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Shares of MRF crossed a first time Rs 100,000 mark, hitting a record high of Rs 100,300, up 1.4 per cent on the BSE in intra-day trade. on June 13, 2023.
The stock surpassed its previous high of Rs 99,879.65, touched May 8, 2023.
Thus far in the current calendar year 2023 (CY23), MRF has outperformed the market by gaining 14 per cent on improved financial performance.
In comparison, the S&P BSE Sensex gained 3 per cent during the period.
In the past one year, the stock has rallied 46 per cent, as against a 19 per cent surge in the benchmark index, data shows.
Despite the impressive show in the recently concluded quarter and FY23, analysts prefer MRF’s peers such as Apollo Tyres, Balkrishna Industries and Ceat.
MRF, they suggest, trades at expensive valuations, which makes the tyre manufacturer less attractive.
“MRF has seen a good run in the past few months and has been one of the top performing tyre stocks in CY23.
"It now trades at around 55x FY23 earnings, which is very expensive.
"Traditionally, tyre stocks have traded at less than 20x. This makes MRF a bit unattractive compared to peers.
"Apollo Tyres and Balkrishna Industries are better bets in the tyre space as compared to MRF purely from a valuation perspective,” said A K Prabhakar, head of research at IDBI Securities.
That apart, MRF’s thin trading volumes at the bourses is another concern. On Tuesday, for instance, the total traded volume at the BSE was mere 297 shares till around 10.30am.
The combined average trading volumes in the past three months stood at 8,631, or less than 9,000 shares.
For retail investors, Prabhakar believes, owning shares of a company that price-wise is at an astronomical level is also a deterrent.
“It is only FIIs and large institutions who can hold a stock that price-wise is so high,” he said.
As on March 31, 2023, MRF had a total 4.24 million outstanding equity shares. Of these, promoter’s held 27.84 per cent, while public shareholders held the remaining 72.16 per cent stake.
Among public shareholders, bodies corporate held 18.80 per cent stake, while foreign portfolio investors held 18.05 per cent holding, followed by retail shareholders (13.55 per cent), mutual funds (6.83 per cent) and other domestic institutions (4.65 per cent).
Impressive show
At the fundamental level, despite efforts being taken to pass on the cost increases in a graduated manner, the profitability continued to be low during the first three quarters of the year.
However, with easing of raw material prices (crude oil & rubber) during the latter part of the year, the benefits of lower raw material cost resulted in better profitability in Q4-FY23.
For the financial year 2022-23 (FY23), MRF had reported the consolidated net profit of Rs 768.96 crore, as compared to Rs 669.24 crore in FY22.
Consolidated total income grew 18.5 per cent year-on-year (YoY) at Rs 23,261 crore.
Earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin remained almost flat at 10.4 per cent, as against 10.6 per cent in previous year.
“MRF’s 4QFY23 performance surprised positively as lower raw material costs boosted the EBITDA margin to 14.7 per cent, against an estimate of 11.9 per cent.
"EBITDA margin recovery is expected to continue in FY24 on the back of softening RM costs and operating leverage,” analysts at Motilal Oswal Financial Services (MOFSL) said in a recent note.
“MRF stock has a very low float in the market.
"That said, the March 2023 quarter numbers were quite impressive on all parameters, led by a fall in crude and rubber prices.
"Within the tyre sector, we like Ceat, Apollo Tyres, JK Tyres and Balkrishna Industries,” said Gaurang Shah, senior vice-president at Geojit Financial Services.