01 May 2013

Investment Focus - MRF is a value buy ::Business Line



Demand for trucks, cars and bikes remains subdued. However, benign raw material prices have put some auto component makers in a sweet spot.
As a result, these companies are witnessing an expansion in operating profit margins and good growth in profits this earnings season. MRF, the market leader in the Indian tyre industry with a market share of 27 per cent, is one such company. For the quarter ended March 2013, net sales dropped by 3 per cent to Rs 2,906 crore, compared with the March 2012 quarter, but net profit vaulted 40.6 per cent to Rs 211 crore. Operating margins expanded from 10.9 per cent a year ago to 15.3 per cent this quarter.
With material costs accounting for as much as 70 per cent of the turnover for the tyre manufacturer, the business is highly raw material-intensive. Hence, the softening of natural rubber prices in recent times can deliver a sizeable margin boost. From Rs 190-200 a kg during the same time last year, domestic prices of the RSS 4 variety of rubber, are now down to about Rs 160 a kg. International prices have dropped too and the Government has recently done away with the proposal to hike import duty on rubber.
The surplus availability of natural rubber in world markets in 2013-14, as estimated by the International Rubber Study Group, suggests that raw material costs may continue to decline over the next few quarters.
The fact that tyres have a sizeable replacement market where companies have more pricing power is another positive for MRF. Considering tyres are replaced every three years, the robust volume growth in the auto industry in 2009-11 implies that the tyre replacement demand for those vehicles will come up now.
In the last few months, truck owners have been postponing replacing tyres, with poor market conditions. However, the mild improvement expected in the economy this year, combined with a normal monsoon, could improve freight traffic. Higher demand for plying goods will in turn help truck owners pass on the cost increases to customers.
Finally, the company will benefit from the fast improving radialisation levels in commercial vehicle tyres. From about 15 per cent two years ago, the proportion of radial tyres stands at 20-25 per cent currently. Radial tyres bring in higher realisations than cross-ply tyres. MRF’s new plant for car and truck radials became operational in 2012.
Hence, investors with a one-two year perspective can buy the MRF stock. Though the stock trades at a high absolute price at Rs 13,588, it trades at a reasonable valuation of 7.5 times the company’s estimated earnings for FY2014.

Stock Markets closed today - Labour Day/ May Day - 1st May

Sr. No.DateDayDescription
127-Mar-2013WednesdayHoli
229-Mar-2013FridayGood Friday
319-Apr-2013FridayRam Navmi
424-Apr-2013WednesdayMahavir Jayanti
501-May-2013WednesdayMay Day
609-Aug-2013FridayRamzan ID
715-Aug-2013ThursdayIndependence Day
809-Sep-2013MondayGanesh Chaturthi
902-Oct-2013WednesdayGandhi Jayanti
1016-Oct-2013WednesdayBakri ID
1104-Nov-2013MondayDiwali-Balipratipada
1214-Nov-2013ThursdayMoharram
1325-Dec-2013WednesdayChristmas

Stock Markets closed today - Labour Day/ May Day - 1st May

Sr. No.DateDayDescription
127-Mar-2013WednesdayHoli
229-Mar-2013FridayGood Friday
319-Apr-2013FridayRam Navmi
424-Apr-2013WednesdayMahavir Jayanti
501-May-2013WednesdayMay Day
609-Aug-2013FridayRamzan ID
715-Aug-2013ThursdayIndependence Day
809-Sep-2013MondayGanesh Chaturthi
902-Oct-2013WednesdayGandhi Jayanti
1016-Oct-2013WednesdayBakri ID
1104-Nov-2013MondayDiwali-Balipratipada
1214-Nov-2013ThursdayMoharram
1325-Dec-2013WednesdayChristmas

Stock Markets closed today - Labour Day/ May Day - 1st May

Sr. No.DateDayDescription
127-Mar-2013WednesdayHoli
229-Mar-2013FridayGood Friday
319-Apr-2013FridayRam Navmi
424-Apr-2013WednesdayMahavir Jayanti
501-May-2013WednesdayMay Day
609-Aug-2013FridayRamzan ID
715-Aug-2013ThursdayIndependence Day
809-Sep-2013MondayGanesh Chaturthi
902-Oct-2013WednesdayGandhi Jayanti
1016-Oct-2013WednesdayBakri ID
1104-Nov-2013MondayDiwali-Balipratipada
1214-Nov-2013ThursdayMoharram
1325-Dec-2013WednesdayChristmas

Stock Markets closed today - Labour Day/ May Day - 1st May

Sr. No.DateDayDescription
127-Mar-2013WednesdayHoli
229-Mar-2013FridayGood Friday
319-Apr-2013FridayRam Navmi
424-Apr-2013WednesdayMahavir Jayanti
501-May-2013WednesdayMay Day
609-Aug-2013FridayRamzan ID
715-Aug-2013ThursdayIndependence Day
809-Sep-2013MondayGanesh Chaturthi
902-Oct-2013WednesdayGandhi Jayanti
1016-Oct-2013WednesdayBakri ID
1104-Nov-2013MondayDiwali-Balipratipada
1214-Nov-2013ThursdayMoharram
1325-Dec-2013WednesdayChristmas

Stock Markets closed today - Labour Day/ May Day - 1st May

Sr. No.DateDayDescription
127-Mar-2013WednesdayHoli
229-Mar-2013FridayGood Friday
319-Apr-2013FridayRam Navmi
424-Apr-2013WednesdayMahavir Jayanti
501-May-2013WednesdayMay Day
609-Aug-2013FridayRamzan ID
715-Aug-2013ThursdayIndependence Day
809-Sep-2013MondayGanesh Chaturthi
902-Oct-2013WednesdayGandhi Jayanti
1016-Oct-2013WednesdayBakri ID
1104-Nov-2013MondayDiwali-Balipratipada
1214-Nov-2013ThursdayMoharram
1325-Dec-2013WednesdayChristmas

Stock Markets closed today - Labour Day/ May Day - 1st May

Sr. No.DateDayDescription
127-Mar-2013WednesdayHoli
229-Mar-2013FridayGood Friday
319-Apr-2013FridayRam Navmi
424-Apr-2013WednesdayMahavir Jayanti
501-May-2013WednesdayMay Day
609-Aug-2013FridayRamzan ID
715-Aug-2013ThursdayIndependence Day
809-Sep-2013MondayGanesh Chaturthi
902-Oct-2013WednesdayGandhi Jayanti
1016-Oct-2013WednesdayBakri ID
1104-Nov-2013MondayDiwali-Balipratipada
1214-Nov-2013ThursdayMoharram
1325-Dec-2013WednesdayChristmas