Force Motors rallies, up 27% in 5 sessions; more steam left?

NEW DELHI: Shares of Force Motors jumped over 4 per cent in Tuesday’s trade, taking its five-day gains to nearly 27 per cent, thanks to an expected pickup in discretionary spend and revision of circuit limits on the counter.

The stock rose 4.44 per cent to hit a high of Rs 2,948 on BSE after reporting higher vehicle sales for September on a month-on-month (MoM) basis. It eventually closed at Rs 2,861.50, up 1.38 per cent.


BSE has also raised the circuit limit for the stock to 20 per cent from 5 per cent earlier.

The scrip has been on a roll, surging as much as 140 per cent year-to-date, as the Pune-based automaker plans to triple its revenue to Rs 3,000 crore in three years, driven by its contract manufacturing business for leading automobile companies like Mercedes Benz and BMW.

Brokerage IndiaNivesh is bullish on the long-term prospect of the company, as it believes the picture will change dramatically for the automaker by FY20, with the company’s auto component segment contributing 54 per cent of revenues from 30 per cent at present.

The brokerage feels the automotive sales contribution for the company would fall to 44 per cent by then from 68 per cent of the total revenue at present. “With higher volumes, operating leverage would kick in, which could mean an Ebitda margin of close to 10 per cent and NPM of around 7 per cent in 2020. This would result in a net profit of Rs 439 crore and EPS of Rs 334. With such consistent sales growth at 22 per cent CAGR, profit should expand at 37 per cent CAGR over FY15-FY20E,” the brokerage said.

IndiaNivesh believes the multiples for the company can easily expand to 30 times, giving a price target of nearly Rs 10,011 in 2020. For now, it has initiated coverage with a price target of Rs 3,150.

Force Motors is a fully vertically integrated automobile company, which has been assembling engines for Mercedes for the last 18 years. It has also commenced assembling engines exclusively for BMW at a new plant near Chennai from January.

“Considering the growth in the luxury car segment, we see strong revenue visibility from the auto component business, which will help overall margin expansion. It is a net debt-free company, sitting on cash and cash equivalents of around Rs 290 crore (Rs 220 per share) as of March 31, 2015. At current market price of Rs 2,457, the stock is trading at 15.6 times FY17e earnings,” IndiaNivesh said.