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Force Motors 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Force Motors Ltd. (FML) reported a disappointing set of numbers for 3QFY2013. Its top-line slumped by 16.5% yoy and stood at Rs.436cr owing to 19.0% yoy decline in volumes. EBITDA fell by 31% yoy to Rs.19cr with subsequent drop in EBITDA margin which came in at 4.4% as compared to 5.3% in same period previous year. The sharp decline in margin is attributable to 421bp yoy increment in other expenses as a percentage of sales. Despite the weak operating performance, net profit revived to Rs.8cr which was 248% higher yoy; on the back of other income of Rs.9.3cr and lower tax expenses (5.4% of PBT).

Channel check suggests Traveller to drive growth: Our interaction with dealers across the country led to a unanimous opinion that the Traveller range enjoys preference among customers (Tata’s Starbus, Mahindra’s Navistar), which is mainly due to its monocoque structure. Additionally, the recently launched Traveller 26 has been successfully accepted by the market since it is far ahead of competition in terms of technology. Looking at the success of the new launch we believe Traveller will continue to contribute to the company’s growth substantially.

Outlook and valuation: FML’s recent launches could not reap the expected benefits due to macro-economic concerns, rising fuel prices and inflation which subdued the consumer sentiment. Hence, we expect FML’s top-line to post a CAGR of just 5.0% over FY2012-14E. The EBITDA is expected to drop from Rs.122cr in FY2012 to Rs.116cr in FY2014E and EBITDA margins to normalize at 5.0% in FY2014E. The net profit is to soar by 27.3% CAGR to Rs.66cr in FY2014E on the back of reduced interest cost and stable other income. FML is trading at an attractive PE of 8.9x on its FY2014E earnings. We recommend Buy on the stock with a target price of Rs.550, based on target PE of 11x on FY2014E earnings.