Buy Gabriel India; target of Rs 27: AnandRathi

AnandRathi's research report on Gabriel India

"Gabriel India, shrinking demand across most auto segments bore down on GabrielRs s 4Q results. Its FY13 revenue grew 6.8 percent yoy; its 4Q revenue was up 3.9 percent yoy. The 4QFY13 EBITDA margin was 6.4 percent and, due to depressed demand conditions, did not replicate the normal trend of a sharp qoq uptick in 4Q, unlike in previous years." "New HMSI plant to add to growth. Honda Motorcycles & Scooters India (HMSI) has inaugurated its plant near Bangalore in Karnataka, which would drive growth for Gabriel over and above the average industry growth. Gabriel is one of the major suppliers to HMSI of both shock absorbers and front forks. Because of sluggish two-wheeler demand, management expects 4QFY13 revenue to be sustained in 1QFY14. However, from 2Q when HMSIRs s production at the new plant is in full swing, management is optimistic of better growth. As a cautionary take however, the two-wheeler industry demand scenario improvement would play an important part." 'Focus on internal efficiencies. Gabriel has started focusing sharply on innovation, reducing costs, working capital and overheads, and improving productivity. Measures have also been taken on the working-capital side because of which there has been significant improvement. Hence, Gabriel could reduce inventories and receivables by Rs 210m. Decent profitability and lower interest cost also helped reduce its debt by ~Rs 400m in FY13." "Our take. Additions to the customer base, exports and steady replacement sales are future growth drivers. We maintain a Buy, with a price target of Rs 27 (at a PE of 7x SepRs 14e; the present PE is 6x FY14e). Risks: Inadequate price hikes by OEMs, increase in commodity prices, prolonged demand slump, delay in ramp-up by HMSI," says AnandRathi research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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