INVESTMENT MANAGEMENT-EQUITY

RESEARCH

GROUP 1

FUNDAMENTAL AND TECHNICAL

ANALYSIS
(AUTOMOBILE- PASSENGER CARS)

COMPANY- FORCE MOTORS LIMITED

SUBMITTED BY: RUCHIKA

(PGMA1954)

SUBMITTED TO: DR . A. K. PURI

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 FORCE MOTORS LTD.
(Passenger Cars Industry)
FUNDAMENTAL ANALYSIS

Company Analysis

Force Motors Limited is the Indian automobile manufacturer, the Dr. Abhay Firodia Group's

flagship. It was founded between 1958 and 2005 as a joint venture between Bachraj Trading

Ltd. and German Tempo. The company was known as Bajaj Tempo Motors. Brands such as

Tempo, Matador, Minidor and Traveller are familiar to the group. It has collaborated with

world producers such as Daimler, ZF, Bosch and MAN over the last five decades. These

partnerships helped the company to move away from its outdated products.

The company is entirely vertically integrated and produces components for the entire

product range. Force Motors is India's largest van manufacturer. The company’s product

range includes Tractors, Three wheelers, Light commercial vehicles, Multi Utility Vehicles

and Heavy commercial vehicles.

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Ratio Analysis

Current Rati o
1.80
1.70 1.66
1.60 1.64
1.54
1.40
1.20 1.18
Current Ratio
1.00 Linear (Current Ratio)
0.80
0.60
0.40
0.20
0.00
2016 2017 2018 2019 2020

The Company’s current ratio is decreasing and showing a downward trend, this indicates
that the company’s obligations are increasing and company do not have adequate current
assets.

Quick Rati o=Liquid Asset/CL

1.20

1.05
1.00
0.94 0.94
0.89
0.80 Quick Ratio=Liquid Asset/CL
0.68 Linear (Quick Ratio=Liquid
0.60 Asset/CL)

0.40

0.20

0.00
2016 2017 2018 2019 2020

As the quick ratio was declining year by year, this states that the company’s ability to pay its
liabilities decreased.

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 Debt Rati o = Total Debt/Total Asset
0.14

0.12 0.12

0.10
0.09 Debt Ratio = Total
Debt/Total Asset
0.08 Linear (Debt Ratio = Total
0.07
Debt/Total Asset)
0.06

0.04

0.02
0.01
0.00 0.00
2016 2017 2018 2019 2020

The debt ratio is much less than 1, which states that the company has a much lower debt as
compared to its total assets. The lower ratio for V -Guard indicates that the company is less
levered and have much lower risk.

Equity rati o= Shareholder's fund/Total Asset

0.68

0.67
0.66
0.65
0.64 Equity ratio= Shareholder's
0.64 0.63 fund/Total Asset
Linear (Equity ratio=
0.62 Shareholder's fund/Total
Asset)
0.61
0.60

0.58

0.56
2016 2017 2018 2019 2020

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 Debt-Equity Rati o= Total Debt/Total Equity
0.16
0.15
0.14

0.12 0.12 0.12

Debt-Equity Ratio= Total
0.10 Debt/Total Equity
Linear (Debt-Equity Ratio=
0.08 Total Debt/Total Equity)

0.06

0.04

0.02
0.01
0.00 0.00
2016 2017 2018 2019 2020

The debt equity ratio is 0.12 in the year 2020 as compared to 0.01 in the year 2016, the ratio
has increased. This is a much lower ratio as compared to the industry benchmark which is
0.53, which shows that Force Motors has a financial stable business. And creditors will see
this ratio as much less risky as the investors have invested a good amount in the company
and the company rely on less debt.

Net Profi t Margin Rati o

6.00

5.00 5.06 5.00

4.00 3.87 3.93 Net Profit Margin Ratio

Linear (Net Profit Margin
3.00 Ratio)

2.00 1.88

1.00

0.00
2016 2017 2018 2019 2020

Net profit margin helps investors assess if a company's management is generating enough
profit from its sales and whether operating costs and overhead costs are being contained.
As the net profit ratio is Decreasing in the trend line from 2016, this is not a good sign as it

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shows that the profit of company is decreasing and there is no efficient management of the
affairs of the business.

Return on Equity Rati o

0.14

0.12 0.12
0.11
0.10 0.10
Return on Equity Ratio
0.08 0.08 Linear (Return on Equity
0.08
Ratio)
0.06

0.04

0.02

0.00
2016 2017 2018 2019 2020

This ratio helps measuring the efficiency with which a company uses shareholders’
investment to generate more revenue. This profitability ratio is a projection of investors’
investment in the company. So this ratio is increasing past 3 years which states that the
company is not generating good returns from the equity.

Asset Turnover Ratio

1.60

1.40 1.39
1.30 1.28
1.20 1.20
1.13
1.00 Asset Turnover Ratio
Linear (Asset Turnover Ratio)
0.80

0.60

0.40

0.20

0.00
2016 2017 2018 2019 2020

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Peer Comparison

Projected Profit and Loss

Particulars 2016 2017 2018 2019 2020 Sep-20 Mar-21

Revenue from
Operations 3,456.740 3,463.530 3,493.190 3,620.010 3,080.130 3,001.352 2,924.589
Other Income 71.44 84.94 68.72 81.62 42.77 39.66643174 36.78807124
Total Income 3,528.180 3,548.470 3,561.910 3,701.630 3,122.900 3,041.018 2,961.377
Cost of Goods Sold 1,690.13 2,240.40 2,569.81 2,788.25 2,092.18 1,993.46 1,942.48
Gross Margin 1,838.050 1,308.070 992.100 913.380 1,030.720 1,047.558 1,018.901
Changes in
inventories of finished
goods, work-in-
progress and stock-in-
trade -65.19 71.79 -51.32 -34.25 82.65 2.730713747 2.660872337
Employee benefits
expenses 303.69 350.08 386.55 3539.91 417.78 848.241341 826.5465107
               
Other expenses 351.09 321.92 312.13 308.94 171.07 254.963912 248.4428919
EBITDA 1,248.460 564.280 344.740 -2,901.220 359.220 -58.378 -58.749
Depreciation 91.93 113.08 129.26 150.92 194.52 120.7085426 117.6212711
EBIT 1,156.530 451.200 215.480 -3,052.140 164.700 -179.087 -176.370
-
Tax 69.86 55.08 53.28 46.63 -8.36 -10 9.987360634

NOPAT 1,086.670 396.120 162.200 -3,098.770 173.060 -169.121 -166.383

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Cash Flow

Actual Forecasted

Particulars 2016 2017 2018 2019 2020 Sep-20 Mar-21

- -
NOPAT 1086.67 396.12 162.2 -3098.77 173.06 169.1212 166.3831

Add: Depreciation 91.93 113.08 129.26 150.92 194.52 120.7085 117.6213

- -
Gross Cash Flow 1178.6 509.2 291.46 -2947.85 367.58 48.41265 48.76182
-
Less: CAPEX -18.25 -116.82 60.83 570.19 883.4685 145.3068
-
Less: Change in WC 145.14 166.24 48.93 -50.16 907.1749 22.46576
-
Free Cash Flow 636.09 340.88 -2838.09 887.61 -72.119 171.6028

The NOPAT for the year comes out to be 169.121 crore for the half year 2020 i.e. on Sep 30
and the financial year ends it comes out to be the 166.383 crore on March 2021.

Assumptions: -

1) The COGS year on year growth was calculated and, on that assumption, and as per the
industry analysis the forecasted Cogs was calculated.

2) The next particulars of P&l and Balance sheet was calculating like the is only.

After the calculation of Profit and loss and Balance sheet the Free Cash Flow were
calculated.
Free cash flow (FCF) is the cash flow that the firm collects to repay creditors or to pay
investors dividends and interest. As a measure of profitability some investors prefer FCF or
FCF per share over profits or earnings per share, as it excludes things from the return in
cash. However, as FCF is lumber and inconsistent over time because it is responsible for
investments in land, plant and equipment.

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Discounted Cash Flow (DCF)

The DCF model was used to measure the asset value and market value per share following
estimation of free cash flow.

Discounted cash flow ( DCF) is the method of determining an investment's worth based on its
potential cash flows. The DCF analysis aims to calculate the worth of an investment today, based on
predictions of the potential amount of money it produces.

Assumptions:

 The WACC is 12.33%

 Terminal growth rate is 3.9%
 Cost of debt is 10%

DCF

WACC 12.33%
Terminal Growth 3.90%
1 2
Actual Forecasted
Particulars 2017 2018 2019 2020 Sep-20 Mar-21
Free Cash Flow 44.00 45.09 337.20 49.75 15.60 25.76
192.270
Terminal Value 5 317.4498857
Total Free Cash Flows 207.87 343.21
Discounting Factor 0.89 0.89
185.004
DCF 7 305.453702

185.004
Total Value of Firm 7 305.453702
Less: Value of Debt 135.2 135.2

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 117.404 49.8047
Value of Equity 7 67.6 1 170.253702

EPS FROM PROJECTED FINANCIAL STATEMENTS

“Earnings Per Share”

Year SSep -2020” “Mar-2021”

“Profit/Loss for The Period” -169.121 -166.383

“No. of Equity Shares Outstanding” 652808.43 652808.43

“EARNINGS PER SHARE” = “NET PROFIT/NO. OF

EQUITY SHARES OUTSTANDING” Negative

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 TECHNICAL ANALYSIS

With the support of the charts below, we will see the impact on the price and

volume, and we will find the answer when to buy or sell on the same stock.

1. Candlesticks for 6 months

Analysis:

One can easily differentiate on the basis of filled and unfilled boxes. Filled ones are showing

the bearish scenario as the opening prices of the same are higher as compared to the

closing price and on the other hand the unfilled are the bullish ones which depicts that the

closing price are high as compared to the opening price.

In the last tow days of the chart we can see the Bullish Engulfing pattern. This pattern is a

two-day pattern which states that there is a small filled candlestick in the first day and on

the second day there is a larger unfilled or the white candlestick which fully Engulfs the last

day’s candlestick. This is a purely bullish phase pattern which states that there are more

buyers for this company’s stock. This trend tells us that the stocks are completely in favour

of the bulls and they have taken control of security price from the bears.

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In the third last and forth last candlesticks, we can observe the Doji candlestick which is an

indecisive type. The closing price is slightly higher than the opening price and the high and

low prices are almost equal too. Thus, investor can either buy or sell.

Around 20th August, we can observe a Hanging man Candlestick. As there was an uptrend

market around 10th August and on 20th, the length of the wick is much higher than the body

of the candle. This indicates that there is a bearish reversal in the market for this company.

Candlestick for 2 years

Analysis:

From the longer period scenario of 2 years, the fluctuations can be well understood regarding the

Force Motor’s Stock prices. This is used to understand the trend reversal patterns and thus helps an

investor in taking better decision as to buy or sell.

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2. Moving Averages

Analysis:

From the chart shown it can be seen that the Short term, Medium term and the long- term Moving

Averages have been observed for the Force Motor ’s Stock.

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In order to recognise a quicker price pattern, a short-term trader may use the 30-day, single move

average. In comparison, the 200-day SMA can be used by a long-term investor to define the

sustainable trend.

The chart is showing the crossover between the 30-day, 50 day and 200 day Moving Average. From

the chart, we can see that after 31 st August, that is on 3rd September, the small period (30 day)

Moving average is crossing over the long period Moving average from below, thus depicting that the

bullish phase is likely to happen.

3. Rate of Change (ROC)

Analysis:

This chart is showing the rate of change from one figure to another in terms of present and past

prices of the stock. This is used to understand a general trend of a stock as well indication like

overbought or oversold. We can see fluctuations in the chart above, so the change above the 0 line

depicts overbought and below 0 is oversold in terms of volume of Force Motors. In September, the

chart is above 0 which means that shares are overbought.

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4. Relative Strength Index (RSI)

Analysis:

This chart is used to understand the momentum of the market. This is a 14-day RSI chart and is used

to identify the oversold and overbought price areas.

Thus, from this chart we can understand that the overbought is implying a positive momentum in

the stock and it will not sustain for a long period of time, thus a correction will happen soon. On the

other hand, oversold condition of RSI is leading to negative momentum. So, from 0 to 30, there is

oversold condition and between 70 and 100 there is overbought condition. A wise investor will use

this chart to take decision as to buy or sell of the same at the relevant time.

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5. Bollinger Bands

For 6 Months

Analysis:

This is one of the most effective indicators of technical analysis. A trader will buy a stock when the

price touches the bottom of Bollinger and will sold the same when the price reaches the top. Thus, it

helps in understanding the trend reversal of the stock.

So, from the graph we can see that there are three lines:

● Middle one is the 20-day simple moving average

● Upper band is the 20-day SMA + 2 Standard Deviation

● Lower band is the 20-day SMA - 2 Standard Deviation

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So, in the mid July we can see from the above graph that the band is thin, that means that the

upward trend is going to happen and there will be a bullish phase. People tend to purchase after

that.

Now at the mid of the August, the band started expanding and it goes will the date we can conclude

that risk and profit is high at that time. Now, after this, there can be a downward trend for Force

Motors and there will be a bearish phase.

Bollinger Bands for 2 Years

Bollinger Band for the two years, shows a long-term technical analysis of Force Motor’s stock. Point

D shown in the above graph (September 2019) is the profit booking area of an investor in the

market.

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6. MACD of Force Motors

Analysis:

MACD commonly defines the difference between the 12 day and 26 exponential moving average.

The difference of the two is called MACD spread.

Whenever the MACD line oscillates above the zero line from negative to positive region, there is

divergence between the two averages, this showing a bullish momentum. In the August we can see

that there is an intersection indicating the bullish phase.

Bu in the current phase, which is in September, we can see that MACD is intersecting and there will

be a downward trend, indicating that there will be a bearish phase soon and there will be more

sellers.

Thus, MACD is used to understand the trend reversal at it best and can be utilized in an efficient way

by any wise investor to maximize his/her return.

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