of business in both OEM and after markets and end customer portfolio on the back of increasing contribution from the CV and PV segments as compared to 2W (63 per cent/26 per cent/11 per cent in FY15 as compared to 58 per cent/27 per cent/15 per cent for 2W/PVs/CVs currently). GIL has a lean balance sheet with about 20 days working capital cycle and is a net cash company with ₹36 crore cash in its books (as of FY18). A clean balance sheet and healthy return ratios at 25 per cent ROCE and 19 per cent ROE for an auto ancillary company are quite commendable.
Risk factors: 1) Decline in OEM business; 2) Raw material price fluctuation; 3) Increase in competitive intensity; 4) Under-performance of exported products .
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