Cholamandalam securities is bearish on Gabriel India has recommended sell rating on the stock with a target price of Rs 56 in its research report dated May 20, 2020.
Cholamandalam securities' research report on Gabriel India
In 4QFY20, Gabriel India’s revenue declined by 16.8% YoY to ₹4.2bn. The declining trend in volumes of the 2W and 3W markets (both constitute 68% of sales) in FY20 (-18% YoY and -11% YoY, respectively) continue to drag revenues. Additionally, CV segment was impacted due to production cuts by OEMs. The export channel witnessed a sharp decline of 16.8% YoY in 4QFY20. The company is expecting orders from DAF Netherlands and has already secured order from Volkswagen Russia. These orders will be executed beginning from August and October, respectively. Segment wise, GIL changed its product mix towards 2W/3W increasing to 67% in 4QFY20 (vs 63% in 4QFY19) by improving market share with key customers. The company’s market share in this segment stood at 25%. The segment tilt was also due to a fall in share of the Passenger car segment (PC) impacted by discontinuation of “Maruti omni” due to safety norms, Alto and replacement of Wagon R with newer model where GIL is not the supplier. PC share declined to 20% (vs 22% in 4QFY19).
Slow pick-up in demand coupled with weak outlook on new orders expected to drive revenues lower. However, the management’s focus on cost control measures will prop-up margins above 8%. At CMP, the stock is trading at a valuation of 13xFY21E and 12.7xFY22E earnings. We believe the price needs to factor the challenging demand outlook with limited scope for margin expansion and thus maintaining our rating on the stock at SELL with a price target of ₹56 per share, assigning a P/E of 11.3X on FY22EPS.
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