Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ ratings on the long-term bank facilities of Gabriel India Limited (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 14.5% year-on-year (y-o-y) in fiscal 2024 to Rs. 3,403 crores on the back of healthy demand in the domestic market, while exports remained subdued due to global macro-economic headwinds. Consolidated revenues in Q1FY25 witnessed an increase of 17.4% year on year driven largely by the ramp up in the sunroof segment operated through wholly owned subsidiary Inalfa Gabriel Sunroof Systems Private Limited (IGSSPL), which commercialized operations in Q4FY24 and contributed ~9% to overall revenues (~2% in fiscal 24). On standalone level, operating income increased by ~7% due to stable demand in the core business. Domestic demand was driven by healthy growth in production volumes across key customers catering to 2-wheeler, 3-wheeler, passenger vehicles (PV) despite flattish growth in commercial vehicles (CV) automobile segment. 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. Annual turnover is expected to grow at double digits over the medium term driven by launch of new models within 2-wheeler / PV / CV auto segments, and growing premiumization trend in the industry. Furthermore, the revenue in the sunroof business segment is expected to significantly increase in the medium term given robust demand and confirmed orders in hand.

 

Operating margins during fiscal 2024 improved to 8.7% (fiscal 2023: 7.3%) largely on the back of improvement in gross margins. Gross margin expansion was largely attributable to favorable channel mix and moderation in raw material prices which also resulted in operating profitability increasing to 9.6% in Q1FY25. Operating margins to stabilize at 9-10% over the medium term on account of stable raw material prices, positive operating leverage benefits due to higher capacity utilization, and margin accretive sunroof business (14% margin in Q1FY25) in the medium term.

 

Financial risk profile remains strong, backed by healthy networth, debt-free balance sheet on standalone level, and sufficient cash reserves. The only debt on consolidated level is working capital loan availed by its wholly owned subsidiary IGSSPL which stood at ~Rs.25 crores as on 31st March’2024. Adjusted gearing increased marginally due to this but remains low at 0.03 times as on 31st March’2024, to remain below 0.1 times in the medium term. Leverage marked by Total Outside Liabilities / Adjusted Networth (TOL/ANW) of 0.80 time as on March 31, 2024, which is expected to improve further in the medium term. GIL has scheduled capital expenditure (capex) investments totalling Rs. 500-600 crores over fiscals 2025-27 on consolidated basis towards capacity enhancement, product development, and automation; the said capex investments shall be funded largely through internal cash accruals.

Analytical Approach

CRISIL Ratings has revised its analytical approach from standalone to consolidation of business and financial risk profiles of GIL and its subsidiaries to arrive at the ratings, as they are in similar business lines. The change in analytical approach follows the formation of wholly owned subsidiaries IGSSPL and G.E.C.C. (Gabriel Europe Engineering Centre).

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

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 and three-wheeler, passenger car, and commercial vehicle segments was 63%, 24%, and 11%, respectively. Additionally, strong presence in the aftermarket segment (12% of sales in Q1FY25), further enhances revenue diversity. As on June 30, 2024, market share within 2,3-wheeler, PV, and CV, stands at 30%, 24%, and 88% respectively.

 

• Stable operating efficiencies

Return on capital employed (RoCE) was healthy at over 25% in fiscal 2024 with recovery in automobile industry production volumes coupled with shifting trends such as growing preference for UV, premiumization within 2-wheeler segment in urban geographies, EV ramp-up, etc. Going forward, with the expectation of steady revenue growth and operating margins between 9-10%, RoCE is expected to remain above 25%. 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, debt-free balance sheet on standalone level, and sufficient cash reserves. The only debt on consolidated level is working capital loan availed by its wholly owned subsidiary IGSSPL which stood at ~Rs.25 crores as on 31st March’2024. Adjusted gearing increased marginally due to this but remains low at 0.03 times as on 31st March’2024, to remain below 0.1 times in the medium term. Leverage marked by Total Outside Liabilities / Adjusted Networth (TOL/ANW)  of 0.80 time as on March 31, 2024, which is expected to improve further in the medium term. Balance sheet is further strengthened by sufficient cash reserves of over Rs. 300 crores as on March 31, 2024.

 

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 slowdown, 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 27% of revenues and top 5 customers account for nearly 66% of revenues in fiscal 2024. 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. 230-300 crores per annum over the medium term and healthy cash and cash equivalents of Rs. 305 crores as on March 31, 2024, will sufficiently cover working capital requirements, capex of Rs. 500-600 crores over fiscals 2025 to 2027, and investments into the subsidiaries. GIL also has access to fund-based limits of Rs. 170 crore which remain unutilized.

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. Furthermore, ramp up in the sunroof business segment will remain a monitorable.

Rating sensitivity factors

Upward Factors

• Substantial increase in scale of operations supported by improvement in product and segment  diversity with operating margins above 10% on sustained basis.
• Sustenance of strong financial risk profile and build-up of cash surplus

 

Downward Factors

• Deterioration in market share leading to lower operating profitability
• Sizeable debt-funded capex or acquisition, or large financial support to Group companies, weakening gearing; for instance, increasing to above 0.80 time on sustained basis

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 and 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/Stable/CRISIL A1+').

 

The financial results for the year ended March 31, 2024, are the first consolidated financial results for Gabriel India Limited as the company commercialized its sunroof segment business in Q4FY24 under a 100% owned subsidiary named Inalfa Gabriel Sunroof Systems Private Limited ('IGSSPL') and Gabriel Europe Engineering Centre (G.E.C.C.) whose main activity is to conduct research and to develop, purchase, sell, lease and promote automotive technology and products. The company reported consolidated operating income of Rs 946 crores at an operating margin of 9.6% in Q1FY25.

Key Financial Indicators (Consolidated)

Particulars	Unit	2024	2023*
Revenue	Rs crore	3,403	2,973
Profit after tax (PAT)	Rs crore	179	132
PAT margin	%	5.25	4.45
Adjusted debt/adjusted networth	Times	0.03	0.00
Interest coverage	Times	38.18	50.22

*Standalone results in FY23

Any other information: Not applicable

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
Inalfa Gabriel Sunroof Systems Private Limited	Full	Strong business and financial linkages
Gabriel Europe Engineering Centre	Full	Strong business and financial linkages