At ₹50,000, MRF now is India’s most expensive stock
MUSCLE POWER Decline in rubber prices leading to high profit margins for tyre companies; analysts see share prices rising further
in India’s largest tyre maker MRF on Wednesday became the country’s most expensive in the last nine years, breaching the ₹50,000-per-share mark as tyre company stocks staged a broad rally on India’s stock exchanges.
State-run MMTC had hit a record high of ₹56,932 in November 2007.
Low material costs, which are pushing profit margins of tyre companies to record highs, and rising demand for cars and twowheelers due to the festival season are driving the rally, analysts said. MRF shares rose 7% during intra-day trade on the Bombay Stock Exchange (BSE) to hit a new high of ₹50,000 on Wednesday, before ending up 6.7% at ₹49,734.45.
The stock has risen 100 times since September 28, 2001, when it was trading at ₹480.15. An investor who had put money in MRF shares then, would have gained over 10,000% according to Wednesday’s closing price. The stock has also gained around 20% so far this year. It has surged over 63% from its 52-week low of ₹30,464.25 on June 24 this year.
On the National Stock Exchange (NSE), MRF hit an intra-day peak of ₹50,190 on Wednesday, before finally settling at ₹₹49,955.
The company’s market cap stood at ₹21,093.09 crore at the end of day’s trade on the BSE.
On share price terms, MRF is followed by Eicher Motor (₹25,741.80), Bosch (₹23,209.60), Shree Cement (₹16,843.10) and Page Industries (₹15,333.70).
Raw materials account for 65% to 70% of the total cost of tyre manufacturers, with rubber being the key input. Over the past two months, rubber prices have declined from around ₹145 per kilogram to ₹120, which analysts say will drive up margins.
Besides MRF, other tyre makers also rallied on Wednesday, including Apollo Tyres (up 2.4%), Ceat (up 5%), JK Tyre (up 6%) and TVS Srichakra (up 18%).
During the April-June quarter, MRF reported a net profit of ₹491 crore on net sales of ₹3,463 crore. Operating margins were at an industry high of 24.1%.
“Raw material prices are once again in favour of tyre makers. With rubber prices at around ₹120 per kg, margins of tyre makers will surge. The strong festival demand should also drive volumes, and this will keep the momentum going for tyre mak- ers,” said Mayur Milak, research analyst at Anand Rathi Share and Stock Brokers.
India Ratings expects tyre sector volumes to grow 7% in 2016-17, compared to 4% in the previous fiscal.
MRF, particularly, has an advantage since it is dominant across segments, and is a market leader in the replacement category, analysts said.
“MRF is the only company commanding a premium in all categories. Despite stiff competition from Chinese imports, we expect it to race ahead of the industry due to its higher OEM (original equipment manufacturers) growth and its leading position in the replacement market,” Milak said.
Anand Rathi has a “buy” on MRF, and sees the stock hitting ₹52,000-53,000 in the coming days.