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Force Motors becomes a 5 Bagger for Porinju Veliyath

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On 10 July 2014, after accumulating the required quantity for his PMS, Porinju Veliyath published the research report on Force Motors. The report showcased the cheap valuations of Force Motors at the price of Rs.475 and potential upside it can have in the near future. Also on July 11, he tweeted that Force Motors is a compelling by at then price of Rs. 445.

Below are the reasons given in the research report

  • Force  Motors  is  a  fully  integrated  automobile  company,  with  expertise  in  design, development  and  manufacture  of  vehicles  and  the  full  spectrum  of automotive components thanks  to  collaborations  with  leading  global  auto  companies like Daimler , ZF, Bosch and MAN over the last five decades.
  • Pioneer of the Light Commercial Vehicle (LCV) Industry in India that delivered iconic brands  like  the  Tempo,  Matador,  Minidor  and Traveller enjoying over 50% market share in the segment. 
  • Range  includes  Small  Commercial  Vehicles,  Multi-Utility  Vehicles  (MUV),Light Commercial Vehicles (LCV), Sports Utility Vehicles SUV) and Agricultural Tractors.
  • Forayed into the passenger vehicle segment in 2011 withthe Force One SUV which was met with muted response. The company is expanding its presence in  this segment  with  the  Force  Gurkha,  a  niche  off-road  vehicle  which  is expected to be launched soon.
  • The  company  has  a  long  standing  relationship with  Mercedes-Benz  and assembles  engines  and  other  aggregates  for  the  entire  range  of  Mercedes luxury  cars  assembled  here.Mercedes is aggressively  expanding  its  Indian product portfolio with the launch of more volume products and Force stands to be a big gainer.
  • The  company  has  plants  in  Pune  and  Madhya  Pradesh  and  has  proposed setting  up  a  manufacturing  facility  in  Tamil  Nadu  by early next  year  to manufacture   and   assemble   engine-gearbox   for BMW. Association   with Global   majors   such   as Mercedes   and   BMW is   testament   to   the high standards of quality the company adheres to.
  • In FY14, the company clocked revenues ofRs 2100 cr and net profit of Rs 80 cr.  The company  is  debt  free  and  asset  rich  with  Rs  220  cr  cash  on  the balance  sheet  and  significant  landholdings.At  Rs  630  cr  market  cap,  itis trading at nearly half its Book-Value!
  • Investors’ perception of the management has  taken  a  beating,because  of the  purchase  of  an  aeroplane  for  Rs  140  crand  paying  Rs25  Cr  for  charity, while the dividend pay-outwas just Rs 4 Cr.We take it lightly as it looks like a one time hiccup!
  • Bajaj holds 20% stake in the company and has been selling at the counter. Itis a good opportunity for investors to accumulate. 
  • Promoters  increasing  their  stake  and  Bajaj  exiting  are  positive  triggers  for shareholder  wealth   creation.Stock   looks   deep   value   at   just 0.3 times revenue!

New Chennai Plant for BMW
Company has inaugurated a new plant near Chennai this month exclusively for assembling engines for BMW and has invested Rs 200 crore for the same. The new plant has capacity to assemble 20,000 engines per year. This is a very unique situation because there is no company currently in the world who is producing engines for both BMW and Mercedes.

Next Eicher Motors in Making??
On July 24th, CA Rudramurthy BV at Vachana Investments gave a buy call by saying  Force Motors is a company which has a return of equity close to 20-25 percent and return of investment close to 40 percent, a profit growth of about 40 percent which makes it a wonderful buy on valuations. He confirms that  Force Motors is a stock which can further move up from current level and it is good to bet on the winning horses than on something which is not doing good.

Recent numbers indicate the luxury car market in India has grown eight times over the last seven years. An estimated 33,000 units were sold in India in 2014 – a steep rise from just 4,000 units sold in 2007. The growth rate could continue for another seven years as the ranks of the nation’s wealthy continue to swell. Also, experts believe that the luxury car sales could cross the 100,000 mark by 2020. If this growth figure can be achieved, then sky is the limit to Force Motors. Who knows Force Motors will be trading at 20K in 2020!!!

5 Bagger for Porinju Veliyath in Just 1 Year
Today, after one year, Force Motors closed at Rs. 2317 and  Porinju Porinju Veliyath has tweeted proudly that Force Motors has the highest percentage of allocation in his PMS. He has just shared his happiness for having a 5 bagger in just one year time frame.

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