Wanted some help with this one if anyone can…looks to me like its trading around 1800 Cr. Mcap and has 1780 Cr. in reserves? Is this right?
Plus the price to FCF is negative PEG is under .20 and under 1 PB.
While I understand the concerns on growth in the short term, wondering if this is a value trap or really a diamond in the rough (considering tie ups with RR, BMW and Mercedes) for a 3-5 year time frame?
Thoughts please…Thank-you
The management quality is vital when we look at reserves. Please have a look at the quality of management at Force Motors.
Their cash reserve is only 50cr. Rest are in fixed assets, receivables and investments. Reserves does not mean much by itself other than maybe if it is not negative we know that the company had been profitable in prior years.
Could you please elaborate what do you mean by this? If you meant that management is not good, could you please highlight what made you say so. I am a shareholder and will be keen to know all the negatives. Thanks!
You broadly mentioned about reserves which include assets controlled by the company. You would have to be careful with the quality of management to expect them to utilize the reserves to generate future cash flows. A company going through temporary downturn may be able to come back if it can utilize their reserves. But do you trust the management to do that? How are they able to manage capacity? Can they find avenues to utilize their fixed assets?
More over you would have seen them argue that they need a plane to ferry employees (which is hard for me to believe). That is not a great utilization of resources considering their size.
I have compiled their monthly sales data since 2017. It can be observed how sales has been on a declining trend on a monthly basis compared to YoY since August 2018. There has been an uptick in the last 3 monthly sales data reported which seems to be a good sign in this overall auto slowdown.
The price has taken a bashing and is making a new 52Wk low on a daily basis. The current price is almost down to 2014 level where the Company was doing 78cr of yearly profit which has now increased to 147cr translating in to EPS of 112 compared to 58.
Some more pain may be left in the counter but risk reward ratio seems to be in favor at CMP
Force sales data.xlsx (14.3 KB)
I follow the company and we are invested. Could not attend the AGM
Please can someone share the AGM, management meeting notes. Thanks in advance
IBEF: January 27, 2020
Force Motors, which is the market leader in inter-city commuter vans, plans to invest Rs 600 crore (US$ 85.85 million) in order to develop two new models over the next two years.
By the end of the year, company plans to launch these proposed new models in the shared mobility space from its soon-to-be-launched premium platform, under the code-name T1N, which is an export-focused premium van developed with an investment of Rs 1,000 crore (US$ 143.08 million).
“We have lined up Rs 600 crore (US$ 85.85 million) in fresh capital investment to develop two new models for the next two years. These new vehicles will come out from our next generation monocoque platform coming up at our Pithampur, Indore, works for T1N,” said Mr Prasan Firodia, managing director, Force Motors.
The company is the largest van maker in the country with a market share of over 68 per cent, last week, introduced the van ‘T1N’, which will be mostly exported.
The BS VI-compliant vehicle will also be available in electric and CNG versions and has been developed over the past four years at an investment of Rs 1,000 crore (US$ 143.08 million).
The company is developing an entirely new body shop with robotic and laser-welding facilities having an installed capacity of 35,000 units for T1N. The van is an 18-seater van that boasts 25 industry-first features.
Mr Firodia said that this new premium van will be export-focused and the Firodias, who were the pioneers of autorickshaws in the 1950s, will begin shipping the van to the Gulf markets first followed by North Africa, South Africa, the ASEAN, South America and the SAARC regions.
The company want to utilise this van to be the springboard to become a global automotive company, said Firodia on the rationale for launching a premium commuter van.
Force Motors, which is the Pune-based company, selling two commuter vans Trax and Traveller, nets almost 50 per cent of its income from its engine supply business with Mercedes and BMW now. The company has also agreed with Rolls Royce to supply engines.
In the quarter to September, Force had reported an 84 per cent drop in net income to Rs 4.2 crore (US$ 0.60 million) on a revenue of Rs 818 crore (US$ 117.04 million), which was down 5.6 per cent.
The company’s association with Mercedes dates to 1997 when Daimler AG decided to manufacture Mercs in the country. Till now, it has supplied over 1,15,000 engines to Mercedes Benz India from its state-of-the-art dedicated facility at Chakan near Pune.
Likewise, in 2015, Force was given assignment by BMW to produce and test the engines for all cars and SUVs to be made in the country. Thus, according to the need, it developed a dedicated factory closer to the BMW plant in Chennai and has supplied over 45,000 engines to the German luxury car maker.
Force Motors entered in a joint venture (JV) with Rolls-Royce Power Systems AG in March 2018, to manufacture and supply worldwide, the 10- and 12-cylinder, series 1,600 engines for power generation and under-floor rail applications. The JV is scheduled to take off from April.
I am invested in force motors from some few months and saw that the price just went down.
Although with good sales numbers it recovered but with covid-19 lockdown, do you see any impact.
Since travelling and adventure destinations may remain out of bound for few months. I see the coming impact on the company
Going through the force motors swot and see that electric vehicle can be gamechanger. How big that impact can be in near future?
Waiting for the results to throw improvement but last two months might have taken the sheen off.
Should this company can be long term hold at this price?
Experts please help
Force is a long term hold, traveller, BMW, Mercedes, EV, Rolls royce, Buses. This is good time to keep buying in SIP manner. Very low debt, will survive COVID 19.
Any body tracking the developments here . Last week after June sales data ,stock is on fire up 30% crossing 52 week high . The volumes traded also are huge and unprecedented in its trading history . I think something cooking beneath . If any body has any info pls share.
Anyone still tracking this? Out of favour for a long time now, but given the strong sales being reported by the luxury auto brands in India these days, their engine division must be doing quite well. I imagine the profitability there is also better, though it’s hard to know for sure. Given they don’t report contribution from different segments separately, the only numbers we get are the production and sales data for their Commercial vehicles and Utility vehicles. They have also been working with a couple of consulting firms on cost optimization - maybe that will show up in better numbers?
Just going by volume action, it looks like some modest accumulation is happening.
Thoughts?
Shady corporate governance, promotor is interested in showing “other expenses”.
Can you please elaborate on this, so that other people can also benefit.
Management looks more arrogent types, prefer using helicopters to visit plants, poor capital allocation in force one SUV, Gurkha delayed for launch to compete with Thar however its no comparison to Thar. No updates on Rolce Royce venture though it strated in 2019, asset turnover ratio is bad.
Positives
Stock is very cheap compared to book value of 1400 something.
Mercedes, BMW business is crossing 20000 cars annually now which will cater to 1200-1400 cr revenue.
Electric traveller will be a game changer, no dates when it will come to market.
Tourism will create additional demand for travellers. Dont know if office demand will pickup as WHF concept is here to stay.
They manufacture engines for BMW. Looks like a good news for them
Seems like the CV cycle is turning for good. Managing expenses will be the key. They have a big operating leverage to be benefited from if they handle RM costs right.
If we look at the monthly numbers of Force Motors - They are improving MoM since Nov-22 (post Diwali peak)
With new product launches such as Urbania, Gurkha 5-door variant - these numbers should sustain and improve.
With 1 month to go (which is a festival month - sales should grow MoM) - Force has already crossed FY22 sales by 17% and only 424 units short of Q4 FY22 sales number.
With demand of luxury car manufacturers (BMW, Mercedes) rising - Force is also showing improvement in its ancillary (engine) business (though separate data is not available - topline increased QoQ in Q3 inspite of fall in sales data by 10% QoQ).
JV with MTU (subsidiary of Rolls Royce Group) has also started operations from FY-21 and capacity utilisation is increasing as well - This JV should cross sales of at least 300-400 Cr in FY24 with peak sales potential of 1000 Cr (Force has 51% stake in JV) - With increased localisation of RM content, EBITDA margins should be north of 14-15% in this business in a couple of years (Source - Credit rating of Force MTU Power Systems).
The stock is trading at less than 0.95x P/BV (which is very cheap considering the capabilities they have).
Even if we look at EV/EBITDA then TTM is 10.6x (this is after they posted EBITDA loss in March-22 quarter) - If we extrapolate last 2 quarters avg ebitda then EV/EBITDA comes at 8x which is very cheap for an OEM which is fully integrated and have JVs with companies such as BMW, Merc, Rolls Royce.
Price/Sales of 0.38x (TTM) - No comments but this is extremely cheap (for an OEM + Ancillary company, P/S of 1x is justifiable)
Now if we look at the financial performance :
Depreciation has increased by ~ 90 Cr since FY19 (primarily due to capex on newer platforms and BS-VI variants)
TTM Sales are already at an all time high and EBITDA margins have started improving too.
With interest cost going down (as company has started debt repayment) - we should see company turning profitable on a consistent basis.
Disclosure - Invested and biased - Please share your views (would love to discuss)
