Force Motors - racing ahead!


(TT) #22

Had a discussion with Mr Sanjay Bora, the CFO of the company. Some notes:

  1. The company always keeps two planes. The second plane was sold off to VRL Logistics, therefore this additional plane has been purchased.

  2. The top executives and sometimes engineers need to travel to the Pithampur plant on a very regular basis and sometimes on urgent basus as a majority of their production is in that plant. Pune plant makes only tractors.

  3. Having a plane saves immensely on time and traveling to Indore by commercial flight would be subject to fixed timings, which lead to executives having to get there a day in advance or tying up the entire day waiting for the fixed commercial flight.

  4. He said that the planes are used very frequently and almost always by operational staff and not the MD and Chairman. He said that the utilization is very “effective”.

  5. The planes are not chartered out to third parties when not in use. The reason for this is that the company would have to get a commercial passenger charter license from the DGCA and this kind of diversification is not something the company wants to undertake. The CFO pretty categorically said this is not something we want to get into.

The above is a summary and not my personal views. It may be possible that the planes actually do help free up a significant amount of time for the executives. Verdict is up to the public.

Edit: added point 5 that I missed earlier.


(Vijay Dosapati) #23

Thanks for the initiative @Leading_Nowhere. I have mailed them a couple of times regarding their products and possibility of holding a conference call, but did not get a reply. Its good to know that they are responding atleast now.


(TT) #24

I think this is the best time to ask questions because they are obligated to respond to any queries pertaining to the financial statements prior to the AGM. This is in fact recorded in the notice to the AGM, which says that any queries pertaining to the accounts may be raised at least 15 days before the AGM and shall be responded by the company.

The sense I get is, you should ask certain genuine queries relating to the accounts or something that is not fully clear from the financial statements, and once you get the relevant person on the phone, you can have a chat regarding anything you like.

The gentleman also repeatedly recommended that I attend the AGM and pose any questions in person, so if you live in Pune and are a shareholder, I don’t see why you shouldn’t give a shot at attending (actually, it would be a great service to us all!).


(amil) #25

Highlights of the AGM (excerpts from chairman’s speech and
Q&A in no particular order)

Targeting 40K vehicle sales FY17 (I reached the meeting a bit late so missed
this part of the speech, got this from someone).

Domestic sale is their main focus. Exports are
not specifically a focus right now (though they do it currently in a minor
way). But target markets could be Sri lanka, Nepal, Africa, ME

Vehicles business: Traveller has approx 67%
market share (don’t know how the market
is defined). Trax and tractor volumes also are growing well

Traveller range has different series – an
ambulance traveler features are a lot different from a school bus to a travel
operator vehicle

Components biz (a lot of qtns were asked on
component business and, like previous year, management answers were very
limited citing confidentiality reasons given that Merc n BMW are fierce competitors)

Chennai facitiy was inaugurated last year. This
year, Chakan facility was commissioned exclusively for Merc (150Cr capex). They
have been supplying since 1997 to Daimler (merc?) and when a plant is
commissioned, it is of course to maintain very long term relations.

No guidance, no. of engines supplied, split
between Merc/BMW, Cap employed for this business etc was shared citing
confidentiality reasons

Asked for segmental reporting, Chairman cited “We
operate only in one segment and as per regulations required, we are supplying
as much info required and we are in no obligation to share anything more than
what we are disclosing”. “I am not obliging to shareholders, but I am
protecting the company by not sharing confi. info.” “Suffice to say, we are
going in right direction and business is growing well”. (I observed the same tone in last 2 AGMs that I have attended, and to some
extent, I buy the Chairman’s point. Of course, I do not deep dive like most expert
valuepickrs do, so opinions may differ here)

1200 capex target for 5 years (came up during Q&A n I missed it, if
anyone has attended, please share the details)

No target (segment %) sales b/w Auto,
engines/axles, tooling business. We are open and dedicated to all business growth

Capex to increase capacity really means bringing
efficiencies, debottlenecking. There is no ‘defined capacity’ in auto plant.
E.g. I will be able to make x times more Trax than Traveller in my same plant
if the demand requires it. So it is more of efficiency management, streamlined
process to avoid blockage/pile-up and so on.

Fx risk is hedged (anyone attended please elab)

Force One vehicle is largely decommissioned. Don’t
expect to see large growth in Minidor (but
may draw new designs for another 4 wheeler last mile vehicle?) (in my opinion,
the management avoids commitment bias and have willingly stopped Force One when
that product was not successful)

We need to constantly monitor the changing fuel
mix and new technologies in fuels. But diesel is expected to remain mainstay
for considerable period. Petrol in heavy duty vehicles not really a nice
choice. CNG vehicles growth gets hampered due to gas infrastructure being
limited to certain cities (e.g of Pune where every evening from 7 to 11, you
will see a huge queue at XYZ CNG station). Electric vehicle technology needs to
be monitored but how much will it be commercially viable needs to be seen. E.g.
US now has as many half electric stations as gas pumps. It took them 20? Years to
build this. While elec vehicles may get cheap to produce, supporting infra is
imp for it to be made commercially

Chairman was very critical of ad-hoc govt
policies and how it is not in right interests of the industry (lot of discussion done in MD&A already
so not repeating it here). Diesel engines are recognized world-wide for the
engine efficiency, load capacity, etc. We cannot solely blame Diesel as a main
pollutant factor. Need a robust and predictable regulation (and not ad-hoc
bans/uplift of bans). Example of how this affects the business – CNG vehicle
sales were approx 20 vehicles (per month?) and when diesel ban was announced,
it shot to 220 vehicles (per month?) and then when the ban was lifted, it comes
down to 30odd vehicles. How are companies expected to strategize and manage
their supply chains and vendors/distributors for such fickle scenario?

Company is focusing a lot of efficiency,
de-bottlenecking, I.T. upgradation and waste management. However, a many of these
things need to be engrained in company culture, which is slow in India (and then he raised the point below)

IR dispute is resolved by SC after a long period.
On an informal basis it was more or less not a deterrent. But formal judgement
by SC has come. “Some employees do not think of company as their breadwinner
and career. They just think of companies as greedy capitalists and just want to
create nuisance for their political motives”. Chairman, as also in last year,
was making very strong statements that non-sense by employee unions will not be
tolerated (I saw many employees, who were also shareholders, seated in the
meeting – signaling bias?). Now only 70-80 people remain who have not accepted
the formal settlement and are creating nonsense (out of <400 people in pune
and totally 8000 people across the company).

Now 90-95% production is not dependent on Pune
plant and all their plants function independently so IR disruptions at one
place do not affect the operations at other plant.

GST, according to Chairman, is just media hype
and old wine in new bottle kind of thing (words
are mine here). Multiplicity of taxes, confusion and favorable/unfavorable
structure of tax will still remain. “What will happen once GST comes, nobody
knows”. Most companies are unprepared and writing rules, creating website and
online interface doesn’t make GST work right away

Disc: Invested. Views are personal. Example and data is
unverified and is mentioned ‘as is’ in the AGM


(TT) #26

Great stuff, thank you.


(vibs6615) #27

Does someone know how many vehicles they sold in 2016?


(amil) #28

Check AR, 33354 vehicles
Split not provided. but broad classification can be done by summing monthly disclosed volumes fm BSE website


(kailasp4u) #29

Growth numbers in sales/profit for Sep-16 do not seem to be in line with quantitative sales data shared to exchanges on monthly basis. Is there inventory build up or some other reasons?


(vibs6615) #30

Why do you think so?


(kailasp4u) #31

The numbers reported on monthly basis indicated close to 20-23% growth in sales. Whereas actual sales growth reported in around 12%.


(vibs6615) #32
  1. That was one month number, right? The result is for entire quarter
  2. Sales of vehicle is one aspect of business. The other two are Component sales and supply of engine to Merc and BMW. So the quarterly result is inclusive of all of these. So there is bound to be a difference between monthly sales figure and overall quarterly result.

If you look at overall basis, PAT is still 17% up on YOY for Q2 basis and its for H1FY17 its 30.6% up. This is significant. We should not be judging basis one quarter alone. Their product mix is improving, Merc is doing very well in India now and that would be an advantage for FM. At the same time overall auto industry is on a growing trajectory. So I think all starts are aligned.

Disc: Invested


(vij) #33

Guys, do you think Force motors is a good bet to enter at this point. It’s run up so much. It has a sketchy past until the last few years, so worried if the management cant fulfill the potential.


(TT) #34

July 16 had flat sales, August 16 had 10% growth and September 16 had 13-15% growth - where do you get this growth number of 20-23%? The sales numbers are right in line with the monthly disclosures.


(Arpit Jain) #35

Would Force Motors’ manufacturing of engines for BMW, Merc be affected now due to demonetization? There is a huge probability that the sales of high end luxury cars comes crashing down in the near-medium term. Is it going to affect the topline of Force Motors significantly?


(aashish2137) #36

Auto sales are severely impacted. A friend had booked Baleno and waiting was 17 weeks. Yesterday he got a call asking to take delivery. That’s the level of cancellations that’s happening. It will be even more for luxury cars.


(manjushree) #37

But even earlier, you were supposed to give PAN for purchasing cars.


(TT) #38

Sales of second hand cars, especially commercial vehicles, are high in volume and almost entirely in cash.


(weblinsolutions) #39

Aashish, isn’t this a temporary effect? People have delayed their purchased to get better discounts and to hold money in their bank account till the situation gets cleared. That must be the reason for these cancellations. How are cars bought via black money? Aren’t first hand car transactions reported to the IT department?


(StockDoc) #40

Aren’t a majority (not all) of cars purchased through loans with the down payment mostly being made in cash?

Obviously the seconds market is largely dealt with in cash which will result in new car purchases falling as that money is largely used to fund new car purchases.


(aashish2137) #41

@weblinsolutions, @StockDoc, atleast in NCR, a lot of purchases were made in cash despite the PAN requirement. But the impact is more from a liquidity point of view than fundamental.

Here’s an expert discussion from an auto based forum that might throw more light on the subject: http://www.team-bhp.com/forum/indian-car-scene/181573-effect-rs-500-1000-note-ban-indian-car-industry.html