GABRIEL INDIA

Company Note

Company Report| Auto Ancillary| India Research

Gabriel India Ltd.

CMP: 80

Sensex 27,561

Nifty 8,361

Sensex PE 22x

Nifty PE 23x

Sector Auto Anc.

BSE Code GABR IS

NSE Code GABR IN

FV (Rs.) 1

Market Cap

(Rs. Cr)1150

Equity Share Cap

(Rs. Cr)14.4

52-week high/low Rs. 106.8/48.6

54.6

9.22.2

34.0

Promoters FII DII Others

Gabriel India Limited, established in 1961, is the flagship company of ANAND GROUP and a

leading name in the ride control products in India, including Shock Absorbers, Struts and Front

Forks, across every automotive segment with over 300 product models on offer with 9

manufacturing facilities and 3 state of the art R&D centres. The Company has chalked out a

strategy to focus on its high margin after-sales market and exports which would drive its next

leg for growth.

Gabriel India is a market leader with strong market share of 86% in OEM category. The Company is expected to

increase its market share in high margin after-market sales and exports business. Currently the 2/3 wheelers is running

at 80% capacity utilization and it is expected to pick up once the 2/3 wheelers industry turns around.

Gabriel supplies shock absorbers to a diverse range of customers (Honda, TVS, Yamaha, Suzuki, Bajaj just to name a

few) across different categories as against its competitor Munjal Showa which supplies mainly to Hero Moto Corp. Hero

has been lately losing its market share to Honda whereas the Yamaha and TVS motors has been seen a good traction in

scooters and motorcycles, which is a positive development for Gabriel.

In order to augment its present product range, company has entered into a technical license agreement with

Netherlands based KONI BV for commercial vehicles, buses and industrial equipment suspensions. This will act as

import substitution for OEM customers.

The Company has high barriers to entry such as no real substitutes for its products, strong replacement demand, low

competition, high bargaining power over suppliers, high switching cost for its customers and a strong R&D base.

For QIFY16 the company registered a sales de-growth of 3% YoY to Rs.341.9 Crs, EBITDA grew by 11% to Rs.30.4 Crs

with margins improving to 9% and PAT grew by 29% YoY to Rs.17.6 Crs. AT CMP of Rs. 80 the stock trades at 19x

FY15 EPS of Rs. 4.2. The company has zero debt and strong working capital management in place. With all its capacities

in place, capex per year would not exceed more than Rs. 35 Crs.

INR crs Q1FY16 Q4FY15 Q1FY15 YoY (%) FY15

Total Income 341.9 348.4 351.4 -3% 1,442.6

Operating Profits 30.4 28.4 27.3 11% 114.4

PAT 17.6 13.0 13.7 29% 60.0

EPS 1.22 0.90 0.95 4.2

Share Capital 14.4 14.4 14.4 14.4

Reserves 311.10

100

200

BSE_SENSEX Gabriel

Company Background

Gabriel India Ltd, the flagship company of Anand Group started in 1961.

Component supplier in ride control products such as :

Hydraulic and Gas for 2/3 wheelers shock absorbers,

Gas shock absorbers for passenger cars and shock absorbers, cabin & seat dampers for

commercial vehicles and railways,

McPherson struts, and front forks.

Presence in all channels of automotive sale, OEM, after market and export market.

9 manufacturing facilities with combined capacity of 24 mn shock absorbers & struts and

2.7 mn front forks .

Strong R&D (11 patents in products and processes).

300 dealer network and 5000 retail outlets.

Plant Location, Products and Customers

Segment Location Year Products Key Customers

2/3 Wheelers Ambad, Nasik 1990Shock absorbers and front

forkBajaj, Yamaha, Piaggio, Mahindra, HMSI

OEM/ After market

exportsDewas, MP 1992 Shox- CV

Tata Motors, Mahindra, Ashok Leyland,

Daimler, Ride Control, LCC-USA

Passenger cars/ UV

railwaysChkan, Pune 1997 Shock absorbers & Struts

Tata Motors, Hyundai, Renault, Toyota,

GM, VW, Railways

2/3 Wheelers Hosur, TN 1997Shock absorbers and front

fork

TVS, Suzuki, HMSI, Yamaha, Royal Enfield

Motors

2/3 Wheelers CV/PV Parwanoo, HP 2007Shock absorbers, struts &

front forks

TVSM, Tata Motors, Mahindra & After

market

Passenger Cars Khanda, Gugaon 2008Aluminium casting outer

tubes, front forks

Maruti Suzuki, Honda Cars and Tata

Motors

2 Wheelers Chakan, Pune 2009 Shock absorbers & Struts Yamaha India

Passenger Cars Sanand, Gujarat 2010 Shock absorbers & Struts Tata Motors

2-Wheelers Malur, Karnataka 2013 Shock absorbers HMSI

Contribution to Revenues

89%

10%

2%

89%

7%3%

86%

8%5%

87%

9%3%

86%

10%

2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OEM After Market Exports

FY10 FY11 FY12 FY13 FY14

Revenue Break-up

63%

26%

11%

2/3 wheelers Passenger cars

Commercial Vehicles

Market Share

78%

26% 25%

Commercial

Vehicles

Passenger cars 2/3 wheelers

Competitive Advantage No real threat of substitution because solar cars, electric cars, diesel cars, petrol cars

all need shock absorbers, wheels, brakes, gear systems etc. unlike car engines, engine

parts and engine oils whose supplies could be disrupt.

Steel sheet companies which are the main suppliers of the company do not enjoy any

bargaining power due to huge idle capacities, abundance of suppliers and steel being

a commodity.

Competition is strong in 2 wheelers segment but company has a good track record

of quality, 50 years of market experience, just-in-time delivery systems, patents

culture of innovation with strong R&D and technical tie-ups making it a preferred

supplier of OEMs.

Munjal commands a 60% market share in 2 wheelers and is the sole supplier to Hero

Motocorp. Similarly Endurance has been supplying to 2 wheelers of Bajaj Auto.

Shock absorbers and struts are an integral “quality” element of any automobile and

they are essential for driver & passenger comfort &safety.

Competitive Advantage Hence, the OEMs can’t compromise on the quality. Thereby increasing the switching

cost for the customer.

Average receivables collection period is only 39 days and payables if 69 days. This is very

comforting.

Manufacturing of ride control products require proprietary rights, design knowledge and

proven track record of quality.

New entrants can be pressurized by the existing players through under

pricing, economies of scale, close client relations and efficient/innovative products

Both the Munjal and Endurance have significant concentration on one player leading to

a high concentrated risk.

On the other hand Gabriel has diversified its customer base to all major auto players.

Strong replacement demand in automotive as well as railways, marine and power

generation aided through distribution network of 350 dealers and 5,000 retail outlets.

Performance of 2/3 wheelers

Honda Hero TVS Mahindra Yamaha Suzuki Bajaj

June 2013 21.4% -9.4% -2.8% 0.0% -25.5% -4.1% -20.4%

June 2014 33.6% 6.1% 17.1% 303.2% -33.7% -43.7% -26.6%

June 2015 -23.0% 2.2% 3.2% -72.1% 190.0% -62.6% 6.1%

Honda Hero TVS Yamaha Suzuki Bajaj

June 2013 11.62% -31.4% -18.57% -0.04% 13.98% -35.9%

June 2014 -6.13% 48% 59.6% 8.08% -60.3% 55.6%

June 2015 -12.9% -46.9% 47.2% 3.73% 33.56% 2.3%

Motor Cycle <125cc

Motor Cycle 125cc-250cc

Honda Hero TVS Piaggio Yamaha Suzuki Mahindra

June 2013 5.18% 61.93% -1.92% 0 0 2.67% -57.17%

June 2014 31.02% 12.81% 52.55% -84.93% 40.71% 0.66% -56.6%

June 2015 31.89% -29.23% 2.39% -38.26% 22.75% 6.61% 52.64%

Scooters

Honda Gaining Market Share in 2/3 wheelers

Gabriel India has adopted a strategy to diversify its customer base which has started proving

beneficial for the company. The current data suggests that the company’s strategy has been proving

beneficial.

Empirical data suggests that Honda has been performing much better in terms of volumes when

compared to Hero Motors across all categories of motorcycles and scooters.

Further Yamaha as well as TVS motors has also been faring well in terms of volume growth and

would benefit sales of Gabriel.

Honda continued to maintain its stronghold in the scooters segment with a segmental market share

of 59.3% and volume growth of 31.9% in June 2015 while Hero MotoCorp continued to the lead in

the motorcycles segment with a market share of 53.9%

Honda crossed 1 mn sales mark in Q1FY16. It was the only company to gain 2$ market share in

Q1FY16. Honda enjoys 26% domestic market share (up 7% ) while Domestic + Exports market

share of 23% (up 8%).

Advantage Gabriel

Gabriel supplies to HMSI through its Narsapura plant which has capacity of 6 lakh units.

80% of the shock-absorbers requirement of HMSI’s Activa vehicle is met by Gabriel.

Company is a sole vendor to TVS Motors for its Jupiter and Wego, leading supplier to

Bajaj Auto, Yamaha, primary vendor to Ashok Leyland, Daimler, Bharat Benz, Tata

Motors, Eicher Motor.

For Royal Enfield all the new platforms (models) are coming Gabriel’s way. The new

models to be launched are all with Gabriel.

Royal Enfield is setting up the third plant in Chennai and Gabriel is looking at doubling

its sales with them.

Royal Enfield Volumes

June 2014 24,519

June 2015 36,597

Growth Drivers

Company consistently has added capacities in the past few years and improving capacity

utilization. Capacity utilization for 2 wheeler is 80% it was better before but has fallen

due to reduced demand from the rural areas.

CV capacity utilization is around 57% and in Passenger car its 65%.

De-bottlenecking account of higher demand from its customers such as HMSI and TVS

Motors, will add another 15-20% to the company’s production capacity.

Company may look at some capex in already existing plant in Sanand in Gujarat as new

Honda Plant is coming up, company also is keeping a watch on Royal Enfield’s expansion

as it supplies to almost all segments of its bike.

After commissioning of HMSI’s Narsapura plant in Sep’13, to which company has

supplies, company has witnessed higher production volume growth in FY14 compared to

the automobile industry.

HMSI Gujarat plant is yet to start, will start in 2016.

The plant has been reviewed by Honda and they are happy with the progress.

Growth Drivers

With sufficient capacities in place to cater to higher demands the company is not looking

at capital expenditure of more than Rs.35 Cr p.a.

Consistent increase in volumes outpacing automobile volume growth.

27.0%

14.0%

1.0%

4.0%

7.2%

26.0%

7.0%

1.0%

13.0%

8.0%

FY11 FY12 FY13 FY14 FY15

Industry Total Production vol. growth Company Total Production vol. growth

Growth Drivers

The Company set up a dedicated team to focus on exports to South Asian, ASEAN, Middle

East and Latin America.

The Company’s products are exported to six continents and have made their presence felt

in US, Italy, Japan, Iran, and Colombia, among others, especially in the OE and aftermarket

spaces. Expects exports to grow linearly.

It has a good breakthrough in Russia last year but Russia is having problems now but is

expected to bounce back.

The company has increased its engagements in Australia, Bangladesh and Sri Lanka.

The company has recently won an export order from GenZe and Isuzu.

In the past few years the Europe and USA markets have not been performing well which

led to idle capacities and loss of jobs in those markets. Hence, the export growth target of

the company was derailed for some years. But now it expects to get it back on track.

Growth Drivers

The company has launched a number of new product lines such as gas springs, oil

seals, radiator coolants etc., which have won appreciation in the after-market.

Aftermarket share of sales which is a higher margin business than OEMs has increased from

9% in FY12 to 16.2% in FY15 which can be attributed to products such as radiator

coolants, wheel rims and suspension bush kits.

Last year launched 80 products.

The Company reported a growing presence in the aftermarket exports segment through

attractive growth in countries of South Asia, Africa, Latin America and Australia.

Started Elite Retailer program to establish last mile aftermarket customer connectivity.

With launch of new super fast trains along with the technology dominance of the

company, puts it in a formidable position to capture the incremental demand from railways.

Witness higher demand for cabin dampeners as it will add incremental demand from 4 units

in a railway coach to 16 units in a railway coach.

Colloborations

In order to augment its present product range, company has entered into a technical license

agreement with Netherlands based KONI BV for commercial vehicles, buses and industrial

equipment suspensions.

This would help the company to supply dampers for luxury buses and high end CVs.

Gabriel has collaborated with Yamaha Motor Hydraulic System Co. Ltd. and over the years

the collaboration with KYB and KYBSE has enabled it to offer the advantage of global

technology to its customers.

Although these regulations put some limitations on its ability to export, the company is in

better position to leverage the export market opportunity through these tie-ups. There are

certain product lines which the company is allowed to export.

However, the company will also get more and more OEM business for the products where

there are no restrictions from partners and where there is no competition with our

partners.

Colloborations

This will act as import substitution for OEM customers.

It has also started R&D for some of the OEMs proto-type models.

Revenue will start flowing from FY16E/FY17E onwards, this will enable the company to fill

the potential gap and enhance business relationship in the coming years.

Research & Development Pioneer of Ride Control Products in the country

First to introduce adjustable rear suspension for motorcycles in India.

Designed and developed the Remote Canister Shock Absorber.

Introduced Front Forks for Performance Bikes.

Co-developed suspensions for Volkswagen Polo and introduced the concept of Hollow

Piston Rods in India.

Files 12 patents last year and 5 year before.

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Close Price 6x 13x 20x 27x Average 15.4X

Valuation

Industry slowdown could affect the company’s revenues.

Increased competition and inability to remain competitive could affect market position.

Any error in raw material and sub-component procurement could affect visibility.

Any product under performance can affect the company’s brand.

Any non-compliance with demanding regulatory requirements could impact the company’s

brand.

Gabriel has chalked out a strategy of increasing its exports sales, increasing its market share

in Aftermarket segment and improving its margin through improving efficiencies and cost

reduction.

The company has been successful in reducing its Debt to equity from 1.0 x in FY10 to

0.04x in FY15.

At CMP of Rs 80 the stock trades at 19x FY15E EPS of Rs.4.2

Risk & Concern

Financial Overview

Y/E March 2014 2015 2016E 2017E

Total Sales 1284.6 1442.6 1593.0 1800.1

Total Raw materials 927.7 1043.2 1151.9 1304.0

COGS 999.2 1111.1 1228.4 1390.4

Personnel Cost 93.7 107.6 119.4 136.1

SG&A Cost 83.4 87.7 95.6 108.0

Other Cost 0.0 0.0 0.0 0.0

EBITDA 84.2 114.4 127.6 143.6

Depreciation 27.1 31.1 32.5 34.6

Amortization 0.0 0.0 0.0 0.0

Interest & Finance charges 9.0 5.5 2.3 1.3

Other Income 7.7 5.8 8.0 8.0

Extraordinary items 0.0 0.0 0.0 0.0

EBT (as reported) 55.8 83.5 100.9 115.7

Tax 14.7 21.7 26.2 30.1

RPAT 42.6 60.0 74.6 85.6

Extraordinaries adj. -3.5 -0.5 0.0 0.0

APAT 46.2 60.5 74.6 85.6

Y/E March 2014 2015 2016E 2017E

Growth (%)

Total Sales 6.6 12.3 10.4 13.0

EBITDA 9.7 35.9 11.6 12.5

APAT 7.4 31.2 23.3 14.7

Profitability (%)

EBITDA Margin 6.6 7.9 8.0 8.0

APAT Margin 3.6 4.2 4.7 4.8

ROIC 12.0 17.5 19.8 21.4

ROE 17.0 19.8 21.9 23.1

Per Share Data (Rs.)

AEPS 3.2 4.2 5.2 6.0

Reported CEPS 5.0 6.2 7.5 8.4

BVPS 19.8 22.6 24.8 26.8

Valuations (x)

PER (x) 24.9 19.0 15.4 13.4

PEG (x) 3.4 0.6 0.7 0.9

P/BV (x) 4.0 3.5 3.2 3.0

EV/EBITDA (x) 14.4 10.2 9.0 8.0

EV/Net Sales (x) 0.9 0.8 0.7 0.6

Dividend Yield (%) 1.1 1.3 3.8 5.0

Turnover days

Debtor Days 36.6 39.0 39.0 39.0

Payable Days 68.4 68.7 69.0 69.0

Gearing Ratio

D/E (x) 0.2 0.0 0.0 0.0

Financial OverviewY/E March 2014 2015 2016E 2017E

PAT 35.8 41.1 61.8 74.6

Depriciation & Amortization 20.9 31.6 32.5 34.6

Incr/(Decr) in Deferred Tax Liab -1.5 0.9 0.0 0.0

(Incr)/Decr in Working Capital 1.7 -1.8 21.3 4.4

(Incr)/Decr in Mis. Exp. Not w/o 0.0 0.0 0.0 0.0

Cash Flow from Operating 62.3 92.5 128.4 124.6

(Incr)/ Decr in Gross PP&E -32.7 -32.1 -35.0 -35.0

(Incr)/Decr In Work in Progress -6.1 9.4 0.0 0.0

(Incr)/Decr In Investments 0.0 0.0 -25.0 -18.1

(Incr)/Decr in Other N.C.Assets 1.4 3.4 -19.3 -14.0

Cash Flow from Investing -37.4 -19.3 -79.3 -67.1

(Decr)/Incr in Debt -14.6 -52.7 -8.3 0.0

(Decr)/Incr in others -0.6 -6.5 0.0 0.0

Dividend -12.2 -15.1 -43.1 -57.5

Cash Flow from Financing -27.4 -74.2 -51.4 -57.5

Incr/(Decr) in Balance Sheet Cash -2.5 -1.0 -2.3 0.0

Cash at the Start of the Year 7.4 4.9 3.9 1.6

Cash at the End of the Year 4.9 3.9 1.6 1.6

Y/E March 2014 2015 2016E 2017E

Equity Share Capital 14.4 14.4 14.4 14.4

Reserves 270.8 311.1 342.6 370.7

Net worth 285.2 325.4 357.0 385.1

Secured loans 47.0 0.3 0.0 0.0

Unsecured loans 18.9 13.0 5.0 5.0

Total loans 66.0 13.3 5.0 5.0

Deferred tax liab.(Net) 9.6 10.5 10.5 10.5

Capital Employed 364.8 358.5 372.5 400.6

Net block 267.2 267.7 270.2 270.6

CWIP 12.5 3.1 3.1 3.1

Investments 0.0 0.0 25.0 43.1

Inventories 119.5 115.4 147.2 150.0

Sundry debtors 136.1 172.3 168.1 216.6

Cash and bank 4.9 3.9 1.6 1.6

Loans and advances 27.2 32.2 31.9 36.0

Other Current Assets 0.0 0.0 0.0 0.0

Total Current assets 287.6 323.8 348.7 404.2

Total Current Liab 225.7 261.1 309.6 369.4

Net Current Assets 61.9 62.7 39.1 34.7

Misc. Expense (not w/o) 0.0 0.0 0.0 0.0

Other Assets 23.2 25.0 35.1 49.1

Capital Deployed 364.8 358.5 372.5 400.6

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relevant circumstances.

Method: We have not rated the stock.

Rating Scale: This is a guide to the rating system used by our team. Our rating system comprises six rating categories, with a corresponding risk rating.

Risk Rating

Risk Description Predictability of earnings/ Dividends; Price volatility

Low risk High predictability / low volatility

Medium risk Moderate predictability / volatility

High risk Low predictability / High volatility

Total expected return matrix

Rating Low Risk Medium Risk High Risk

Buy Over 15% Over 20% Over 25%

Accumulate 10% - 15% 15% - 20% 20% - 25%

Hold 0% - 10% 0% - 15% 0% - 20%

Sell Negative returns Negative returns Negative returns

Neutral NA NA NA

Not Rated NA NA NA

Please Note: Our recommendations are for a minimum period for one year

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