Traditional Auto Parts Will Suffer Under EV Shift

Key Takeaways

• Transition to electric vehicles and supply chain localization threaten Gabriel India's core product relevance, export growth, and utilization of new capacities.
  
• Rising ESG compliance costs, intense competition, and heavy reliance on India's auto sector risk margin compression and undermine profitability.
  
• Diversifying into new products, investing in capacity and exports, and benefiting from regulatory and market trends are strengthening Gabriel India's revenue resilience and earnings growth potential.

Catalysts

Manufactures and sells of ride control products to the automotive industry in India, the Netherlands, and internationally.

• The accelerating shift towards electric vehicles poses a serious risk to Gabriel India's core suspension and legacy product lines, as the company admits it is still in early stages of ramping up fastener and EV-specific production, which may result in revenue stagnation or decline over the medium to long-term as internal combustion engine volumes shrink.
  
• Increasing global emphasis on sustainability and the tightening of ESG regulations is likely to raise compliance costs and disrupt production processes, especially as Gabriel India expands its manufacturing footprint and undertakes large-scale integrations; these compliance headwinds could significantly erode net margins and limit profitability gains from diversification.
  
• Growing global supply chain localization, with OEMs moving toward sourcing components closer to home markets, threatens Gabriel India's ability to meaningfully expand its export business, directly capping future topline growth and causing its large planned capacities for fasteners and sunroofs to remain underutilized for years.
  
• Heavy dependence on domestic two-wheeler and passenger vehicle markets exposes Gabriel India to cyclical downturns in India's auto sector, creating volatility in earnings and the real risk of margin compression, particularly as the current quarter's outperformance is skewed by stronger OEM customers and may not be sustainable.
  
• Escalating competition-especially in premium segments like sunroofs, where global majors now have strong India tie-ups and captive capacities-could further pressure market share and force Gabriel to compete more aggressively on price, leading to lower realized prices and compressing EBITDA margins, undermining the financial returns of recent and ongoing capital expenditures.

Gabriel India Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Gabriel India compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Gabriel India's revenue will grow by 20.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.9% today to 6.8% in 3 years time.
• The bearish analysts expect earnings to reach ₹5.0 billion (and earnings per share of ₹22.67) by about August 2028, up from ₹2.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, down from 58.1x today. This future PE is lower than the current PE for the IN Auto Components industry at 29.7x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.16%, as per the Simply Wall St company report.

Gabriel India Future Earnings Per Share Growth

Risks

• Ongoing diversification into new product areas such as sunroofs, fasteners, and railways, as well as upcoming group acquisitions and JVs, indicate that Gabriel India's revenue streams are expanding beyond traditional suspension components, which could support steadily rising overall revenues.
  
• The company is consistently achieving and even improving its EBITDA margins, recently reaching 9.9 percent on a consolidated basis with sustained growth in profits, suggesting operational strength and improvements that may drive stronger earnings in the coming years.
  
• Gabriel India is investing in capacity expansions, new plant construction, and premiumization of products (such as advanced front forks), which positions the company to benefit from long-term trends toward automotive premiumization, thereby supporting higher margins and top-line growth.
  
• The company is targeting robust export growth, including in high-value markets like solar dampers and e-bikes for Europe, as well as expanding into new global segments via partnerships, increasing resilience and reducing reliance on domestic cycles, which mitigates significant long-term revenue risk.
  
• There is a visible government push for infrastructure development (such as railways and passenger vehicles) and regulatory trends favoring safety and premium comfort, which are likely to increase demand for Gabriel's products and boost both order pipelines and average realizations with positive impact on future earnings and margins.

Valuation

• The assumed bearish price target for Gabriel India is ₹445.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gabriel India's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1440.0, and the most bearish reporting a price target of just ₹445.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹73.3 billion, earnings will come to ₹5.0 billion, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 14.2%.
  
• Given the current share price of ₹1009.35, the bearish analyst price target of ₹445.0 is 126.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.