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Strong position in niche segment of Light Commercial Vehicle (LCV) remains attractive:

Even though in the overall space of Indian Commercial Vehicle market, FML holds a tiny market share but the company has successfully been able to maintain its leadership position in the niche LCV space, particularly in 16-seaters and above. The company claims to command a market share of above 60% on account of its most successful vehicle, Traveller

Exclusive association with globally renowned giants shows strength and capabilities: FML has developed in-house expertise for design, development and manufacture of automobiles, sub‐systems, components and aggregates. The company has been a preferred production partner for German automotive players like Mercedes and BMW. Further, the company also entered into an agreement with Rolls Royce Power Systems AG to produce engines for the power generation and railways segments.

An uptick in commercial vehicle segment to benefit and scrappage policy to prove game changer: With the reinforced focus on infrastructure spending & drives like ‘Make In India’ & ‘Atmanirbhar Bharat’ to push the economy, the CV space is likely to benefit with increase in industrial activities. To add, ‘Vehicle Scrappage Policy’ may be the game changer for Indian CV space.

Introduction of new variants and foray into electric vehicle space to help in retaining leadership position: FML has unveiled its next generation mobility platform, temporarily named as ‘T1N’, which is claimed to be a successor to the Traveller. The company has invested over Rs.1,000 cr in developing this platform, taking four years to showcase its first vehicle. The commercial production was supposed to begin towards the end of 2020.

Outlook and Valuation

FML is a leading auto OEM and auto-ancillary company – in the OEM space, the company has carved out its own niche particularly with Traveller which commands more than 60% market share in its market. The ancillary business also enjoys exclusive associations with globally renowned players like BMW, Mercedes and Rolls Royce. The company has been investing into new products and capacities and is ready to launch its first electric vehicle. The company is backed by strong pedigree of promoters and the stock is backed by robust fundamentals – good liquidity, moderate debtequity, healthy cash flow, etc. Going forward, we expect company to deliver an EPS of Rs.104.0 in FY23; assigning a target multiple of 17x we arrive at a target price of Rs.1,768 showcasing an upside potential of 31.9% from current levels with an investment horizon of 18-24 months.

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