Fundamental Analysis Of Force Motors: Transportation is necessary for trade and commerce to exist. Successful businesses and the economy both rely on the movement of people. In light of the COVID lockdown and resulting slowdown in the economy, we have begun to observe a recovery in business, and this growth is reflected in the price of its shares. In this article, we’ll analyze Force Motors fundamentals as a company that deals in commercial vehicles for the auto industry.
In this Fundamental Analysis Of Force Motors, we’ll analyze its operations, segments, fundamentals, industry, future plans and more..
Table of Contents
Company Overview
N.K. Firodia founded the company in the commercial transport sector in 1958. Jaya Hind Industries, which provides end-to-end solutions for the automotive industry, holds most of the 61.63% of the promoters’ stake. The public owns 31.85% of the stock, followed by FII (4.94%) and DII (1.58%). More than 8500 people are employed at its manufacturing locations in Tamil Nadu, Madhya Pradesh, and Maharashtra.
They engage in internal supply chain production, which gives them better control over the creation of accessories and makes them more resilient to supply chain shocks for automobile components.
Segment Analysis
Force motors are only used in one market: commercial vehicles like agricultural tractors, small and light commercial vehicles, multi-utility vehicles, and special vehicles.
It holds around 65% of the market share in LCV. The company sells goods to several nations on continents such as the Middle East, Asia, Latin America, and Africa.
As the company has partnerships with various automakers, Force manufactures engines in their hub for automakers like Mercedes-Benz and BMW.
Industry Analysis
The Indian Automobile Sector is witnessing growth due to the rise in income and population and the availability of Credit Facilities. In FY23, Commercial Vehicle Sales stood at 9,62,468 units.
The Industry can benefit from cost-effective measures ranging from 10% to 25% as compared to countries like Europe and Latin America.
Regarding EV Space, the automotive industry is going through significant change. To keep up with industry standards and current market trends, Force Motors is transitioning its products to EVs.
Compressing the carbon elements in the atmosphere requires clean energy, and Commercial vehicles contribute emissions to a significant portion.
The industry can benefit from the successful adoption of EVs in commercial vehicles because these vehicles are primarily used for long-distance passenger and logistics transportation.
By offering subsidies like FAME (Faster Adoption and Manufacturing of (Hybrid&) Electric Vehicles in India) and several PLI (Production Linked Incentives) schemes to switch to greener energy from fossil fuels, the Indian government has encouraged enterprises to enter the EV market.
Financials Of Force Motors
We shall examine Force Motors fundamentals using annual reports as our source.
Revenue and Net Profit
In FY23, Force experienced growth of 55.2%. From Rs. 3240.42 cr in FY22 to Rs. 5028.98 cr in FY23, revenues skyrocketed due to an increased rate of vehicles and volume growth.
Due to disruptions during the Covid period, margins were under pressure to fixed costs, Net Profit increased from a loss in FY22 of Rs.-90.99 cr to a profit in FY23 of Rs.133.74 cr. Earnings remain volatile till the volume stabilizes.
| Financial Year | Revenue (Cr.) | Net Profit |
|---|---|---|
| 2022-23 | 5,028.98 | 133.74 |
| 2021-22 | 3,240.42 | -90.99 |
| 2020-21 | 1,988.19 | -123.54 |
| 2019-20 | 3,080.52 | 50.27 |
| 2018-19 | 3,652.45 | 143.42 |
| CAGR (4 Years) | 8.33% | -1.80% |
Profit Margins
Operating Profit Margin (OPM), which had increased by 2% in FY22, increased by 6.5% for the firm in FY23. Fixed costs held down the margins in FY21 and FY22 and the margin recovered in FY23 due to sales recovery.
Similarly, it reported a 2.66% Net Profit Margin (NPM) in FY23 as opposed to -2.81% in FY22. This is a result of rising depreciation expenditures as well as ongoing interest expenses.
| Financial Year | OPM (%) | NPM (%) |
|---|---|---|
| 2022-23 | 6.50% | 2.66% |
| 2021-22 | 2% | -2.81% |
| 2020-21 | 0.65% | -6.21% |
| 2019-20 | 8.72% | 1.63% |
| 2018-19 | 7.63% | 3.93% |
| Average (5 Years) | 5.10% | -0.16% |
Return Ratios
Force has RoE 7.38% in FY23 as compared to -5.08 in FY22. This indicates a Net Loss in FY22 did not fare well with the returns. The business rebounded from lows from Covid Lockdowns as we saw improvement in returns.
In the RoCE part, the company had 12.07% in FY23 as compared to -3.35% in FY22. Force Motors utilized its resources efficiently as RoCE was greater than RoE in FY23.
| Financial Year | RoE | RoCE |
|---|---|---|
| 2022-23 | 7.38% | 12.07% |
| 2021-22 | -5.08% | -3.35% |
| 2020-21 | -6.50% | -6.21% |
| 2019-20 | 2.58% | 3.11% |
| 2018-19 | 7.68% | 10.22% |
| Average (5 Years) | 1.21% | 3.16% |
Debt Analysis
In comparison to 0.61 in FY22, Force had a 0.51 Debt to Equity (D/E) ratio in FY23. From FY19 to FY23, there was a recent upward trend in debt accumulation to capital structure; however, in FY23, there was a downward tendency.
In FY23, interest coverage was 4.98 times, but in FY22, it was -2.16 times. Interest coverage was hampered by inconsistent earnings and increased debt to fund operations, which caused it to be negative in FY21 and FY22.
| Financial Year | Debt/Equity | Interest Coverage |
|---|---|---|
| 2022-23 | 0.51 | 4.98 |
| 2021-22 | 0.61 | -2.16 |
| 2020-21 | 0.35 | -5.23 |
| 2019-20 | 0.16 | 2.51 |
| 2018-19 | 0.15 | 13.4 |
| Average (5 Years) | 0.35 | 2.7 |
Future Plans Of Force Motors
1. Force Motors, with existing partnerships and joint ventures like Mercedes-Benz, BMW, and Rolls-Royce, has witnessed volume growth in producing engines in India. Some plants are dedicated to engine manufacturing for those automakers, and with market stability, there is scope for growth.
2.The business has begun making inroads into the EV commercial vehicle market through research and development, which accounts for 5.26% of revenue in FY23 as opposed to 5.94% in FY22, which determines the success of delivering new goods in the EV space.
Commercial vehicles differ compared to the two- and four-wheeler segments due to the fact they require a high battery range for long distances while remaining cost-effective.
3.The organization has been continuously training employees in both soft and hard skills as well as in selling techniques, which will help to increase the customer base.
4.To strengthen its position in the commercial vehicle market, the firm is trying to introduce new vehicles, such as the recently released “Gurkha” SUV and the in-development “Urbania” van.
Key Metrics of Force Motors
We are near the end of Fundamental Analysis Of Force Motors. Let’s take a look at some key metrics of Force Motors.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | Rs.3,352.35 | Market Cap (Cr.) | Rs.4,726.33 |
| EPS | 166.06 | Stock P/E | 21.60 |
| RoCE (%) | 12.07% | RoE (%) | 7.38% |
| Promoter Holding | 61.63% | Debt to Equity | 0.51 |
| Operating Profit Margin (%) | 6.55% | Net Profit Margin (%) | 2.66% |
| Enterprise Value (Cr) | Rs.5,863.68 | Dividend Yield (%) | 0.86% |
Conclusion
As we conclude the article about Fundamental Analysis Of Force Motors. With the amount of sales attributable to the market’s demand, The increase in margins is likely to stay intact with volume.
Force Motors will seek to dominate the commercial vehicle industry. Such an approach can aid the firm in stabilizing its profitability and strengthening its capital structure. A better strategy for boosting sales is to enter the EV market.
What is your view on Force Motors? Will it command the market share in EVs too? Let us know your views in the comment section below.
Written by Santhosh
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