Gabriel (India): No jolts

Anup Menon

GIVEN the yield on the instrument and the improving fundamentals of Gabriel India, the partially-convertible debentures are a good investment proposition.

The PCD now trades at Rs. 105.50, a 15 per cent discount to the issue price of Rs. 125. The yield-to-maturity works out to 24.68 per cent. If the (intermittent) cash inflows are not reinvested, the YTM works out to 14.65 per cent. Given the current environment of soft interest rates and a change for the better in the fundamentals of the automobile industry, an investment in the PCD can be considered.

The company made a rights offer of 14 per cent PCDs in December 1995. The convertible and non-convertible portions were equally divided into Rs. 125 each. The non-convertible portion is to be redeemed in three instalments of Rs. 40, Rs. 40 and Rs. 45, in February 12, 2002, 2003 and 2004 respectively. The interest on the debenture falls due on January 31 and July 31 respectively.

Gabriel India, the flagship of the Delhi-based Anand group, is a major player in the auto-ancillaries industry and its product profile includes shock absorbers, struts, front forks and bimetal engine bearings. The company gets technology support from its collaborators -- Gabriel Ride Control Products, US, Yamaha Motor, Japan; Federal Mogul Corporation, US; and BHW, Germany. The company has also signed a technology transfer agreement with Arvin Industries, US, for shock-absorbers and struts.

Gabriel India's performance is closely linked to that of the automobile industry. The industry started looking up over the last one year with a gradual improvement in offtake from most of the major automobile manufacturers. The company has a strong presence in the two- and three-wheeler segments. The growth in the last few years was on account of a drop in pick-up from the heavy commercial and light commercial vehicles segments.

The company's performance for the first three quarters of fiscal 1999-2000 was fairly impressive. Sales turnover rose 17 per cent to Rs. 172.72 crores compared to the corresponding previous period. Operating margins remained fairly steady around 14 per cent. The interest-coverage ratio improved from 0.88 times to 1.10 times while the gearing is comfortable. In previous years, the earnings performance was affected by higher interest expenses and depreciation charges on investments made for capacity expansions.

The changing face of the automobile industry will be a key factor in determining the company's future. The ability to tap the demand for shock-absorbers in the new generation vehicles to be introduced will be critical for sustained growth. If the improvement in the automobile industry sustains, the company's cash flows are not likely to come under pressure.