| Gabriel India Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the long-term bank facilities of Gabriel India Ltd (GIL).
The ratings continue to reflect GIL's healthy market position in the suspension component segment, supported by presence across various segments, improving operating efficiencies, robust technical capabilities, and strong financial risk profile. These strengths are partially offset by susceptibility to pricing pressure from peers and automotive original equipment manufacturers (OEMs), exposure to cyclicality in the automobile industry, and customer concentration risk in revenue.
Revenues increased by nearly 27% year-on-year (y-o-y) in fiscal 2023 to Rs. 2,972 crore on the back of healthy demand in the domestic markets, while exports remained flat due to global macro-economic headwinds. Domestic demand was driven by healthy growth in production volumes across key customers catering to 2-wheeler, 3-wheeler, passenger vehicles (PV), and commercial vehicles (CV) automobile segments. Growing preference for utility vehicles (UV) within the PV segment, coupled with growing premiumization trend within urban geographies for 2-wheelers, augmented revenue growth for GIL. Revenue growth was also supported by healthy order inflows from 2-wheeler Electric vehicle (EV) manufacturers; EV mix as a percentage of revenues increased to 4% in fiscal 2023 from 2% in fiscal 2022.
Operating margins during fiscal 2023 improved by 90 basis points (bps) to 7.2% on the back of improvement in gross margins due to favourable channel mix and moderation in raw material prices in the second half of fiscal 2023, and positive operating leverage benefits emanating from better overhead absorption. Consequently, operating profitability increased by nearly 46% on-year to Rs. 214 crore.
Turnover is expected to grow 8-10% over the medium term driven by launch of new models within 2-wheeler / PV / CV auto segments, and growing presence in the aftermarket segment. Operating margins are expected around 8-9%; the improvement is expected to be driven by stable raw material prices, positive operating leverage benefits and various cost optimisation measures adopted by the company.
Financial risk profile remains strong, backed by healthy networth, debt-free balance sheet, and sufficient cash reserves. Leverage marked by Total Outside Liabilities / Adjusted Networth (TOLANW) improved to 0.65 time as on March 31, 2023, after witnessing weakening in fiscals 2021 and 2022 due to stretched payables. Over the medium term, TOLANW is expected to improve further to about 0.50-0.65 time. GIL has scheduled capital expenditure (capex) investments totalling Rs. 314 crore over fiscal 2024 to 2025 towards capacity enhancement, product development, and backward integration; the said capex investments shall be funded entirely through internal cash accruals. In addition, GIL has entered into a joint venture (JV) agreement with Inalfa Sunroof Systems Limited for manufacturing and supplying of automated sunroof systems. The total investment for manufacturing and delivering sunroof systems is $22 million, and GIL shall have 49% stake in the JV partnership. The JV is expected to commence operations in the fourth quarter of fiscal 2024, and will have capacity to produce 2,00,00 sunroofs per annum. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of GIL, as the company does not have any subsidiaries. |
Key Rating Drivers & Detailed Description Strengths: Healthy market position with diversified segment base GIL is one of the largest players in the automobile suspension component segment in India, with presence across OEMs, and aftermarket and export segments, through more than 12,000 retailers and 600 dealers in six continents. Furthermore, a diverse channel spread across segments; contribution of the two-wheeler, passenger car, and commercial vehicle segments was 63%, 23%, and 12%, respectively. Additionally, strong presence in the aftermarket segment (13% of sales in fiscal 2023), further enhances revenue diversity.
As on March 31, 2023, market share within 2-wheeler, PV, and CV, stands at 32%, 23%, and 89% respectively.
Stable operating efficiencies Return on capital employed (RoCE) was healthy at over 20% till fiscal 2019. Post fiscal 2019, overall automobile industry witnessed de-growth in production in volumes till fiscal 2021 before recovering in fiscal 2022. As a result, GIL’s operating profitability was also under pressure due to decline in revenues during the same period, resulting in contraction in RoCE to ~11% in fiscal 2021. However, with the recovery in automobile industry production volumes coupled and shifting trends (growing preference for UV, premiumization within 2-wheeler segment in urban geographies, EV ramp-up, etc), GIL’s RoCE improved to over 20% in fiscal 2023. Going forward, with the expectation of steady revenue growth and operating margins between 8-9%, RoCE is expected to remain above 20%.
Efficient working capital management has resulted in healthy cash conversion, thereby allowing for sufficient coverage of capex requirement. Net working capital cycle is expected to remain at comfortable levels over the medium term, thereby enabling healthy cash conversion.
Furthermore, longstanding technical tie-ups with global players such as Yamaha Motor Hydraulic System Co Ltd, KYB Spain, and Kayaba Industry Co enhance product development capabilities.
Healthy financial risk profile Financial risk profile remains strong, backed by healthy networth of Rs. 856 crore, and debt free balance sheet. Leverage marked by TOLANW is comfortable at 0.65 times as on March 31, 2023. After witnessing increase in TOLANW to above 0.70 time in fiscal 2020 and fiscal 2021, leverage improved to below 0.70 time in fiscal 2023 and over the medium term, TOLANW is expected to remain at comfortable levels between 0.50-0.65 times. Balance sheet is further strengthened by sufficient cash reserves of around Rs. 304 crore as on March 31, 2023.
Weaknesses: Susceptibility to pricing pressure from OEMs and peers Profitability remains exposed to increasing competition in the auto component segment, and pricing pressures from auto OEMs. The company has moderate flexibility to increase product prices through negotiation with end users during any increase in raw material prices. Volatility in operating margin has been limited due to ability to pass-on absolute increases in commodity prices to customers and other cost-efficiency measures implemented.
Susceptible to inherent cyclicality in the auto industry The automobile industry is highly susceptible and sensitive to macro-economic events, which have a strong bearing on consumer demand. The same is evidenced by the downturn witnessed in fiscal 2020 and 2021 due to factors such as, transition to BS-VI emission norms, ABS norms implementation, rising fuel prices, increase in interest rates, COVID-19 pandemic induced slowdown, multiple price hikes, etc. As a result, consumer demand for discretionary consumption items witnessed slow down, which in turn resulted in de-growth of production volumes. Hence, GIL’s performance remains vulnerable to economic downturns largely related to macro-economic factors.
Customer concentration risk to revenue Top-customer accounts for 24% of revenues and top-5 customers account for nearly 56% of revenues. Hence, the performance of GIL highly relates with the market share, production volumes, and the ability to adapt to shifting trends of its customers. |
Liquidity: Strong Expected net cash accruals of Rs. 170-190 crore per annum over fiscal 2024 to 2025 and unencumbered cash and cash equivalent of Rs. 304 crore as on March 31, 2023, will sufficiently cover working capital requirements, capex of Rs. 314 crore over fiscals 2024 to 2025, and JV investment. GIL also has access to fund-based limits of Rs. 170 crore which remain unutilized for the past 12 months through to March 2023. |
Outlook: Stable GIL will continue to benefit from its established market position in the suspensions division, revenue diversity, and healthy operating efficiencies. The company's financial risk profile is expected to remain comfortable over the medium term backed by healthy cash reserves, steady cash flows, and strong capital structure. |
Rating Sensitivity factors Upward Factors
Downward factors
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About the Company Established by Mr D C Anand in 1961, GIL manufactures ride-control products at its facilities in Dewas (Madhya Pradesh), Khandsa (Haryana), Hosur (Tamil Nadu), Parwanoo (Himachal Pradesh), Sanand (Gujarat), Nashik (Maharashtra), and Pune (Maharashtra). Clientele includes leading auto OEMs such as Tata Motors Ltd (rated 'CRISIL AA/Stable/CRISIL A1+'), Ashok Leyland Ltd, Mahindra & Mahindra Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), TVS Motor Co Ltd, Hyundai Motor India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), Maruti Suzuki India Ltd (rated 'CRISIL AAA/Stable/CRISIL A1+'), and Bajaj Auto Ltd (rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+'). |
Key Financial Indicators
*FY23 figures and ratios are based on published abridged financials |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Fully interchangeable with non-fund based limits |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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Criteria Details
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