Begun as a balloon factory with an initial funding of Rs 14,000 in the 1940s, MRF is today one of the leading tyre manufacturers in the country with a market capitalisation in excess of Rs 8000 crore, consolidated FY13 net sales of more than Rs 12,000 crore and net profit of over Rs 800 crore. The company’s financial year runs from October to September.
Given its size, brand name and distribution network, MRF is one of the most sought after tyre company stocks. The 58 per cent rise in MRF’s share price to about Rs 19,800 over the past one year validates investor interest. The domestic mutual fund shareholding in the counter has risen to almost 7 per cent at the end of the September quarter, its highest in nearly a decade.
MRF’s strong presence in the replacement tyre market has allowed it to cope better than rivals with the slowdown in the Indian automotive industry. Demand has been sluggish for over a year now with both passenger cars and commercial vehicles reporting a substantial dip in sales for the January-November period over previous years.
Apart from replacement demand, MRF has also been helped by a wide product range that caters to medium and heavy commercial vehicles (MHCV), passenger cars, motorcycles and light commercial vehicles (LCVs). Sales during the year have held steady while the earnings before interest depreciation and tax (EBITDA) margin has been buoyant at more than 14 per cent in FY13.
MRF’s strength lies in brand loyalty and an extensive distribution network with more than 9,000 dealers, apart from its strong presence in the replacement market. As much as 76 per cent of the company’s top line is attributable to the replacement market, which is likely to see a steady rate of growth due to a sustained rise in the absolute number of vehicles on the road with each passing year.
Also, since margins are better for tyre makers in the replacement segment than the original equipment manufacturer (OEM) market, investors are optimistic about MRF as a long-term investment bet. Given the diversified product portfolio and market recognition, MRF will benefit from a revival in the automobile sector, especially in the MHCV and LCV segments.