Gabriel India Ltd''s (Gabriel) CRISIL ''A'' rating indicates its highly diversified revenue base and its leading position as the second-largest supplier of ride control products in the domestic automobile industry. Gabriel services all three automobile segments — passenger cars, two-wheelers and commercial vehicles — and maintains strong relationships with almost all the large players in these segments. Further, its technical tie-ups with global automobile players — Arvin Meritor Inc. of USA, APA-Kayaba of Spain and Kayaba and SOQI Inc of Japan — have enhanced its product development capabilities and enabled it to win original equipment manufacturer (OEM) contracts.

The rating also reflects the improvement in Gabriel''s capital structure and its debt protection ratios. With a 12 per cent increase in its top line and in the absence of any significant capital expenditure, the company used its cash flows to repay its debt. This brought down its gearing to 1.16x as at March 2004 from 1.74x as at March 2002. Its net cash accruals to total debt ratio rose to 0.21x in 2003-04 from 0.11x in 2001-02, while its interest coverage stepped up to 4.85x from 2.1x in this period. CRISIL expects a steady improvement in these ratios in the medium term.

These rating strengths are, however, tempered by decreasing margins stretched by pricing pressures from input (steel and aluminium) price hikes and its increasing dependence on OEMs, who accounted for 80 per cent of its sales in 2003-04 as compared to 60 per cent in 2000-01. The low profitability of Gabriel''s engine bearings business, which contributed nearly 8 per cent to its revenues in 2003-04, also hurt its margins.

Jointly promoted by Gabriel Ride Products and D C Anand in 1961, Gabriel manufactures struts, shock absorbers, front forks and engine bearings, in eight manufacturing plants at Mumbai, Nashik and Pune (Maharashtra), Dewas (MP), Gurgaon (Haryana), Hosur (TN), Noida (UP), and Parwanoo (HP). The company has an annual installed capacity of 10.7 million shock absorbers and struts, 1.95 million front forks and 13.1 million engine bearings.

The company reported a net profit of Rs0.17 billion in FY04 (Rs0.12 billion) on sales of Rs3.7 billion (Rs3.3 billion). For the nine months ended December 2004, it reported a net profit of Rs0.11 billion (Rs0.14 billion, including other income of Rs0.047 billion) on net sales of Rs3.07 billion (Rs2.74 billion).

Outlook CRISIL expects Gabriel''s topline to grow at a moderate rate in the medium term. Despite the pressures on its operating margins, the company''s financial profile is likely to improve, primarily owing to its lower debt levels.