Auto stocks is where the action is at present. Rakesh Jhunjhunwala had predicted this months ago when he declared that he was bullish on cyclical auto stocks like Tata Motors. Saurabh Mukherjea was also among the first to spot the huge potential in TVS Motors. Stock Wizards Vijay Kedia and Raamdeo Agrawal also showed us the path when they bought truck loads of Atul Auto.
Dharmesh Kant of IndiNivesh has been enjoying good success with his recent stock picks. His last stock pick, Hester Biosciences, has been locked in upper circuit for the past several days. His other stock picks like MPS and Thomas Cook are also showing good strength.
Dharmesh has now issued a research report in which he has analyzed the prospects of Force Motors and put a buy on it.
Dharmesh has made several excellent points in his report. One of the points is that the promoters have been aggressively hiking their stake in the company. They have increased it from 51.75% in Feb 14 to 59.72% as of date. That is usually a clear indication that something good is cooking.
The other point is that Force Motors has a firm balance sheet with a debt free status. It has cash and cash equivalents of around Rs. 219 crores as on 31st March’2014 which works out to a cash per share of around Rs. 150.
Dharmesh also emphasizes that Force’s revenues have grown at a CAGR of around 21% in last 5 years, despite strong headwinds in commercial vehicle space. He also points out that the last two quarters has seen a remarkable turnaround particularly on profitability margins. Q1FY15 saw sales revenue rise by 8.30% y-o-y and PAT by 35.94% y-o-y. Operating margins which was a grey area for Force Motors has improved due to better blended realization, stable input costs and higher operational efficiency.
On the all-important issue of valuations, Dharmesh points out that at the CMP of Rs. 563, Force Motors is available “cheap”. It is quoting at a P/BV of 0.60x (TTM basis) and P/E of 8.95x (TTM basis). He expects Force Motors to deliver over 20% revenue growth in FY’15, which will mean an EPS of Rs 70.70 and a potential target stock price of Rs 707.
Dharmesh Kant’s analysis makes a lot of sense. All the indications on the ground suggest that Force Motors will be the next auto stock to fire. If you don’t have any auto stocks in your portfolio, you should give serious consideration to Force Motors.