Gabriel India Ltd Management Discussions

The Companys robust design and engineering capabilities have enabled the creation of lighter, fuel-efficient, and more enduring vehicles, thereby ensuring the highest level of passenger comfort and safety. With an extensive presence across multiple automotive segments and a growing global footprint spanning six continents, Gabriel India has established long-term relationships with virtually every OEM.

Gabriel India has solidified its position as a reliable and trusted brand in the Indian market. As the Company continues to expand its product line and global reach, it remains poised for continued success. This can be attributed to its customer-centric approach and commitment to excellence.

Global Economy

The global economy showed resilience in CY2023, recovering modestly at an estimated growth rate of 3.2%, according to IMF projections. This expansion was fuelled by pent-up consumer demand, tight labour markets, and leftover savings from the pandemic era. Advanced economies saw mixed results, with the United States (US) showing a growth rate of 2.5% on robust consumer spending. The Eurozone lagged at 0.4% growth due to high energy prices. Emerging and developing economies outperformed, collectively growing at a stronger 4.3% rate driven by Chinas reopening and Indias domestic demand.

However, the years economic progress was tempered by significant challenges. These include elevated inflation, interest rate hikes by central banks, persistent supply chain constraints, and geopolitical tensions. Headline inflation remained stubbornly high at 6.8% on average globally.

This is well above most central bank targets, prompting a hawkish monetary policy stance. These factors, combined with tight monetary policies, reduced fiscal support, and sluggish productivity growth, weighed on the global economy.

Looking ahead, the global outlook for CY2024 remains encouraging, with a forecasted growth of around 3.2%. Advanced nations are projected to expand modestly at 1.7%, while emerging markets could see more robust growth of 4.2%. However, projections indicate a decline in global headline inflation from CY2023s elevated levels to around 5.9% in CY2024. This is likely to further go down to 4.5% in CY2025 as supply conditions improve.

Despite a positive outlook, there are also challenges even as the world economy navigates a complex environment.

Indian Economy

Indias economy continues to shine even amid global headwinds, due to robust domestic demand and the governments proactive policy measures. The countrys GDP is estimated to have grown at an impressive 7.6% for FY2023-24, surpassing analysts expectations. This stellar performance stemmed from the governments capital expenditure push, vibrant economic activity across sectors, an enabling policy environment, and initiatives aimed at uplifting vulnerable segments of society. The Interim Union Budget for FY2024-25 emphasises on infrastructure development and inclusive growth. It has allocated 11.1 Lacs Cr. or 3.4% of the GDP for capital expenditure - a 16.9% increase over the previous years estimates.

The manufacturing sector has played a key role in driving Indias economic expansion. With strong backward and forward linkages, it has generated employment opportunities, fostered innovation, and improved its contribution to around 17% currently. The automotive industry has been a significant growth driver within manufacturing, contributing 7.1% to the GDP As the third-largest producer of automobiles globally, this sector accounts for a substantial 49% of the manufacturing GDP This contribution is boosted by rising investments and initiatives like Make in India.

To further accelerate growth in strategic sectors such as manufacturing and automotive, the government has rolled out targeted initiatives and budgetary support. These include an over seven-fold increase in the allocation for the Production Linked Incentive (PLI) scheme for automobiles and auto components to 3,500 Cr. in FY2024-25. These schemes aim to boost domestic manufacturing capabilities and facilitate deeper localisation in the automotive and EV ecosystems. The budget also emphasises green growth, sustainable mobility through EVs, and nurturing research and innovation across domains such as defence technology.

While there are headwinds in the form of food inflation and cost pressures, Indias economic trajectory looks promising. This is underpinned by robust domestic demand, digital transformation, entrepreneurship, and policy continuity. With an ambitious vision to become the worlds third-largest economy by 2047 and a targeted GDP of USD 5 trillion by 2027, the outlook is positive. Backed by inherent strengths, ongoing reforms across sectors, and a commitment to sustainable and inclusive growth, India is poised for continued economic expansion while enhancing the quality of life for its citizens.

Global Automotive Sector Overview

The global automotive industry was valued at a staggering USD 3,564.67 billion in 2023, exhibiting an impressive upward trajectory at a CAGR of 6.8% from 2023 to 2033. Fuelled by this robust growth, the industrys market size is projected to reach USD 6,861.45 billion by 2033.

The Asia-Pacific region holds the largest market share over the forecast period. This can be attributed to growing government mandates for improved vehicle safety which is boosting regional demand. India is emerging as the fastest- growing market, while China holds the largest sector share. This is further bolstered by the rising popularity of shared mobility, telematics integration, personalised transportation options, and favourable regulations for commercial EVs.

Automakers are at the forefront of this growth, diversifying their portfolios with electric cars, SUVs, trucks, and vans. Some of the key drivers for this include investments in battery manufacturing, charging infrastructure, software, and digitalisation for cutting-edge technologies such as over-the-air upgrades and autonomous driving. With substantial investments in EVs, autonomous driving, and connectivity solutions, the global automotive sector is well-positioned to capitalise on emerging opportunities and meet evolving consumer needs. This transformative phase is driven by technological advancements, consumer preferences, and sustainability initiatives.

Indian Automotive Sector Overview

The Indian automotive industry is rapidly growing and poised to hit a milestone, to reach USD 300 billion by 2026. This remarkable growth is fuelled by various factors, including rising income levels, urbanisation, and a rapidly expanding middle class with increasing purchasing power.

Indias global standing was significantly bolstered by its emergence as the worlds third-largest automobile market.

The country produced 28.43 million vehicles, including passenger and commercial vehicles, two- and three-wheelers, and quadricycles, in the period between the April 2023 and March 2024. India is also the largest tractor manufacturer, second-largest bus manufacturer, and third-largest heavy truck manufacturer globally. This diversified manufacturing prowess highlights Indias significant contribution to the global automotive supply chain, underpinning its growth trajectory.

Moreover, the EV market in India is poised for explosive growth, with projections indicating a remarkable CAGR of 49% between CY2022 and CY2030. This burgeoning EV sector is expected to create an estimated 5 million direct and indirect jobs by 2030. This showcases the countrys potential to drive employment opportunities within the broader Indian automotive industry. Furthermore, the financing of EVs presents a massive opportunity for the automotive industry, with a market size of USD 50 billion forecasted for 2030. This is approximately 80% of the current size of Indias retail vehicle finance industry. The rapid growth of the EV segment is likely to contribute significantly to the overall growth and development of the Indian automotive industry in the coming years.

The automotive sector is attracting significant FDI, accounting for 5.35% of the total FDI inflow as per the December 2023 DPIIT Report. This underscores the global investors confidence in Indias automotive market and its growth potential. Additionally, the governments PLI scheme with an outlay of USD 3.5 billion is bolstering domestic manufacturing and attracting investments in advanced automotive technology products. This is further fortifying Indias position in the global automotive landscape.

Indian Automotive Component Sector Overview

The Indian automotive component industry is witnessing remarkable growth, propelled by a combination of factors including rising demand, product quality enhancements, and improved competitiveness. The Indian auto component market size is forecast to increase by USD 115.79 billion, at a CAGR of 25.7% between CY2023 and 2028, driven by the growing middle-class population, surging demand for compact SUVs, and government initiatives and policies facilitating the growth of the automotive industry. This dynamic growth is evidenced by the auto component industrys performance in FY2023-24 where it achieved an unprecedented turnover of 5.6 trillion (USD 69.7 billion); marking a 32.8% growth compared to the previous fiscal year, according to the Automotive Component Manufacturers Association of India (ACMA).

Exports led this upward trajectory, experiencing a 5.2% increase to reach USD 20.1 billion in the last FY2023-24. However, imports grew at a slightly higher rate of 10.9% to USD 20.3 billion. The aftermarket segment, valued at 85,333 Cr., witnessed a steady 15% growth, while sales to domestic OEMs surged 39.5% to 4.76 Lacs Cr., buoyed by pent-up demand, improved raw material supply chains, and robust sales of larger vehicles such as SUVs.

This export growth can be attributed to the positive global sentiment towards sourcing from India, fuelled by the China Plus One diversification strategy adopted by many companies. Even amid recessionary trends in key markets, Indias automotive component sector capitalised on opportunities, filling gaps in the global trade landscape. Traditional components such as castings, forgings, and injection moulded parts are expected to find export- oriented production opportunities in India as they become less viable in Western markets.

Business Segments

Two and Three Wheelers

Gabriel India continues to leverage its experience in the two wheeler (2W) and three wheeler (3W) industry. This has positioned the Company as a leading player in the 2W and 3W Electric Vehicle (EV) segment. With a focus on supplying high-quality front forks and rear shock absorbers to major OEMs, the Companys 2W and 3W segment recorded a revenue of 2,022.4 Cr. in FY2023-24. This is an increase of 10.25% compared to the previous years 1,834.4 Cr., contributing approximately 61% to the Companys total revenue. In this segment the Companys top three customers are TVS Motors, Suzuki Motorcycle and Honda Motorcycle & Scooter India.

Gabriel Indias success can be primarily attributed to its continuous efforts to increase its market share. This share currently stands at 31%, due to attracting major customers and developing innovative products that cater to the industrys ever-evolving needs. The Companys products have gained strong market acceptance and are recognised for their superior quality.

Passenger Vehicles

Gabriel Indias position in the Utility Vehicle (UV) segment continues to strengthen. The Company currently holds a 35% market share in this high-growth segment, compared to its overall market share of 23% in the passenger vehicle market. The segment has seen a notable increase in demand due to the introduction of new models by key customers and a surge in the popularity of SUVs. The Company has also witnessed a growing demand for its sunroof products in Passenger Vehicles. This is fuelled by consumers increasing preference for vehicles with sunroofs. Gabriel India has invested in expanding its sunroof manufacturing capabilities to meet this rising demand.

One such key customer of the Company is Maruti Suzuki, whose successful programme launches during the year contributed significantly to the volume increase. The Company has also established a major presence in the aftermarket segment of passenger vehicles, which recorded a revenue of 152 Cr. in FY2023-24, compared to the previous years 142 Cr.

The Companys top three customers in the Passenger Vehicle category are Maruti Suzuki, Skoda Volkswagen, and Mahindra & Mahindra, highlighting its strong position in the market. Additionally, Gabriel India has seen significant traction in its engagement with major automotive companies such as MSIL, M&M, TML, TKM Private Limited, and VW.

Commercial Vehicles and Railways

Gabriel India is also a leading manufacturer of shock absorbers for Commercial Vehicles (CV) and maintains its dominant market share of 89%. The Company has expanded its product line to serve all segments of Indian Railways, including the prestigious Vande Bharat Express, for which it is the only qualified Indian supplier. While the Company had not previously supplied shock absorbers for electric locomotives, it has now fulfilled the development order for both the Vande Bharat Express and electric locomotives. This is a significant milestone in its growth.

Gabriel India currently holds a strong position in the CV segment and has made a strategic decision to leverage this position to pursue growth overseas. This expansion has already begun through its association with DAF, and efforts are underway to establish relationships with other customers as well. In FY2023-24, the Companys CV segment recorded a revenue of 405.6 Cr., compared to the previous years 357 Cr. Its plans for future development include partnerships with Volvo, JBM, and a new EV customer, as well as two more programmes for DAF. Its top three customers are Tata Motors, Mahindra & Mahindra, and Ashok Leyland.

Aftermarket

Over the past 60 years, Gabriel India has established a dominant market position and an exceptional brand reputation in the aftermarket sector. The Company caters to distinct types of vehicles, including 2W and 3W, passenger vehicles, and CVs. With a market share of 40%, Gabriel India continues to lead the aftermarket segment, recording an 8% increase in sales in FY2023- 24 the highest-ever growth recorded.

The launch of new products has been a key driver of this impressive growth. The Company has more than 1,337 SKUs launched in the last five years. Gabriel India is the only company present in all segments of the market and has completed four IT-enablement projects in FY2023-24.

This growth is supported by an extensive distribution network spanning six continents, 10 CFAs, over 700 dealer networks, and around 25,000 retail outlets, and backed by a highly efficient sales force.

Sunroof Business

Gabriel India has strategically entered the rapidly growing sunroof market to capitalise on increasing consumer demand, particularly in the high-growth SUV segment. To tap this growing market, Gabriel India has entered into an alliance with Netherlands- based Inalfa Roof Systems, the world second-largest sunroof maker. The partnership is called Inalfa Gabriel Sunroof Systems (IGSS).

Supporting this new business line, Gabriel India has invested in setting up a plant near Chennai to manufacture sunroofs.

In FY2023-24 alone IGSS recorded a revenue of 59.97 Cr.

Gabriel India has a well-established presence in the SUV segment, supplying to renowned brands such as Volkswagen, Skoda, Toyota, Suzuki, and Mahindra. The Company is thus strategically positioned to leverage its expertise and customer relationships to capture a significant share of the growing sunroof market.

Financial Overview

(in Rs Cr.)

Particulars	FY2023-24	FY2022-23
Net Sales	3,303.20	2,962.40
EBITDA	293.00	213.70
Profit before Tax (PBT)	250.04	177.91
Profit after Tax (PAT)	185.16	132.36

Financial Overview

(in Rs Cr.)

Particulars	FY2023-24	FY2022-23
EBITDA/Turnover (%)	8.80	7.20
EBITDA/Net Interest	53.89	46.61
Ratio
Debt-Equity Ratio (x)	0.01	0.01
Return on Equity (%)	19.70	16.17
Book Value per Share ()	70.22	60.59
Earnings per Share ()	12.89	9.21
Debtors Turnover (days)	52	51
Inventory Turnover (days)	26	28
Interest Coverage Ratio (x)	53.89	46.61
Current Ratio (x)	1.86	1.81
Operating Profit Margin (%)	25.50	24.20
Net Profit Margin (%)	5.50	4.60

Opportunities

Indias Rising Per Capita Income

As Indias economy continues its robust growth trajectory, there is an increasing consumer demand in the automotive sector due to rising income levels. This creates significant opportunities for the automotive industry. Indias per capita net national income has surged by over 35% in the last decade, reaching 98,374 in FY2022-23. This remarkable growth in disposable income, coupled with favourable demographic trends, is likely to fuel a surge in vehicle sales across the country.

Demographic Tailwinds

By 2025, India is projected to become the worlds youngest nation, with an average age of just 25 years. This demographic advantage translates into a massive pool of potential first-time car buyers entering the workforce and seeking personal mobility solutions. As this young population achieves higher earning power, its appetite for automobiles is expected to skyrocket.

Government Support

The Indian government has implemented a comprehensive policy framework to nurture the growth of the automotive industry and position the country as a global manufacturing powerhouse. The Automotive Mission Plan 2026 aims to transform India into a global manufacturing hub, with a target of USD 300 billion in industry revenue by 2026. Furthermore, the governments PLI scheme for the automotive sector, with an outlay of USD 3.5 billion, is designed to promote local manufacturing and exports. Complementing these initiatives, the National Electric Mobility Mission Plan, with its target of achieving 30%

EV adoption by 2030, provides a comprehensive framework for incentives and policies to support the transition to sustainable mobility solutions.

Soaring Sunroof Demand

The automotive sunroof industry is experiencing significant growth driven by rising consumer demand, particularly in the SUV and premium car segments.

The global automotive sunroof market, valued at USD 17.88 billion in 2023, is projected to reach USD 43.53 billion by 2032, at a CAGR of 10.39% from 2023 to 2032. This growth is fuelled by increasing disposable income, consumers preference for enhanced aesthetics, comfort, and convenience features, as well as technological advancements in sunroof design and safety aspects.

Export Potential

Indias cost-competitive manufacturing capabilities and skilled workforce have positioned the country as an attractive destination for global automakers to establish production facilities. In FY2021-22, automotive exports grew by an impressive 43%, reaching USD 29.4 billion. This cemented Indias position as the fourth-largest exporter of passenger vehicles globally, with a 6.1% share of global passenger vehicle exports in 2021. The government has set an ambitious target to increase automotive exports to an USD 200 billion by 2026, up from the current USD 29.4 billion. This underscores the immense export potential of this sector and the concerted efforts to establish India as a global manufacturing hub.

Technological Advancements

Indias automotive industry is rapidly embracing innovative technologies, opening new avenues for growth. The autonomous vehicle market in India is projected to grow at an impressive CAGR of 20% from CY2022 to 2027, reaching USD 8.8 billion by 2027. Similarly, the connected car market is expected to expand at a CAGR of 19.2% during the same period, reaching USD 7.1 billion by 2027. Notably, Indias EV sales witnessed a remarkable 223% surge in FY2021-22, with EVs accounting for 5% of total vehicle sales. Aligned with the governments ambitious target of achieving 30% EV adoption by 2030, substantial investments are being channelled into battery manufacturing and charging infrastructure. This, in turn, is creating a conducive ecosystem for the transition to sustainable mobility solutions.

Threats

Changing Customer Expectations

In todays dynamic marketplace, consumer preferences are evolving rapidly, driven by factors such as sustainability concerns, technological advancements, and shifting lifestyle choices. Meeting these ever-changing expectations poses a significant challenge for automakers. It requires them to continuously innovate and adapt their product offerings to remain relevant and competitive.

Government Regulations and Policies

The Indian automotive industry operates within a complex regulatory landscape, subject to evolving rules and policies governing emissions, safety standards, and trade. Unpredictable or abrupt changes in these regulations can create uncertainty, disrupt operations, and impose significant compliance costs on manufacturers.

Competition from Global Players

The Indian markets growth potential has attracted several global automotive giants and intensified competition. This has put pressure on domestic players to enhance their competitiveness through strategic partnerships, investments in research and development, and operational efficiencies.

Environmental Concerns and Emission Regulations

Growing environmental concerns and tightening emission regulations are driving a shift towards cleaner and more sustainable transportation options. Automakers that fail to prioritise the development of EVs, hybrids, and other eco- friendly solutions risk losing market share to more environmentally conscious competitors.

Risks and Concerns

A robust risk management framework is a crucial aspect of Gabriel Indias business strategy. Like many automotive companies, the Company is exposed to various operating and business risks. However, it proactively monitors these risks and takes corrective actions to mitigate them. To prevent risks from arising in the first place, the Company has implemented an independent and dedicated Enterprise Risk Management (ERM) system that identifies, manages, and mitigates potential business risks.

Gabriel India adopts an integrated approach to minimise risks and conducts proper assessments to maximise growth opportunities. The Companys success relies on its ability to identify and capitalise on opportunities generated by its business and the markets in which it operates. By effectively managing the risks, Gabriel India strives to strike a balance between its growth and return goals while addressing potential risks.

Human Resources

Gabriel India attributes its success to its resolute and resilient employees, who have been instrumental in propelling the Company to new heights. Recognising the crucial role of its workforce, Gabriel India has continuously enhanced its HR-related processes, practices, and systems to further align with its organisational objectives. Through on-the-job training, workshops and external training programmes, the Company ensures that its employees receive adequate opportunities for professional growth and development.

The ability to attract and retain top-notch talent has been a key driver in furthering Gabriel Indias business goals. The Company fosters cordial industrial relations, with employees enjoying the strong support of the ANAND Groups management in ensuring their safety and well-being. This commitment to nurturing a skilled and motivated workforce has been a cornerstone of Gabriel Indias success, enabling the Company to capitalise on emerging opportunities while navigating industry challenges effectively.

Gabriel India surpasses the customary boundaries of human resource management. This extends beyond mere compensation, performance appraisals, and professional development. The Company embraces a comprehensive approach, encompassing the entirety of its employees professional journeys, providing them with timely guidance to cultivate fruitful and enduring careers. Gabriel Indias workforce comprises seasoned professionals with profound industry knowledge. The Company takes immense pride in their invaluable contribution to its remarkable success.

Environment, Health, and Safety

For Gabriel India, sustainability is not an afterthought but a core principle that guides its operations. The Company believes that conducting business responsibly is essential for achieving comprehensive economic growth and sustained social development. This conviction drives it to prioritise the promotion of sustainability through leading initiatives in the areas of Environment, Social, and Governance (ESG). These efforts reflect the Companys enduring commitment to sustainability and responsible business practices.

Gabriel India has ensured all its manufacturing facilities are ISO 45001 certified for health and safety, with dedicated environment, health, and safety (EHS) officers deployed at each plant to ensure compliance. Employees receive continuous training on EHS practices in accordance with ISO 14001 and ISO 45001 certifications. The Company closely monitors training hours during business review meetings and conducts regular EHS training sessions on the shop floor. Induction training for new employees on EHS practices is also a routine practice.

Sustainable Business Practices

Environmental and social responsibility are at the forefront of Gabriel Indias operations. The Companys ambition is to emerge as a leading producer of eco-friendly automotive components in India. To realise this goal, it has implemented numerous sustainable practices across its facilities by adopting technical and functional controls.

A noteworthy example is the Companys Zero Liquid Discharge effluent treatment facilities at its Hosur, Chakan, and Nashik plants. Gabriel India strongly emphasises efficiency, resource conservation, and the utilisation of renewable energy sources to minimise its carbon footprint. Notably, the Companys Sanand facility has been awarded the Green Factory Building Certification - Silver rating by the Indian Green Building Council (IGBC), a testament to its unwavering commitment to sustainability.

Approach towards Materiality

During the reporting year, Gabriel India undertook a comprehensive materiality assessment to strengthen its relationships with stakeholders and gain a deeper understanding of their expectations. This involved extensive consultations with the senior leadership team, coupled with a materiality survey that gathered feedback from employees, vendors, investors, customers, and community representatives. Through this process, the organisation identified and prioritised ESG issues that are critical to the Companys long-term sustainability and resilience. Gabriel Indias ESG strategy and corresponding initiatives are designed to address these priority challenges through improvement plans, indicators, short- and long-term goals,

targets, and enabling policies. The Company remains committed to regularly evaluating and updating its materiality assessment to ensure continued alignment with evolving stakeholder needs.

Internal Control Systems and Adequacy

Gabriel India proactively manages the operational risks associated with its business through regular monitoring and implementation of corrective measures. The Company has established robust and comprehensive internal control systems that are tailored to the scale and nature of its operations. These systems ensure the safeguarding of all assets and the appropriate authorisation, recording, and reporting of transactions.

The internal control mechanisms are meticulously designed to guarantee the reliability of financial and other records, accurately reflecting the Companys business operations. The Audit Committee convenes quarterly to review and discuss various Internal Audit reports, monitor the closure of agreed-upon actions, and ensure compliance with audit plans. This rigorous process ensures that the Company upholds regulatory requirements and conducts all operations with utmost transparency and accountability.

Outlook

As the leading shock absorber manufacturer in the country, Gabriel India has established itself as a global player.

The Company has an ambitious vision to be among the Top Five Shock Absorber Manufacturers in the World and is relentlessly working towards it. While shock absorber manufacturing remains its core business, Gabriel India is also exploring diversification as a strategy to expand its operations. This diversification will enable the Company to tap new markets and uncover fresh avenues for growth. With a steadfast focus on innovation and customer satisfaction, Gabriel India is well-positioned to achieve its ambitions. The Companys unwavering commitment to excellence, combined with its strong leadership team and talented workforce, makes it a formidable force in the automotive industry and beyond.

Cautionary Statement

Statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, and expectations may be forward-looking within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Key factors that could make a difference to the Companys operations include economic conditions affecting demand, supply, and price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations, tax laws and other statutes, and other incidental factors.