Ucal Fuel Systems: Injecting risk?

Sowmya Krishnan

THE fixed deposit programme of Ucal Fuel Systems is suitable for investors willing to take moderate risks.

The rates are comparable to those offered by companies in the same risk class. Considering the increasing gearing and the pressure on operating margins, investors can look at the one-year option and avoid the rest. Risk-averse investors can stay away.

Scheme features: Ucal Fuel Systems accepts fixed and cumulative deposits. The interest rates on the former are 10 per cent, 10.50 per cent and 11 per cent for one, two and three years respectively. The interest is payable quarterly.

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For the cumulative deposits, the interest rates translate into effective yields of 10.47 per cent, 11.63 per cent and 12.97 per cent respectively for the same tenures. The minimum deposit amount is Rs 5,000 and, thereafter, in multiples of Rs 1,000. Further details can be obtained from the registered office at Raheja Towers, 5th floor, Delta Wing Unit 505, 177, Anna Salai, Chennai 600 002.

Business: Ucal Fuel Systems makes carburetors and electronic fuel injection-related products for two- and four-wheelers, in technical collaboration with Mikuni, Japan, which has a 26 per cent stake in the company. It supplies primarily to original equipment manufacturers (OEMs). The company's customers include Maruthi Udyog, TVS Suzuki and Hero Honda. The company's fortunes are linked to the car and motorcycle segment. Though the growth in car sales was sluggish, that in the motorcycle segment was encouraging. This has enabled the company maintain a decent topline growth. The recent shift in the product mix towards components for fuel injection systems from carburetors would increase volumes for fuel injection systems from the motorcycle segment.

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However, the company's operating margins were under pressure due to the high import content of raw materials and increasing interest costs. The interest costs rose 23 per cent for the half-year ended September 2001 over the corresponding previous period. However, the interest coverage is comfortable at four times for the same period.

Financial track record: The financial performance of Ucal Fuel Systems was satisfactory for the year-ended March 2001. It recorded a 39 per cent increase in net profit against a 29 per cent growth in sales. However, its profitability has come down this year. For the half-year ended September 2001, it recorded a 23 per cent decline in net profits (Rs 5.32 crore) against a five per cent sales growth (Rs 82.92 crore).

Ucal Fuel's profitability depends on its ability to reduce its dependence on imported components and higher concentration in the two-wheeler segment, which is expected to grow. However, it might not find it difficult to service its deposits in the short term. Therefore, a short-term investment can be contemplated by an investor willing to take that extra bit of risk.