Recommendation from Automotive Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

FORCE MOTORS: AN AUTOMOTIVE FORCE TO RECKON WITH!

HERE IS WHY
✓   Strong presence in commercial vehicle market
✓   Tie-ups with leading global brands
✓   Strong demand for special vehicles

The Indian automobile industry has historically been a good indicator of how well the economy is doing, as the automobile sector plays a key role in both macroeconomic expansion and technological advancement. India has a strong market in terms of domestic demand and exports. The Indian passenger car market was valued at USD 32.70 billion in 2021, and is expected to reach a value of USD 54.84 billion by 2027 while registering a CAGR of over 9 per cent in the period 2022-27. Keeping in mind the growth of Indian automobile industry, our choice scrip for this issue is Force Motors Ltd.

Force Motors is a leading Indian automotive manufacturer, established in 1958 by N K Firodia. Today, Force Motors primarily produces commercial passenger vehicles. Its range includes small commercial vehicles (SCVs), multi-utility vehicles (MUVs), light commercial vehicles (LCVs), and special vehicles such as off-roaders, and recreation and military use vehicles. The company’s customer base comprises several industries and sectors, including government agencies, public transportation and logistics. In Q4FY24, on a consolidated basis, the company’s net sales increased by 34.96 per cent YoY to ₹2,011.21 crore compared to ₹1,490.25 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 18.89 per cent. The PBIDT excluding other income increased by 130.80 per cent to ₹278.64 crore YoY as compared to ₹120.73 crore from the previous year’s same quarter, while sequentially it increased by 24.12 per cent.

Its profit after tax (PAT) stood at ₹136.81 crore compared to ₹149.24 crore, a YoY decrease of 8.33 per cent, while sequentially it increased by 44.25 per cent from ₹94.84 crore. Force Motors is fully vertically integrated, making its own engines, chassis, gear boxes, axles, bodies, etc. for the entire product range. Over the last five decades, the company has partnered with leading global automotive companies such as Daimler, BMW, Rolls-Royce, ZF, Bosch, MAN and others. Through these associations it has developed the necessary expertise in-house to harness the latest advances in technology and develop relevant mobility solutions.

The company supplies aggregates like engines, axles and components to leading premium car manufacturers in India, including Mercedes-Benz India and BMW India. Force Motors has a formidable product range in all segments, be it small commercial vehicles, light commercial vehicles or multi-utility vehicles. It exports its range of products to various countries in the Middle East, Asia, Latin America and Africa. The Indian commercial vehicle market is expected to see continued growth driven by infrastructure development, government spending and a rise in e-commerce activity. Force Motors is well-positioned to capitalise on this with its LCV and special purpose vehicle offerings. The company also caters to niche segments like traveller vans and special application vehicles. This focus on such less competitive segments allows it to carve out a strong market share. Its shares are currently trading at a PE of 28.8 times as against the industry PE of 28.1 times and three-year median PE of 32.8 times. The company has delivered average ROE of 18.8 per cent and ROCE of 23.8 per cent. Considering the company’s business and growth of the Indian automobile industry, we recommend BUY.