Release Date: January 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gabriel India Ltd (BOM:505714, Financial) reported a 14% year-on-year growth in standalone operating revenue for Q3 FY25, reaching INR 924 crores, driven by higher volumes and improved sales in the two-wheeler and passenger vehicle segments.
- The recent acquisition of assets from Mother Marelli Auto Suspension Part Private Limited (MMAS) is expected to enhance Gabriel India's position in the suspension market, expand its product portfolio, and add new product lines such as gas springs.
- The company is entering into a technology assistance agreement with Marelli Suspension Systems to advance its suspension offerings, which could lead to improved product capabilities.
- Gabriel India Ltd's sunroof business reported strong demand, driven by rising volumes and customer preference, with plans to double capacity by the end of 2025 to meet growing demand.
- The company has seen a robust 16% growth in the SUV segment, driven by strong demand and aggressive launches, which positively impacts its business.
Negative Points
- The commercial vehicle segment experienced muted growth of 2.2% due to declining retail volumes and delayed government fund releases for infrastructure projects.
- The two-wheeler segment saw a month-on-month decline in December, attributed to reduced direct subsidies per vehicle, despite annualized growth.
- The acquisition of MMAS, which has been marginally loss-making, may initially stress Gabriel India's margins, although synergies and operational leverage are expected to improve profitability over time.
- The sunroof business experienced a dip in margins due to one-off costs, and competition in the sunroof market is expected to increase, potentially impacting future margins.
- Gabriel India Ltd's working capital cycle has increased to 26 days from sub-20 days, primarily due to inventory buildup related to the holiday season in China, which may affect cash flow management.
Q & A Highlights
Q: Regarding the Marelli suspension acquisition, how do you plan to turn around the entity, and what synergies do you expect?
A: Atul Jaggi, Deputy Managing Director: We see clear synergies on the product side with similar product lines and customer portfolios. The acquisition introduces gas springs and dampers, which are new for us. We have a plan to improve margins, though we can't share specifics yet.
A: Rishi Luharuka, CFO: There are one-time adjustments needed for the numbers, and operating leverage will improve with synergies. We have a plan to align margins with Gabriel's existing business.
Q: What technology benefits do you expect from the Marelli acquisition?
A: Atul Jaggi: The acquisition provides access to gas spring and damper technology, which is already in use. We also gain access to different shock absorber technologies that can be applied to commercial vehicles.
A: Rishi Luharuka: The gas damper is a new product with good scope, especially with the increasing SUV population. The technology adds to our product basket and offers opportunities in the CV segment.
Q: Can you provide insights into the sunroof business margins and future expectations?
A: Atul Jaggi: The last quarter had abnormally high margins, and this quarter included one-off costs of INR 22 million. Sustainable margins depend on product mix and competition, but we aim for 12% to 14% EBITDA margins.
A: Rishi Luharuka: We are ramping up production and doubling capacity, with plans to exhaust this capacity in two years.
Q: What is the status of the semi-active suspension penetration in India and developed markets?
A: Atul Jaggi: It's early to quantify penetration in India, but Mahindra's launch of a variant with semi-active suspension has sparked interest. We will provide more information on developed markets later.
A: Rishi Luharuka: The semi-active suspension is just starting in India, with discussions ongoing with other customers.
Q: What are the financials and capacity utilization of the Marelli acquisition, and will there be any CapEx post-acquisition?
A: Rishi Luharuka: We can't share past records due to the asset purchase nature. The entity has done INR 260 crores in the past, with gas dampers fully utilized and 60%-70% utilization for suspension. CapEx will depend on program synergies.
A: Atul Jaggi: We aim for a 5% asset turnover, consistent with Gabriel's standards.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
