MRF share price today: Anand Rathi upgrades target to whopping Rs 104823

MRF share price today: Anand Rathi continues to remain positive regarding the outlook for MRF stock as demand for TBRs PCRs and two-wheelers have started to return. Anand Rathi expects demand to continue in the following quarters, barring production issues.  With operations normalising at MRF, Anand Rathi expect strong revenue growth in FY22. Anand Rathi upgraded their rating to a Buy with a target price of Rs 104823 (20x FY23e).

Recovery in the replacement category led to a strong top-line for MRF:

MRFs Q3 FY21 revenue grew 14% yoy to Rs 45.6 bn while its margins expanded by a significant 587 bps yoy to 21%. Anand Rathi expects the strong momentum to continue in Q4, led by sustained growth in the replacement category and recovery in automobile volumes. Anand Rathi also believes that MRF will be able to soon address production issues. Therefore, we expect strong revival in production in FY22, leading to overall growth of 25% yoy.

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Channel check takeaways:

Based on channel checks, Anand Rathi believes that there are many supply constraints in terms of sourcing basic raw materials, because of which production has been lower. Also, some of the machinery and equipment that were supposed to come, did not, which has led to delayed production. However, channel checks also point out that there is significant demand for MRF’s products, across categories. Anand Rathi believes that Q4 FY21 will have a very strong growth and MRF will grow more than its competitors in FY22.

Introducing FY23e:

Anand Rathi expects FY23 revenue to grow 12% yoy, with a 17.1% margin, in line with FY22. Accordingly, Anand Rathi expects earnings to grow 27% yoy to Rs22.2 bn.

MRF Valuation:

Anand Rathi expects an 18% CAGR in revenue over FY21-23, and 23% in earnings, leading to an EPS of Rs5,241. Anand Rathi upgraded their rating to a Buy at a target price of Rs 104823 (20x FY23e).