Ford Heads To $16 On Global Growth Despite Sick Indian Unit

Ford, which has recently impressed with its strong sales and growth momentum in United States and China, is faltering in one of the biggest emerging auto markets in the world – India. Ford India’s net worth has declined by over 50% in the past year forcing the company to file a report with the Indian BIFR (Board for Industrial and Financial Reconstruction) due to statutory requirements under the Sick Industrial Companies Act. ^[1] While this provides a setback for the company, we don’t believe it will impact the Ford’s position among global competitors like BMW (GR:BMW), GM (NYSE:GM),Daimler (ETR:DAI), Audi (NSU:GR), Honda (NYSE:HMC), Toyota (NYSE:TM) and others.

We have a price estimate of $16, which is around 25% above the current market price.

See our complete analysis for Ford’s stock

Ford has repeatedly stated that India plays a key role in their global strategy towards meeting the goal of increasing their worldwide sales nearly 50% by mid-decade to 8 million vehicles a year. The company’s sales in the country have been boosted by its launch of the Figo hatchback in the country. Building on the success of this model, the company now plans to launch six more models in India by the middle of this decade. Its new sports utility vehicle Eco Sport will be debuting in India before being introduced in 100 more markets around the world. Ford India recorded 15% sales growth in 2011 and exported almost three times the number of cars it did in 2010. ^[2]

The decrease in net worth has resulted from the depreciation on investments that the company has made in the last two years. The company’s accumulated loss at the end of last financial year stands at ~$240 million which is more than 50% of the net worth of the company.

This is not the first time that Ford India has been referred to the Indian BIFR. In 2002, the company had filed with BIFR after its carry forward loss was almost 60% of the company’s equity share capital.

However, this time the company is meeting all its financial obligations and their does seem to be a reason to worry. The company’s strong sales in India and its strong performance globally should help the company tide over this accounting crisis. Ford India has made huge plans of investing in India as it has earmarked $1 billion for building a new vehicle assembly and engine production plant in Gujarat. The company has also announced a significant investment in its existing Chennai plant to expand the engine manufacturing facility. ^[3]

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Ford India’s Net Worth declines 50% in FY11, MoneyControl, 19 Apr – 2012 [↩]
2. India Key Element in Ford’s Global Strategy, Times of India, 5 Jan – 2012 [↩]
3. Ford India referred to BIFR, Times of India, 1 Nov – 2012 [↩]