Shareholders of Force Motors Ltd, formerly Bajaj Tempo Ltd, got a pleasant surprise this month when its management decided to offload part of its stake in its commercial vehicles (CV) subsidiary for a bumper profit.
Exactly two years ago, the company had sold a 30% stake in its CV business to Man Nutzfahrzeuge AG of Munich, Germany for Rs56 crore. The CV arm had just about been formed then, and Force Motors had subscribed to the shares at par. It had made a profit of Rs26 crore on the stake sale then.
This week, the company has sold another 14.2% stake in the company for Rs300 crore. This would result in a profit of Rs286 crore for the company. What’s more, Man AG will bring in more funds into the CV arm and would increase its stake to 50%. Man AG’s commitment to the joint venture would increase the valuation of Force Motors’ 50% remaining stake in the company as well. It’s interesting that Man AG has decided to pay top dollar at a time when the CV business is at a nadir, but from a Force Motors shareholder’s perspective, it’s a bonanza.
What’s most remarkable about the stake sale is that prior to the deal, Force Motors had a market capitalization of just Rs82 crore.
Not only has the company made a profit of Rs286 crore from the stake sale, but its 50% stake in the company is worth Rs1,000 crore based on the valuation Man AG has paid.
It may be imprudent to assume that the CV arm will continue to enjoy such high valuations and would in turn drive Force Motors’ valuation.
But even if one were to only account for the profit made on the stake sale, one would have imagined there would be a high upside to Force Motors’ overall valuations. It’s interesting then that Force Motors’ valuation has jumped only by 20% or by Rs16.5 crore since the announcement last week.
It’s true that the company has been running losses in its core business, but that still doesn’t take away from the fact that the stake sale to Man AG will bring in significant cash. In the first two quarters, the company reported a loss of Rs40 crore, after having posted a loss of Rs80 crore in the last fiscal year.
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