Edit this postForce Motors Ltd (FML), a leading manufacturer of passenger and commercial vehicles, has witnessed a sharp appreciation in its stock price over the past month on the back of expectations of improved financials, new product launches and plans for a new facility in Chennai for assembly of BMW engines. The stock has appreciated over 90% since our viewpoint report dated August 14, 2014, highlighting the aforementioned re-rating triggers & points.
Though the growth outlook remains positive on the back of the incremental revenues from its Chennai plant for BMW, technical tie-ups and the proposed introduction of new LCV platform, but we believe that the stock has run ahead of its fundamentals. It trades at 18.1x FY2016 EPS estimates and EV/EBITDA of close to 8.9x (FY2016 estimated EBITDA), which is at a premium to quality companies like Maruti Suzuki and seems to be unjustified. Consequently, we advise investors to book profits.
Risk to our call: A higher than expected ramp-up in the BMW business and better than expected margins (though we had assumed margins that are higher than the historical trend) could result in an upside to our estimates.
Bookmark us for best share market tips and make money like professionals.
