Dharmesh Kant, Daljeet Kohli’s colleague at IndiaNivesh, was the first to put a buy on Force Motors in August 2014 when the stock was still available at a throwaway price of Rs. 563. Dharmesh was enamoured by Force Motors’ debt-free status, strong growth track record, huge cash on books and cheap valuations.
However, before anyone could gather his wits and buy the stock, the stock surged 52% in just 15 days.
Thereafter, the stock has been on a continuous upward trajectory. When I last checked the situation on 3rd August 2015, one year after Dharmesh’s recommendation, Force Motors was standing tall at Rs. 2856, giving its shareholders mind-boggling gains of 400%.
The reason Force Motors caught everyone’s fancy is because it is the only company in the entire World to be given the privilege to make engines for both the top luxury cars, Mercedes and BMW.
In an earlier interview, Daljeet was very gung-ho about Force Motors’ prospects. He called it the “next Eicher Motors and MRF” and urged everyone to “plunge” into the stock.
Daljeet has now put his thoughts to paper. He has issued an initiating coverage report in which he has succinctly described why he is so bullish about Force Motors. He says:
“For Force motors we believe the picture will reverse In FY20 compared to current year with Auto components segment contributing 54% to the revenues (from current 30%) and Automotive sales contribution falling to 44% levels (from current 68%) of the total revenue. With higher volumes, operating leverage would kick in further which could mean an EBITDA margin of close to 10% and NPM of around 7% in 2020. This would result in Net Profit of Rs 4398 million and EPS of ~Rs 334. With such consistent performance of Sales CAGR of 22% and Profit CAGR of 37% over FY15‐FY20E, the multiple can easily expand to 30X giving a target price of ~Rs 10,011 in 2020.”
If Daljeet’s target price is achieved, it means that investors will take home magnificent gains of 300% in five years. This works out to a CAGR of 31.95%. This is not an unreasonable target to project for a powerhouse stock like Force Motors!