Force Motors - 2QFY2013 Result Update - Angel Broking

Force Motors Ltd (FML) reported a healthy set of numbers with robust performance on the operating front for 2QFY2013. The company's top-line de-grew by 4.7% yoy and came in at Rs.504cr, lower than our estimate of Rs.534cr. On the operating front, the EBITDA grew by 11.6% yoy and came in at Rs.31cr while margins too expanded substantially by 89bp yoy and 273bp qoq and came in at 6.1%. The adjusted PAT came in at Rs.19cr, 351% higher yoy, compared to our estimates of Rs.11cr; owing to strong operating performance aided by a substantial other income of Rs.13cr.

Launch of Traveller 26 with branding, marketing efforts to drive growth: FML has recently launched ‘Traveller 26' in October12 with three variants- standard, school bus and deluxe. The company expects to sell 4,500 units in the first year of its launch and thereby aiming to acquire a 20% market share in this segment. FML has restructured its marketing and branding team with the appointment of Mr Naresh Ratan (ex Marketing Head at HMSI) as Chief Operating Officer (COO) for the tractor business and as President of Corporate Sales and Marketing. Also, FML has a substantial cash surplus in hand and is expected to invest a considerable amount of it on branding and marketing of the products. Thus, the new launch, complimented by branding efforts, assures robust revenue visibility for FML.

Outlook and valuation: We believe FML's recent entry into the SUV segment coupled with the launch of Traveller 26, will enable it to post a top-line CAGR of 13.8% over FY2012-14E to Rs.2,700cr. The net profit is to soar by 46.8% CAGR from Rs.41cr in FY2012 to Rs.88cr in FY2014E on the back of reduced interest cost and stable other income. FML is trading at PE of 6.7x for FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.537, based on target PE of 8x and implied EV/Sales of 0.2x for FY2014E.

Source : Equity Bulls

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