Do you know a tyre manufacturer is the most expensive stock in terms of share price in India? Yes, you heard it right and it is MRF. Logging in stellar results on Dalal Street in the past two decades, investors have benefitted immensely by investing in this stock.
Sample this: The scrip has jumped nearly 12,800% to Rs 82,638 on June 15, 2021 from Rs 640.65 in June 2001. This means, Rs 1 lakh invested in this stock 20 years back has now turned into over Rs 1.28 crore.
Headquartered in Chennai, MRF is the largest tyre manufacturer in India and has a sizeable presence in all major tyre categories.
MRF is the market leader in 2-wheeler tyres and ranks among the top-3 in other key tyre segments like truck and bus (T&B) and passenger car radial (PCR). The T&B segment contributes the highest to the company’s revenues, followed by 2Ws and PCR tyres.
It caters to both domestic and international markets. MRF has a pan-India sales network and 9 manufacturing plants, of which 7 are located in the southern states. In addition to tyres and related rubber products, the company is also present in paints and coats, toys, motorsports and cricket training. Earlier, the company was started as a toy balloon manufacturing unit in 1946.
MRF has reported over 20% annualised growth in net profit during the past 20 years. The net profit of the company has soared to Rs 1277 crore in FY21 from Rs 31.74 crore in FY2001. Likewise, the gross sales of the company increased by nearly 11% annually to Rs 16,163 crore during the same period.
Coming to the latest financial results, the company recently reported a 51% drop in its consolidated net profit to Rs 332 crore for the fourth quarter of the fiscal ended on March 31, 2021. MRF had posted a consolidated net profit from continuing operations at Rs 679 crore for the January-March quarter of 2019-20.
Consolidated revenue from operations stood at Rs 4,816 crore for the fourth quarter against Rs 3,685 crore in the same period of FY20.
There is a similarity between MRF and legendary investor Warren Buffett’s Berkshire Hathaway. Both of these companies have never split their shares. It has seen that companies usually announce to split their stock from time to time to maintain liquidity. But MRF never split its shares of issued bonus shares.
Market watchers believe that the promoters of the company might not want to raise its shareholders base, or they want only serious investors in the company. This might be the one reason that the share price is so high.
Anand Rathi Shares and Stock Brokers is positive on MRF with a price target of Rs 96,217. The brokerage expects the company is likely to benefit from the unlocking of the economy.
“We expect Q2FY22 demand to grow strongly with expected normal operations at MRF. We expect revenue to grow 25% YoY in FY22,” the brokerage said adding OEMs and replacement category to grow strong in FY22.
On the other hand, IIFL Securities is also bullish on MRF with a price target of Rs 90,000. However, it added that natural rubber and crude prices have rallied sharply since Q3FY21 and are sustaining at high levels. The tyre industry has been relatively slow in implementing price hikes.
“The 2nd Covid wave and related disruptions would hurt volumes in Q1FY22. We cut our FY22-23 EPS by 9-10%, as we factor in the input cost pressure as well as the Covid impact in Q1,” IIFL said.
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