The Hindu Business Line : MRF: Buy

The market leader, MRF, could be among the major beneficiaries of the potential growth in demand for tyres. Being the market leader, MRF appears well-positioned to exploit the prevailing favourable business environment in the tyre industry.

Long-term investors can contemplate equity exposure in the company at the current price level of Rs 1,410.

MRF derives a bulk of its revenue from the highly lucrative replacement market and has a strong presence in the truck and bus tyre market, which is the largest segment of the tyre industry.

MRF also has a presence in the two-wheeler and tractor tyre markets. It has a fairly prominent position in the fast-growing passenger car radial market.

Considering the huge exposure to the replacement market, the company's financial performance tends to fluctuate in sync with the overall economic growth. The recent pick-up in automobile production and the recovery in industrial output have had a positive impact on the company's performance.

For the year ended September 2002, the turnover rose 7 per cent, while the post-tax earnings more than doubled to Rs 78.46 crore from Rs 31.74 crore.

On the equity base of Rs 4.24 crore, the per share earnings works out to Rs 74.85.

The company's performance took a knock during the second quarter ended March 2003. Owing to increase in input cost and mounting competitive pressure, the company posted a relatively modest profit growth of 30 per cent at Rs 18.2 crore (without taking into account the extraordinary income). Turnover for this period rose 18 per cent to Rs 522.22 crore.

MRF's performance is likely to improve on account of the recent soft trend in price of key inputs, including natural rubber.

The appreciation in the value of the rupee along with the decline in crude oil price would have led to a decline in price of petro-based inputs such as carbon black and tyre cord.

Besides, the reduction in excise duty on truck tyres sold in the replacement market would also have a net positive impact for the company.

Taking into account the small equity base, strong fundamentals and improved business prospects, long-term investors could contemplate equity exposure in MRF at the current price levels.

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