Rating Rationale

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the bank facilities of Gabriel India Limited (GIL).

The ratings continue to reflect GIL's healthy business risk profile marked by sustenance of market share across automotive segments, supported by diverse customer and segment base, improving operating efficiencies and robust technical capabilities. The ratings also factor in a robust financial risk profile backed by a healthy capital structure and strong liquidity position.

Post revenue moderation over the past 2 fiscals owing to pandemic related disruptions and overall slowdown in the auto segment, GIL witnessed strong recovery in performance in fiscal 2022 and is estimated to have registered high double digit revenue growth backed by demand pickup across 2W (~65-68% of revenues), passenger vehicles (~22-25%) and commercial vehicles segment (~10-12%). During the first nine months of fiscal 2022, revenues grew 47% year on year driven by broad based pick up in production levels of OEMs, new model launches and overall demand recovery. GIL’s volume growth during the period has outperformed the overall industry backed by higher volume offtake by its major customers viz. TVS, Maruti Suzuki, Yamaha, Mahindra & Mahindra and Bajaj Auto Limited. Company has been able to sustain its market share in 2W/3W segment at 25% and grew by 44% year on year during 9M fiscal 2022 amidst overall muted industry growth of 2% due to ramp up in EV transition and strong demand from OEMS’s being catered to by GIL. PV and CV segments also witnessed year on year growth of 54% and 72% respectively during 9M fiscal 2022. Revenue growth over the medium term is expected to be in double digits driven by growth in the 2W EV segment, strong demand outlook in both passenger vehicle and commercial vehicle segment, increased contribution from the aftermarket segment and sharp pick up in exports.

During 9M fiscal 2022, operating margins improved by 140 bps to 6.6% on low base for corresponding period of previous year primarily due to favourable product mix, cost reduction efforts, price hikes and higher operating leverage, partially offset by commodity inflation. Margins are expected to be in the range of 7-7.5% over the medium term aided by overall lean cost structure with low fixed costs, continued cost optimization measures being undertaken and increased operating leverage arising from higher scale of operations.

The financial risk profile continues to be healthy marked by a healthy networth of ~Rs.700 Crore and minimal dependence on external debt. Going forward, although capital spending is expected to increase (Rs.100-140 crore annually as against past levels of Rs.50-60 crore), it is likely to be entirely funded through internal accruals and healthy liquid surplus of Rs. 267 crore as December 31, 2021 . This, coupled with efficient working capital management, should further strengthen the key credit metrics.

These strengths are partially offset by susceptibility to commodity inflation impacting margins, pricing pressure and demand slowdown from automotive OEMs.