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MRF
BUY
Performance Highlights
CMP
Target Price
3QSY2014
3QSY2013
% chg (yoy)
2QSY2014
% chg (qoq)
3,337
489
14.7
230
3,051
483
15.8
227
9.4
1.2
(119)bp
1.3
3,299
412
12.5
171
1.2
18.6
215bp
34.7
`23,872
`29,332
Investment Period
12 Months
Stock Info
Tyre
Sector
Market Cap (` cr)
For 3QSY2014, MRF reported a good set of numbers. Its top-line grew 9.4% yoy
to `3,337cr, above our estimate of `3,218cr. The raw material cost as a
percentage of sales declined by 124bp yoy to 63.7%. Though the EBITDA margin
declined by 119bp yoy to 14.7%, it expanded by 215bp on a sequential basis.
The net profit for the quarter came flat on a yoy basis at `230cr but it was 8.2%
higher than our estimate of `213cr.
Diversified portfolio coupled with strong replacement demand to drive revenue:
MRFs diversified portfolio, with a leading position in a majority of the segments,
will help it in reaping early benefits of revival in auto demand. This would be on
the back of improved consumer sentiments after the general elections. Further,
robust growth in the auto industry during FY2009-12 provides huge opportunity
in replacement market, which will aid revenue growth for the company.
Low rubber prices to aid margins: During 3QSY2014, the price of rubber in the
domestic market declined by 14.4% yoy; rubber currently trades at `140/kg in the
domestic market. Considering the estimated surplus of 200,000 tonne in global
natural rubber supply in 2014, as per a report by the Economist Intelligence Unit,
we expect rubber prices to remain at lower levels. This will help the company in
stabilizing its EBITDA margin.
Outlook and valuation: We expect MRF to post a CAGR of 8.6% in net sales over
SY2013-15 to `14,312cr, while the EBITDA margin is expected to be at 15.1% in
SY2015. Consequently, the net profit is expected to grow at a CAGR of 13.7%
over SY2013-15 to `1,036cr. At the current market price, MRF is trading at a PE
of 9.8x its SY2015E earnings and at a P/BV of 1.8x for SY2015E. We have
revised our recommendation on the stock to Buy with a target price of `29,332
10,124
325
1.1
24749/12350
1747
10.0
26272
BSE Sensex
Nifty
7831
Reuters Code
MRF.BO
Bloomberg Code
MRF IN
27.4
9.7
34.1
29.4
Abs. (%)
Sensex
MRF
3m
1yr
3yr
7.4
28.8
38.6
14.3
65.9
217.5
SY2012
11,870
21.8
572
32.6
10.6
1,350
17.7
3.5
22.2
22.5
1.0
9.0
SY2013
12,131
2.2
802
40.2
14.6
1,892
12.6
2.8
24.7
28.3
0.9
5.9
SY2014E
13,118
8.1
843
5.1
14.3
1,988
12.0
2.3
20.8
27.6
0.8
5.5
SY2015E
14,312
9.1
1,036
22.9
15.1
2,444
9.8
1.8
20.8
29.1
0.7
4.7
Milan Desai
+91- 22- 3935 7800 Ext: 6846
milan.desai@angelbroking.com
3QSY14
3QSY13
2QSY14
9MSY2014
9MSY2013
% chg
Net Sales
3,337
3,051
9.4
3,299
1.2
9,836
8,984
9.5
(1.8)
6,380
5,888
8.4
64.9
65.5
2.9
552
423
5.6
4.7
(0.7)
1,583
1,342
2,127
1,983
7.3
2,167
(% of Sales)
63.7
65.0
(124)bp
65.7
Staff Costs
191
153
25.2
186
5.7
5.0
73bp
5.6
529
432
22.5
533
(% of Sales)
Other Expenses
(% of Sales)
30.6
18.0
15.9
14.2
170bp
16.2
16.1
14.9
2,848
2,568
10.9
2,886
(1.3)
8,516
7,653
11.3
Operating Profit
489
483
1.2
412
18.6
1,320
1,331
(0.8)
OPM
14.7
15.8
(119)bp
12.5
215bp
13.4
14.8
(139)bp
54
48
63
175
147
Depreciation
106
93
106
312
276
Other Income
20
11
41
17
PBT
349
351
37.6
874
924
(% of Sales)
10.5
11.5
8.9
10.3
Tax
119
123
43.4
293
306
(% of PBT)
34.1
35.2
32.7
33.5
33.1
230
227
34.7
581
618
5.9
6.9
34.7
581
618
34.7
1,370
1,458
Total Expenditure
Interest
Extraordinary income
Reported PAT
PATM
Adjusted PAT
Equity capital (cr)
EPS (`)
6.9
7.4
230
227
543
536
(0.4)
254
7.7
(3.6)
83
1.3
171
1.3
171
1.3
403
5.2
4
(5.4)
(4.2)
(6.0)
(6.0)
(6.0)
Actual
Estimate
Variation (%)
Total Income
3,337
3,218
3.7
EBIDTA
489
470
4.1
14.7
14.6
0.4
Adjusted PAT
230
213
8.2
Investment rationale
Diversified product portfolio to drive revenue growth
MRF has a diversified portfolio with a leading position in passenger car, motor
cycle, tractor front tyre and medium and heavy vehicle (MHCV) tyre segment. Of
the total tonnage off-take of MRF, the MHCV segment constitutes 47.9%, followed
by passenger car (11.2%), motor cycle (10.2%) and light commercial vehicle
(LCV-9.3%). Despite sluggish automobile demand in India, where MHCV and
passenger car segments de-grew by 29% and 8% yoy, respectively, in SY2013,
MRF reported a marginal growth of 2.2% in net sales. Going forward, we expect
the auto industry to show signs of recovery on the back of improved consumer
sentiments after the general elections. MRFs diversified portfolio will help it to reap
early benefits of this recovery; thus the company could witness firm revenue growth
on this account.
Motor cycle
10%
Passenger Car
11%
LCV
9%
Scooter (2/3wheelers)
6%
Others
5%
25
29
28
30
29
26
25
22
20
19
20
15
13
11
10
10
0
MHCV
48%
MHCV Tyre
Passenger Car
Tyre
MRF
Motorcycle
Tyre
Apollo Tyre
Tractor Front
Tyre
Tractor Rear
Tyre
Ceat
International Price
Domestic Price
(`/kg)
200
180
160
140
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
120
Financials
Exhibit 6: Key assumptions
Particulars (%)
SY2014E
SY2015E
8.3
9.0
(8.0)
0.1
31.6
14,000
30.7
21.8
8,000
14,312
13,118
(` cr)
10,000
12,131
12,000
30
25
20
15
11,870
2,000
9,743
4,000
7,453
6,000
SY2010
SY2011
SY2012
(%)
16,000
9.1 10
8.1
2.2
0
SY2013
Revenue (LHS)
SY2014E
0
SY2015E
6.0
70.0
66.0
65.2
4.0
2.0
63.3
64.1
SY2011
SY2012
SY2013
EBITDA margin
SY2014E
6.0
600
62.0
200
60.0
5.0
4.8
4.6
4.4
400
64.0
4.0
SY2010
SY2011
SY2012
SY2013
SY2014E
SY2015E
3.0
2.0
SY2015E
PAT (LHS)
8.0
7.0
6.4
800
68.0
8.2
6.6
1,036
8.0
1000
843
70.4
72.0
(%)
10.0
(%)
10.6
7.2
802
15.1
12.0
1200
572
14.0
74.0
432
14.3
341
14.6
73.1
(` cr)
16.0
(%)
Price
2x
5x
8x
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
30,000
27,000
24,000
21,000
18,000
15,000
12,000
9,000
6,000
3,000
0
Jul-08
(`)
11x
FY2016E
Sales
(` cr)
15,873
MRF
SY2015E
14,312
Year end
OPM
(%)
13.3
PAT
(` cr)
1,153
EPS
(`)
22.8
ROE
(%)
19.1
P/E
(x)
7.8
P/BV
(x)
1.4
EV/EBITDA
(x)
4.4
EV/Sales
(x)
0.6
15.1
1,036
2,444
20.8
9.8
1.8
4.7
0.7
Source: Company
Risks
Volatile rubber prices: Natural rubber is the major raw material used in the
manufacture of tyres. Domestic rubber prices have declined from the level of
`168/kg in 3QSY2013 to average levels of `144/kg in 3QSY2014 and to
`140/kg currently. Increase in rubber prices would have a negative impact on the
companys EBITDA margin and consequently on its profit.
Hike in import duty on rubber: In the wake of falling domestic rubber prices, the
Central Government has increased the import duty on natural rubber to a lower of
20% or `30/kg, from the currently lower of 20% or `20/kg. Any further upward
revision in import duty will have an adverse impact on MRFs profitability.
Slowdown in automobile sector: Automobile demand in India has been declining
since SY2011. Of the total tyre consumption in terms of tonnage, original
equipment manufacturers (OEMs) account for ~36%. If the demand from OEMs
continues to be sluggish, it will impact the revenue growth of the company.
Passanger Car
MHCV
LCV
Motor Cycle
30
20
(%)
10
8.3
(4.1)
(10)
(20)
(20.8)
(27.2)
(30)
2QSY14
1QSY14
4QSY13
3QSY13
2QSY13
1QSY13
4QSY12
3QSY12
2QSY12
1QSY12
4QSY11
3QSY11
2QSY11
(40)
Company Background
MRF manufactures rubber products such as tyres, tubes, flaps, tread rubber and
conveyor belts. The company is present across all categories of tyres. MRF is a
market leader in the tyre industry with an ~24% market share as on FY2012. The
company is also a leader in the passenger car tyre segment with a 24.8% market
share and holds a third position in the MHCV segment with a 22.3% market share.
MRF also exports tyres to over 65 countries in America, Europe, Middle East, Japan
and the Pacific region.
Others, 17.6
Apollo Tyres,
20.6
JK Industries,
14.3
Source: Crisil Report, Angel Research
SY2011
SY2012
SY2013
SY2014E
SY2015E
Gross sales
10,645
13,062
13,453
14,548
15,873
1,192
1,322
1,430
1,561
11,870
12,131
13,118
14,312
30.7
21.8
2.2
8.1
9.1
7,115
8,353
7,899
8,413
9,065
447
514
603
735
794
Other
1,380
1,743
1,862
2,099
2,290
Total Expenditure
8,942
10,609
10,365
11,246
12,150
802
1,261
1,767
1,872
2,162
(1.1)
57.3
40.1
5.9
15.5
8.2
10.6
14.6
14.3
15.1
248
301
373
416
460
EBIT
554
960
1,394
1,456
1,703
% chg
0.8
73.3
45.2
4.5
16.9
(% of Net Sales)
5.7
8.1
11.5
11.1
11.9
98
159
196
242
213
EBITDA
% chg
(% of Net Sales)
Other Income
25
32
29
45
57
(% of sales)
0.3
0.3
0.2
0.3
0.4
482
833
1,227
1,258
1,547
PBT
% chg
(8.9)
73.0
47.3
2.6
22.9
Tax
274
261
425
415
510
(% of PBT)
56.9
31.3
34.6
33.0
33.0
PAT (reported)
612
572
802
843
1,036
(404)
224
Minority interest
Extraordinary (Exp)/Inc.
Tax on extraordinary exp
ADJ. PAT
432
572
802
843
1,036
% chg
26.5
32.6
40.2
5.1
22.9
4.4
4.8
6.6
6.4
7.2
1,018
1,350
1,892
1,988
2,444
1,018
1,350
1,892
1,988
2,444
26.5
32.6
40.2
5.1
22.9
(% of Net Sales)
% chg
902
9,743
SY2011
SY2012
SY2013
SY2014E
SY2015E
Preference Capital
Reserves& Surplus
2,294
2,854
3,641
4,471
5,495
SOURCES OF FUNDS
Shareholders Funds
2,298
2,858
3,645
4,475
5,499
Total Loans
1,549
1,659
1,562
1,796
1,590
142
187
222
245
245
827
957
1,080
972
729
50
87
75
64
70
4,865
5,748
6,585
7,552
8,132
Gross Block
3,832
5,063
5,475
6,296
6,989
1,860
2,149
2,505
2,921
3,381
Net Block
1,971
2,914
2,970
3,375
3,608
Capital Work-in-Progress
1,042
415
359
377
396
73
425
906
1,024
1,024
146
57
138
207
207
24
30
35
35
35
3,079
3,371
3,850
4,259
4,726
56
61
331
578
595
189
211
167
171
215
Inventory
1,526
1,646
1,795
1,854
2,109
Debtors
1,309
1,454
1,556
1,657
1,808
Total Liabilities
APPLICATION OF FUNDS
Investments
Long Term Loans and adv.
Other noncurrent assets
Current Assets
Cash
Loans & Advances
Current liabilities
1,471
1,464
1,672
1,725
1,864
1,608
1,907
2,177
2,534
2,862
4,865
5,748
6,585
7,552
8,132
10
SY2012
SY2013
SY2014E
SY2015E
482
833
1,227
1,258
1,547
248
301
373
416
460
(466)
(294)
(0)
(110)
(311)
645
443
248
(45)
(57)
(274)
(261)
(425)
(393)
(510)
634
1,023
1,422
1,126
1,128
(1,008)
(603)
(357)
(839)
(711)
(Inc.)/Dec. in Investments
(352)
(481)
(118)
50
38
(12)
(11)
(170)
82
(85)
(69)
25
32
29
45
57
Other income
Others
Cash Flow from Investing
Issue of Equity
Inc./(Dec.) in loans
Dividend Paid (Incl. Tax)
Others
Cash Flow from Financing
Inc./(Dec.) in Cash
Fixed Deposit
SY2011
43
(126)
12
(1,061)
(929)
(895)
(993)
(648)
1,021
241
26
126
(450)
(12)
(12)
(13)
(13)
(13)
(570)
(317)
(315)
438
(89)
(301)
114
(462)
11
226
247
17
44
45
56
61
331
578
56
61
331
578
595
11
Key Ratios
Y/E Sept (` cr)
SY2011
SY2012
SY2013
SY2014E
SY2015E
23.5
17.7
12.6
12.0
9.8
P/CEPS
14.9
11.6
8.6
8.0
6.8
P/BV
4.4
3.5
2.8
2.3
1.8
0.1
0.1
0.1
0.1
0.1
EV/Sales
1.2
1.0
0.9
0.8
0.7
14.4
9.0
5.9
5.5
4.7
2.4
2.0
1.6
1.4
1.2
EPS (Basic)
1,017.8
1,349.9
1,892.0
1,988.2
2,444.3
1,017.8
1,349.9
1,892.0
1,988.2
2,444.3
Cash EPS
1,601.7
2,060.1
2,771.6
2,968.2
3,528.9
29.1
25.0
30.0
30.0
30.0
5,418
6,740
8,597
10,555
12,969
EBIT margin
5.7
8.1
11.5
11.1
11.9
0.7
0.7
0.7
0.7
0.7
2.6
2.4
2.4
2.4
2.3
10.2
13.6
18.3
17.5
18.6
5.4
6.8
8.0
9.7
8.4
Leverage (x)
0.6
0.4
0.1
0.0
(0.0)
13.1
16.4
19.2
17.8
18.6
ROCE (Pre-tax)
14.0
18.1
22.6
20.6
21.7
18.1
22.5
28.3
27.6
29.1
ROE
21.6
22.2
24.7
20.8
20.8
2.7
2.7
2.3
2.2
2.2
49
49
52
51
51
Receivables (days)
40
42
45
46
46
Payables (days)
50
51
50
56
56
49
52
56
53
54
0.6
0.4
0.1
0.0
(0.0)
1.8
0.9
0.2
0.1
(0.0)
5.7
6.0
7.1
6.0
8.0
EV/EBITDA
EV / Total Assets
Per Share Data (`)
DPS
Book Value
Dupont Analysis
ROIC (Post-tax)
Operating ROE
Returns (%)
12
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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MRF
No
No
No
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
13