Buy This Small-Cap Auto Ancillary Stock That Can Grow Nearly 38.73%, Says Anand Rathi

Stock-broking firm Anand Rathi has suggested investors to buy shares of Gabriel India Ltd, for it believes the price will surge up to 38.73%. The brokerage house also has given a target price that the stock will scale up to from current levels. This small-cap company primarily operates in the auto ancillaries sector and was incorporated in 1961.

The company is a market leader for pioneering ride control products in the automotive industry in India and is one of the top 10 suspension manufacturers globally. Recently, the company posted its fourth-quarter results which were driven by strong operating performance.

Fourth Quarter Performance
Gabriel India's standalone revenue grew 8% y/y to Rs 7.4 billion, against the industry's 3% drop in production of 2Ws and 13% rise in PVs. The EBITDA margin expanded 160bps y/y to 7.1%. The gross margin expanded 180bps y/y to 23.8% but contracted 50bps q/q due to the adverse product mix. Depreciation rose 21% y/y to Rs130m. Overall, PAT grew 25% y/y to Rs 338 million.

Management Guidance
As per the stock broking research note, the management has guided that the company is scanning opportunities for new product lines. Hopes to add another product line in CY23/24. Additionally, it has even set market-share targets of 40% for 2Ws and 30% for PVs in the medium term.

Besides, the small-cap company maintains a double-digit EBITDA-margin target in the medium term, supported by better scale (100bps) and gross margin improvement (localisation, Core 90 program, and commodity softening). It expects an expansion in margins in FY24.

Valuation & Rating
Anand Rathi is of the view that the company's further diversification to new product lines would keep growth momentum strong ahead and it is one of the top pick in small-cap ancillaries.

"We expect robust 23%/23% EBITDA/PAT CAGRs over FY23-25. The company is our top pick in small-cap ancillaries. We recommend a Buy at a 12-month of Rs 240, 15x standalone FY25e P/E and Inalfa Gabriel Sunroof Systems' value of Rs30/share (based on DCF)", it suggested.

Stock Movement
The share price of Gabriel India stock is marginally up by 0.03% to Rs 172.55 on an intraday basis. In the last one year, the share has surged by 44.7%, and in the last three years, it has soared by 140.15%.

Disclaimer
The stock has been picked up from the brokerage report of Anand Rathi. Greynium Information Technologies, the author, or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.