Gabriel India August 2024 Concall Highlights: Steady Growth Amidst Industry Moderation
Gabriel India Limited reported a solid start to FY '25, achieving steady revenue and profit growth in Q1 despite facing some headwinds in the broader automotive market. The company's EBITDA margins remained robust at 9%, showcasing its operational efficiency and strong cost control. A key highlight of the call was the company's continued success in the electric vehicle (EV) segment, where it maintained a commanding 87% market share in the two-wheeler category. However, management expressed a cautious outlook for the remainder of the year, anticipating some moderation in industry growth due to high inventory levels and potential economic uncertainty.
a. Financial Performance:
Gabriel India's Q1 FY '25 revenue reached INR 864 crore, representing a year-on-year (YoY) growth of 7.3%. More impressively, EBITDA grew by 13% YoY, reaching 9% of revenue, while PBT witnessed a 20% YoY surge, reaching 8% of revenue. The company maintained a healthy net cash position of INR 330 crore, offsetting INR 30 crore of capex incurred during the quarter.
Sequential growth was also positive, with a slight improvement in gross margin (0.3% QoQ). Management highlighted the consistency of its EBITDA margins, sustaining a 9% margin for the past eight consecutive quarters.
b. Operational Updates:
Two-wheeler sales continued to be a major driver, representing around 63% of the segment mix. The passenger car segment contributed 24%, while the commercial vehicle (CV) segment faced some headwinds, declining to 11% from 13% in the same period last year. This was attributed to uncertainty surrounding the upcoming elections.
Exports faced challenges due to the slowdown in Europe and the impact of the Red Sea crisis. However, management remains confident of a recovery in the coming quarters.
Domestically, the company's market share in the 2- and 3-wheeler segment, including aftermarket, dipped slightly to 30% from 31% in Q4 FY '24. This was attributed to increased motorcycle sales by Bajaj, whose models are primarily export-focused. Despite this slight dip, Gabriel's robust product pipeline with launches like the TVS iQube ST, Ather 450X, and Apache 160-Black Edition continues to drive future growth.
c. Management Insights:
Managing Director, Manoj Kolhatkar, highlighted the company's strategic focus on four pillars: exports, domestic dominance, mergers and acquisitions (M&As), and technology. He also expressed optimism about the long-term growth prospects of the sunroof business, stating that Inalfa's commitment to India as a growth market remains strong despite the recent change to a Techonology Licensing Agreement (TLA) structure.
CFO Rishi Luharuka emphasized the healthy EBITDA margins within Inalfa, which exceeded targets, and highlighted the company's commitment to sustaining these margins through localization and volume growth. He also clarified that the 14% EBITDA margin for Inalfa was after the 5% royalty payment to KBA (Inalfa's parent company).
d. Strategic Initiatives and Future Plans:
Gabriel is aggressively pursuing M&As and new product development as part of its strategic vision. The Inalfa TLA transition is viewed as a strategic move to overcome foreseeable challenges. Management expressed confidence in securing new orders with key players like Hyundai, Kia, Stellantis, Skoda, and Volkswagen.
The company is actively exploring new markets, including the electric vehicle segment and solar power applications. It has launched several new products in the aftermarket segment and is developing new technologies like e-bike components and solar dampers.
e. Q&A Session Highlights:
Sunroof Business:
- Management clarified that the transition from a joint venture (JV) to a TLA with Inalfa does not impede future growth plans or M&A activity.
- The royalty rate structure with Inalfa's parent company remains at 5% for the time being.
- Management expects sunroof volume to increase to 10,000-12,000 units per month and believes that margins will remain healthy and potentially improve with increased scale.
- New orders from major automakers are in the pipeline, driving expectations of robust growth.
- Competition in the sunroof segment is expected to intensify but Gabriel's market share and strong product development are expected to offset this pressure.
Overall Performance and Outlook:
- Management highlighted the company's strong EBITDA margin performance and its focus on controlling costs in the face of industry headwinds.
- The 4-wheeler market is anticipated to grow by 4-5% in FY '25, while the two-wheeler segment is expected to show healthier growth.
- Exports are expected to recover in the coming quarters.
- Management is confident of achieving its target of double-digit EBITDA margins within the next fiscal year.
Key Takeaways:
- Gabriel India's Q1 FY '25 results were strong, with healthy revenue and profit growth.
- EBITDA margins remained impressive at 9%, showcasing the company's operational efficiency.
- The sunroof business continues to be a key growth driver, with a strong order book and a leading market share.
- The company is actively pursuing M&As and new product development opportunities.
- Management is cautiously optimistic about the future, anticipating some moderation in overall industry growth.
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