The Gabriel India stock is a good bet for investors with a one- to two-year perspective. Manufacturing ride-control products, such as shock absorbers, struts and front forks, the company supplies to all segments of the auto industry, be it bikes, scooters, three-wheelers, trucks, buses or cars.

Gabriel caters to leading manufacturers, such as Maruti Suzuki, Tata Motors, Toyota, M&M, Ashok Leyland, Honda, Bajaj, Royal Enfield, and TVS. It has a market share of 75 per cent in supplies to commercial vehicles and about 25 per cent each in two-wheelers and cars.

After moving up by over three times in 2014, market volatility in the last year has seen the stock record flat growth. Adding to the negative sentiments was the fact that while car and heavy truck sales picked up in this period, motorcycle and small truck sales — segments from which Gabriel derives a chunk of its revenue — remained damp. With bike and small truck sales showing promise of better times in the coming months, Gabriel India is set to benefit from the turnaround.

The stock now trades at 19 times its trailing 12-month earnings. This is cheaper than peers, such as Wheels India (39 times), Setco Auto (21 times) and ZF Steering Gear (29 times). Investors though can take limited exposure, considering the small-cap nature of the stock (market capitalisation of about ₹1,300 crore).

Will benefit from pick-up Cars have recorded high single-digit growth in fiscal 2015-16 and heavy commercial vehicles sales volumes have moved up by 30 per cent in the same period.

But Gabriel India has been on a sticky wicket, due to its high exposure to segments, such as two-wheelers (about 60 per cent of revenue) and light commercial vehicles, whose sales have been nothing to write home about.

In 2015-16, motorcycle sales volumes have shrunk about 1 per cent over the previous year, due to petering out of rural demand. While healthy growth in scooter sales of key clients, such as Honda and TVS and good demand for premium bikes of clients, such as Royal Enfield did help a bit, Gabriel remained affected by the downturn in motorcycle sales. But better days seem to be ahead.

The measures to boost the rural economy announced in the Budget are expected to shore up rural incomes and consumption over the next one to two years. The Seventh Pay Commission awards and lower borrowing costs should also increase disposable income of consumers.

A normal monsoon this year could be another sweetener. The spillover effect of these will be seen in two-wheeler sales which are expected to accelerate.

Besides, with light commercial vehicle sales also beginning to look up in the last two-three months, Gabriel is expected to fire on all cylinders sooner than later.

The company supplies to small trucks, such as Ace, Dost, Jeeto and Trump. Commercial vehicles bring in about 15 per cent of the company’s revenues, with a good bit from the small truck segment.

Financials For the nine months ended December 2015, net sales dropped about 2 per cent Y-o-Y to ₹1,063 crore. Topline growth was affected both by a lull in two-wheeler sales as well as price cuts, to pass on some benefit of low raw material prices to vehicle manufacturers.

But net profit grew at a reasonably healthy 15 per cent to ₹54.3 crore, aided by cheaper inputs and lower finance costs from an ongoing debt reduction initiative. Operating margin expanded to 8.8 per cent from 8 per cent a year ago. With prices of many commodities beginning to show a reversal from their lows, margin expansion from low input prices may be hard to come by.

But operating leverage from robust sales may help to an extent. Besides, the company has expanded its offerings in the secondary market for replacement sales to include products such as front row coils and bush kits, apart from radiator coolants and wheel rims. This should give scope for further margin expansion as component suppliers usually have greater pricing power in secondary market sales.

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