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Pick Of the Week – Gabriel India



We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.



INVESTING RATIONALE


• Gabriel has been growing on back of the Indian Auto industry (esp. the 2W & PV) which has reported an excellent growth trajectory for last couple of years. Going forward, the CV segment is also expected to join the growth wagon and Gabriel, with ~80% market share, would be a big beneficiary of CV cycle revival. As Gabriel sources 86% of its revenues from OE, it will be a big beneficiary of rising auto demand fueled by improving per capita income and rising aspirations along with better infrastructure.

• Current capacity utilization was reported in the range of 70-80% across the three segments which was 60-70% in FY17. The demand scenario for automobiles is improving across segments be it 2/3W or PVs on back of improving affordability among the individual buyers and good demand for CVs from fleet operators who are looking for replacing old vehicles. OE market is flourishing while the dampened aftermarket has also started picking up- the management is quite confident about the growth in the aftermarkets export market.

• The commercial vehicle (CV) sales could get a big leg-up with the government’s move to phase out vehicles more than 15 years old, with industry players estimating an incremental demand of about 700,000 units for medium & heavy vehicles over the next 3 years. The move is part of the voluntary vehicle fleet modernisation programme policy, which in its first phase aims at scrapping 15-year-old commercial vehicles. This development would be a shot in the arm for auto ancillary like Gabriel which has lion’s share in their product segment.

• We maintain a BUY with a target of Rs.151.



WE RECOMMEND


  • CMP

    Rs.137

  • Target Price

    Rs.151

  • Potential Upside

    10%


* Note: Stock Investment horizon Approx. 6-9 months. CMP as on 6th July, 2018.

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