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Financial Data
Force Motors Limited
(INRm) Revenue Growth (%) EBITDA EBITDA margin (%) EBITDA/gross interest PAT PAT (%) EPS
Source: BSE

Force Motors Limited

Business Summary
FY11 FY10

14,804.6 10,244.1 45 27 1,489.7 670.6 10.1 6.5 6.6 4.0 586.2 604.2 3.9 5.9 44.49 45.74

Force Motors Ltd (FML, erstwhile Bajaj Tempo Ltd) manufactures threewheelers (passenger and goods versions), utility vehicles (UV), light commercial vehicles (LCV) and heavy commercial vehicles (HCV). FML also manufactures engines and axles under license from Daimler AG for its Mercedes cars manufactured in India. It has two vehicle manufacturing units, one each in Pune (Maharashtra) and Pithampur (Madhya Pradesh), with combined capacity of 0.07 million units p.a.

Figure 1 Figure 2

Business Analysis
Promoters Banks/Fis/Dis

Shareholding Pattern
Inner ring: FYE11 Outer ring: FYE10
22% 17% 25% 52% 6% 24% 3% Source: BSE

1 2 3

Key strengths Over 50 years of experience in CV segment in India

Bodies corporate Public/others 51%

Key weaknesses Smaller player compared to other manufacturers in CV market Integrated manufacturing process with technological Low capacity utilisation in recent years collaboration and R&D support Successful launch of new models in FY10 History of labor unrest hampering growth

Source: Fitch

Financial History (As at Financial Year Ending March)

Figure 3

Financial History
Figure 4

Peers
Peers Revenue TATA Motors Ashok Leyland Eicher Motors PAT margin (%) TATA Motors Ashok Leyland Eicher Motors
Source: BSE

FY11

FY10

480,404.6 355,930.5 111,177.1 72,447.1 4,426.7 3,780.1 3.8 5.7 17.0 6.3 5.8 9.9

(INRm) Revenues EBITDAR (%) PAT (%) EPS Cash and liquid balances Total gross debt (unadjusted) Free cash flow

2011 14,804.58 10.06 3.96 44.49 147.57 2,495.07 n.a.

2010 10,244.1 6.55 5.90 45.74 257.09 1,478.31 206.46

2009 8,064.5 -6.31 15.45 94.31 166.27 1,609.22 2,036.43

2008 9,658.2 -1.37 8.66 -63.32 172.80 3,659.10 -1,175.9

Cash and liquid balances in FY11 includes restricted cash Source: Fitch, company annual reports

Return Analysis
Figure 5 Figure 6 Figure 7

Return Analysis
ROE (%) 100 50 0 -50 -100 FY07 FY08 FY09 FY10 Source: Company annual reports, Fitch ROCE

Margin Trends
EBITDAR (%) 20 15 10 5 0 -5 -10 FY07 FY08 FY09 FY10 Source: Company annual reports, Fitch PAT

Asset Turnover
(Times) 3 2

Figure 8

Force Motors Limited

Market data Shares outstanding (m) Face value Market cap (m) 52-Wk H/L BSE code
Source: Fitch

21 June 11 13.21 INR10 8,490 1,045/324 FORCEMOT

1 0 FY07 FY08 FY09 FY1 0 So urce: Co mpany annual repo rts, Fitch

www.fitchratings.com

1 July 2011

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Background
Force Motors was founded by Late N.K. Firodia in 1950 in collaboration with Vidal & Sohn, Hamburg, Germany, for the import of Tempo 3-Wheeler in India. In 1957, it started manufacturing Tempo 3-Wheeler at a small plant in Goregaon, Mumbai, and introduced new models. Bajaj Tempo was renamed as Force Motors Ltd in 2005. In 1982, the company started manufacturing Mercedes Benz OM 616 diesel engine under licence, and continues to manufacture it along with other variant of the engines for Mercedes cars built in India. FML has technical assistance agreements with Dr. Rolf Bacher, Germany, Mercedes Benz Project consultation GmbH, Germany and MB Technology GmbH, Germany, for ongoing technical developments. It manufactures three-wheelers, UVs and CVs. FML has suffered from labour unrest at its Pune plant in the past few years, resulting in a slow growth rate and delayed production.

Management
Figure 9

Shareholding Structure at End-March 2011

Particulars Promoters Public
Source: BSE

Shareholding (%) 51.75 48.25

Figure 10

Board of Directors
Name Mr Abhay Firodia Mr Prasan Firodia Mr S.N Inamdar Mr Bharat V.Patel Mr Pratap Pawar Mr Anita Ramachandran Mr S. Padmanabhan Mr Sudhir Mehta Mr Vinay Kothari Mr Atul Chordia Mr S.A. Gundecha Mr R.B. Bhandari Mr L. Lakshman
Source: Company

Designation Chairman Managing Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director

Force Motors Limited July 2011

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Figure 11

Business Overview

Tractors 3%

Sales Breakup
Product segment wise

FML primarily focuses on its LCV segment, which accounts for around 62% of its total sales volume. Its two other product segments, including multi-utility vehicle (MUV) and tractors, account for roughly 35% and 3% of its total sales, respectively. FMLs products include traveller series in LCV segment which is mostly used as a 15-20 seater passenger van, delivery van, ambulance etc. Under LCV, the company introduced Trump in FY10, which is a small CV and placed as a substitute to three wheelers. It competes against the likes of Tata Ace from Tata Motors and Mahindra Maxximo from M&M. The models in MUV segment include Trax series (Trax Gama, Trax Cruiser, Trax Cargo King etc), which is popular as a long route commercial passenger vehicle in rural areas and smaller cities. FML has recently forayed into the manufacturing of tractors with its two models: Balwaan & Orchard. It sold 612 units of tractors in FY10. The company is also in the process of entering into the SUV segment with its indigenously developed model. FML also has a 50:50 JV (MAN FORCE TRUCKS Pvt Ltd) with MAN Nutzfahzeuge AG for the manufacturing and sale of HCVs. It has installed a capacity of 24,000 trucks p.a. at its plant in Pithampur, Madhya Pradesh. MAN FORCE sold around 1,800 units of trucks in FY10, clocking the net sales of INR1,954m against INR1,620m in FY09. Its PAT was -INR152m in FY10 compared to -INR1,264m in FY09.

MUV 35%

LCV 62%

Source: Annual report

Financial Analysis
Growth and Profitability
FMLs operating revenues grew at a CAGR of 11.3% over the last four years. The growth was subdued by a revenue decline in FY08-FY09 due to the global economic crisis; however, the company witnessed strong recovery in FY10 with revenues growing at a rate of 27% yoy and at 45% in the following year. Its profit margin at EBITDA level remained negative in three of the last five years mainly due to high direct cost, but recovered in FY10. The companys cost structure has remained similar over the years; however, its strong growth has led to better capacity utilisation resulting in operating profits in FY10. It had EBITDA margin of 6.5% at FYE10 which improved to 10.1% at FYE11. FML sold its 20% stake in the JV (MAN FORCE TRUCKS) to its JV partner for around INR3,100m along with its holdings in ZF Steering Gear (India) ltd, leading to a high non-operating income in FY09. The companys income from its non-operating sources supported its liquidity resulting in a positive PAT in FY09-FY10 after being negative in FY07-FY08. Its lower interest cost and strong revenue growth also resulted in a positive PAT in FY10 (INR60.42m) with a margin of 5.9%. Its PAT margin came down by 1.94% yoy at FYE11 to 3.96%. FMLs debt/equity ratio came down to 1.59x at FYE09 and 0.60x at FYE10 (FYE08: 2.12x) due to debt repayment after it raised funds from selling stake in its subsidiary, Man Force Trucks Ltd. The ratio was 0.75x at FYE11. As a result, its gross financial leverage (total debt/operating EBITDA) improved significantly to 1.67x at FYE11 from -27.74x at FYE08.

Leverage and Capital Structure

Force Motors Limited July 2011

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Figure 12

Working Capital/Cash Flow Analysis

2009

Capacity Utilisation
Segment wise
2010 (%) 40 30 20 10 0 CVs Tractor Diesel engine

The companys working capital cycle has increased in the last few years with cash conversion cycle increasing to 30.95 days in FY10 from 13.84 days in FY08 mainly due to a decline in its average creditor days. The company was able to generate free cash flow in FY09 due to income from non operating sources which remained positive in FY10 due to higher sales. FMLs return on equity (ROE) increased drastically in FY09 to 75.39% (FY08: 57.77%) due to exceptional income from the sale of equity in the companys subsidiary. However, its ROE declined to 23.66% on account of a low operating income in FY10. The companys EBIT margin also improved in FY10 to 4.28% from adjusted EBIT margin of -12.4% in FY09 Its asset turnover ratio remained in the range of 1x-1.3x from FY07 to FY10 due to low capacity utilisation.

Return and Asset Efficiency Analysis

Source: Annual reports

Figure 13

Working Capital Cycle (Days) Collection period

Inventory period (%) 140 120 100 80 60 40 20 0 FY07 FY08 FY09 FY10 Source: Annual reports Payables period

Force Motors Limited July 2011

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Annex 1
Figure 14

Financial Analysis Summary

Income statement Revenues Revenue growth EBIT Interest expense net of interest income Net income Balance sheet Cash and equivalents Total assets Short-term debt Senior long-term debt Subordinated debt Total debt Off-balance sheet debt Total adjusted debt Preferred stock + minority interests Common equity Total adjusted capitalization Cash flow Operating EBITDAR ("op. EBITDAR") Cash interest paid, net of interest received Cash tax paid Associate dividends Other changes before funds from operationsb Funds from operations Working capital Cash flow from operations Non-operational cash flowa Capital expenditure Dividends paid Free cash flow Receipts from asset disposals Business acquisitions Business divestments Exceptional & other cash flow items Net cash in/outflow Equity issuance/(buyback) FX movement Other items affecting cash flowb Net cash flow available for financing Closing net debt Profitability Op. EBITDAR/revenues (%) EBIT/revenues (%) PAT/revenues (%) Ratios Asset turnover ratio (x) Current asset turnover ratio (x) Op. EBITDAR/net fixed charges (x) Net adjusted debt/equity (x) Net adjusted debt/op. EBITDAR (x) ROCE (%) ROE (%) Per share data No. of shares (m) EPS (INR) DPS (INR) Dividend payout ratio (%) 2010 10,244.10 27.03 438.30 145.00 257.09 7,876.92 198.31 2,477.00 1,478.31 1,478.31 2,833.15 4,311.46 670.60 167.80 34.27 0.69 305.23 774.45 -354.83 419.62 9.60 222.76 206.46 15.27 221.73 221.73 1,221.22 6.55 4.28 5.90 1.31 2.44 4.62 1.00 1.82 10.70 23.66 13.21 45.74 -2.99 9.67 2009 8,064.50 -16.50 2,086.70 329.80 166.27 7,731.44 353.22 1,533.50 1,609.22 1,609.22 2,275.18 3,884.40 -509.00 378.72 203.02 0.71 166.84 -923.19 202.57 -720.62 3,217.41 460.36 2,036.43 6.92 2,043.35 2,043.35 1,442.95 -6.31 25.88 15.45 0.98 1.86 -1.54 1.40 -2.83 48.68 75.39 13.21 94.31 2008 9,658.20 -5.04 -520.80 301.20 172.80 8,662.00 1,182.10 3,659.10 3,659.10 1,029.56 4,688.66 -131.90 345.00 28.00 76.90 -428.00 -131.00 -559.00 0.10 617.00 -1,175.90 -1,175.90 -1,175.90 3,486.30 -1.37 -5.39 -8.66 1.16 2.22 -0.44 2.00 -26.43 -11.51 -57.77 13.21 -63.32 -

Force Motors Limited July 2011

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Financial Analysis Summary (Cont.)
Income statement Growth ratios (%) Op EBITDAR EBIT Net income EPS
Source: Company reports

2010 -231.75 -79.00 -51.50 -0.52

2009 285.90 -500.67 -248.95 -2.49

2008 -73.08 -20.18 123.04 1.23

Force Motors Limited July 2011

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Annex 2: Share Price and Volume Data
Figure 15

Stock Price Movements

(Indexed) 250 230 210 190 170 150 130 110 90 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Source: BSE, Fitch BSE 200 Stock price

Figure 16

Price Volume Chart

(000) 300 270 240 210 180 150 120 90 60 30 0 Jun 10 Jul 10 Daily volumes (shares) Daily prices (volumes) 1,100 1,000 900 800 700 600 500 400 300 200 100 -

Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11

Source: BSE, Fitch

Figure 17

Valuation Comparison (As at 21 June 2011)

Ratios are as at 21 June 2011 P/E (x) Price/book (x) Dividend payout
Source: Fitch

Force Motors 15.59 2.49 0

Tata Motors 6.06 3.11 n.a.

Ashok Leyland 9.92 1.58 n.a.

Eicher Motors 14.59 2.94 n.a.

BSE 200 17.28 2.68 n.a.

Force Motors Limited July 2011

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Force Motors Limited July 2011