Force Motors an underperformer: Prabhudas Lilladher

1425 Investors following Force Motors. Share this News with them.

0

Like this story, share it with millions of investors on M3

Force Motors an underperformer: Prabhudas Lilladher

Broking house, Prabhudas Lilladher is bearish on Force Motors. It has downgraded the stock to underperformer.

Post your opinion here

 

0

Tweet

Share on Tumblr

Broking house, Prabhudas Lilladher is bearish on Force Motors . It has downgraded the stock to underperformer.

The Prabhudas Lilladher report on Force Motors:

Q4 FY06 result update - disappointing results

"For yet another quarter Force Motors has announced disappointing results. At the operating level yet again it dipped into the red, reporting Rs 281 million loss. Net sales in Q4 slipped 10.7% yoy, to Rs 2.67 billion, while the mounting costs of raw materials (coupled with reduced inventory) and higher staff costs contributed to the slide."

"The combined effect of higher depreciation and interest, and lower 'other income' resulted in Rs 110 million loss. However, as a result of two extraordinary items, the company reported a PAT of Rs 267 million. Force Motors retrospectively changed its method of providing depreciation - from WDV to SLM. This has resulted in an extraordinary gain of Rs 797.7 million (net of tax expense, the gain is Rs 478 million). The other extraordinary item was on account of the change in accounting policy for charging gratuity payable. This has resulted in an extraordinary loss of Rs 152.1 million."

"For the year, Force Motors reported net sales of Rs 9.34 billion (a 9.1% rise) despite sales volumes dropping 3.3%, to 35,398 units. However, tractor volumes reported a gain of 11.1%, to 4,461 units. As a result of persistent operating level losses in three of the four quarters in the year, and because of higher depreciation and interest, it reported a Rs 395 million loss. However, as a result of the aforementioned extraordinary items, the company was able to report Rs 301 million in PAT."

"Considering the poor results for FY06, the decline in vehicle volumes for the first two months of the financial year, and a none-too-positive outlook for the current fiscal, we are downgrading the stock to Underperformer.

Man-Force JV the only bright spark

"The JV - Man Force Trucks - between Force Motors (with a 70% stake) and MAN Nutzfahrzeuge was signed only in April 2006, after being in the works for over eight months. It will manufacture vehicles at the Pithampur plant, with capacity to roll out 24,000 vehicles. Force Motors is to build cabs, axles and engines for this JV, which would manufacture long-haul trucks, semi-trailer tractors and tippers and special purpose vehicles with different axle variants."

"The JV would also manufacture components that Man would source for its global operations. While earnings from these operations have not been factored into our Force Motors' estimates, we expect the JV to report a PBIT of approx. Rs 650 million (by FY09) and an RoCE of a mere 8%. These estimates do not enhance in any way the attractiveness of the stock."