Anand Rathi Share and Stock Brokers Limited (ARSSBL) has issued a buy call for Gabriel India, citing strong growth prospects, strategic expansions, and increasing profitability. The research firm has set a target price of Rs 700, up from the previous target of Rs 610, reflecting an upside potential of over 60% from the current share price of Rs 433. Gabriel India's entry into the high-growth sunroof market, along with its ongoing expansion plans and strategic acquisitions, positions the company as a top pick in the small-cap auto ancillary sector.

Strong Financial Performance in Q2 FY25

Gabriel India’s Q2 consolidated EBITDA outperformed estimates, rising 34% year-over-year (YoY) to Rs 987 million, exceeding the previously estimated Rs 966 million. This strong performance was driven by revenue growth across all divisions, especially in the sunroof segment, which saw a 25% quarterly growth. Total consolidated revenue for the quarter grew by 19% YoY to Rs 10.3 billion, in line with ARSSBL's expectations. The robust results were supported by stable operating margins in the company’s core suspension business and significant margin expansion in the sunroof division.

Sunroof Segment as a Key Growth Driver

Gabriel’s entry into the sunroof market has emerged as a major value driver. The company’s sunroof revenue for Q2 reached Rs 1.03 billion, up 25% quarter-on-quarter (QoQ), and it continues to show potential for rapid expansion. The EBITDA margin for the sunroof division rose to 16.7% from 14% in Q1 FY25, reflecting improved operating leverage. Gabriel expects to fully utilize its expanded sunroof production capacity by the end of CY26, targeting revenue of Rs 8-10 billion from this division.

Gabriel’s pipeline includes upcoming models such as the Kia AY (launch by mid-CY25) and the Creta EV, further fueling growth in this segment. With additional export models on the horizon, the company anticipates robust demand in the global markets, reinforcing its leadership in this high-growth sector.

Expansion and Strategic Acquisitions

Gabriel's long-term strategy includes both organic and inorganic growth. The company is actively pursuing mergers and acquisitions (M&A) in the auto components sector, with its next significant deal expected to close in FY25. Beyond FY25, Gabriel has planned two additional acquisitions over the next three to four years. These strategic moves are expected to diversify its product portfolio and strengthen its foothold in global markets.

The company is also ramping up efforts to localize its production, targeting 60% localization by CY26, which is expected to improve cost efficiency and safeguard margins against external volatility.

Financial Outlook and Valuation

Anand Rathi expects robust earnings growth for Gabriel India over the next three years. The research house projects consolidated revenue and profit after tax (PAT) to grow at compound annual growth rates (CAGR) of 16% and 26%, respectively, between FY24 and FY27. Key metrics include:

Sales projection: Rs 39,835 million in FY25, growing to Rs 53,323 million by FY27.
EPS growth: Earnings per share (EPS) is expected to increase from Rs 12.4 in FY24 to Rs 24.8 in FY27, driven by higher profitability across all segments.
P/E ratio: Gabriel's price-to-earnings (P/E) ratio is forecasted to improve from 34.8x in FY24 to 17.4x in FY27, reflecting the company’s improving financial performance and anticipated stock price appreciation.
The company's focus on high-margin products, such as sunroofs, and its entry into new product lines through strategic acquisitions are the key factors driving the upward revision of the target price.

Risks to the Outlook

While Anand Rathi remains optimistic about Gabriel India’s future growth, the report outlines several potential risks that could impact the stock’s performance:

Slower-than-expected growth in key automotive segments, such as passenger vehicles and electric vehicles, could dampen overall revenue growth.
Delays in the execution of strategic acquisitions could limit Gabriel’s ability to diversify its portfolio in a timely manner.
Adverse movements in commodity prices might impact the company’s cost structure, particularly if raw material prices rise faster than expected.
However, the research firm believes that Gabriel’s strong balance sheet, prudent capital allocation, and focus on operational efficiency will help mitigate these risks.

Operational Efficiency and Margins

Gabriel India continues to maintain healthy margins, supported by efficient operations and cost management. For Q2 FY25, the company's EBITDA margin stood at 9.6%, consistent with the previous quarter. Despite higher employee costs due to wage hikes, Gabriel has managed to sustain its margin performance through disciplined cost control in other areas.

For the sunroof division, the EBITDA margin of 16.7% is expected to remain stable, with the company targeting a sustainable long-term margin of 12-14%. In the suspension business, Gabriel aims to achieve a 10% EBITDA margin by FY26, driven by higher exports and increasing penetration into the electric vehicle (EV) market.

Investment Strategy and Target Levels

Gabriel India is a top small-cap pick in the auto ancillary sector, according to Anand Rathi, with a target price of Rs 700. The current share price of Rs 433 offers significant upside potential for long-term investors. The company’s high-growth sunroof segment, strategic M&A activity, and solid financial outlook make it an attractive investment for those seeking exposure to the auto components industry.

The key levels to watch for investors are:

Support level: Rs 400
Resistance level: Rs 500
Target price: Rs 700 by FY27
With a favorable industry outlook and strong internal drivers, Gabriel India offers a compelling investment case, particularly as the company continues to capitalize on the shift towards electric mobility and innovative automotive solutions.

In summary, Anand Rathi Research retains its Buy rating on Gabriel India, citing robust growth prospects, a healthy order book, and a strong focus on strategic expansions and cost efficiency. Investors are advised to accumulate the stock at current levels for long-term gains.