MRF creates history! Stock breaches Rs 1 lakh mark to scale all-time peak of Rs 1,00,300 on BSE

MRF share price: Madras Rubber Factory (MRF) scripted history on Dalal Street today as the company's shares breached the crucial Rs 1 lakh mark to scale an all-time peak of Rs 1,00,300 on the BSE. The tyre maker posted robust quarterly numbers for the quarter ended March 2023. The company released its Q4 numbers last month, wherein it said that its consolidated net profit surged over twofold to Rs 341 crore for the March quarter, riding on lower raw material costs. The stock finally ended at Rs 99,950.65, up 1 per cent.

The company had reported a net profit of Rs 165 crore in the January-March quarter of the 2021–22 fiscal from continuing operations. Revenue from operations rose to Rs 5,842 crore for the fourth quarter as against Rs 5,305 crore in the year-ago period, MRF said in a regulatory filing.

In its Q4 review note, released in May, Motilal Oswal Securities said that MRF’s competitive positioning within the sector has weakened over the past few years, which is also being reflected in the dilution of pricing power in the PCR and TBR segments. This, coupled with the impact of capex to be carried out, should result in limited expansion in return ratios. PCR stands for passenger car radial tyres, while TBR is the short form for truck, bus, and radial tyres.

"We expect MRF’s return ratios to see a relatively lower uptick v/s peers over the next two years as its return on equity (RoE) is expected to reach 10.5 per cent by FY25 (lower than APTY/CEAT at 12.2 per cent/13.7 per cent)," it had said. Further, the current valuation of 22.3x FY25E EPS represents an almost 100 per cent premium to its peers, despite a weakening competitive position and similar capital efficiencies. Maintain our sell rating, the brokerage added.

As per information available on public platforms, in 2002, the share price stood at Rs 1,000, and in 2023, it reached Rs 1 lakh. So, the stock has had a 25 per cent compound annual growth rate (CAGR) over the past 21 years.

Analysts' take | Santosh Meena, Head of Research, Swastika Investmart

MRF, one of the leading stocks in the Indian stock market, has made history by becoming the first 6-digit stock after surpassing the impressive milestone of 1 lakh. The technical chart analysis indicates that there is further potential for growth, as we can observe a breakout pattern known as a classical flag formation. This pattern suggests that the stock's upward momentum is likely to continue, with a potential target of around 1,10,000. It's important to note that even if there are temporary pullbacks, the previous breakout level of 95,000 is expected to provide strong support and act as a solid foundation for the stock.

MRF stock price performance

The share price of MRF has jumped 46 per cent in the last one year period (June 13, 2022- June 13, 2023). At the time of writing this news, the market capitalisation of the company stood at Rs 42,303.09 crore on the BSE.

MRF: Magic of compounding

Chandrachoodamani N V, smallcase manager and equity analyst at PrimeInvestor.in, explained that MRF has neither given bonus shares nor split its stock from its Rs 10 face value. Another notable feature is that it has distributed very low dividends, which are often mocked by investors.
But what the company actually did by not doing all this was create wealth for investors, and how!

It grew its business profitably with a steady return on capital in an industry that is otherwise considered highly cyclical. It re-invested its cash flows back into the business throughout its journey. Very few companies have found opportunities to re-invest their cash flows back into their businesses at 17 per cent–18 per cent ROCE for such a sustained period of time.

"If you are looking for numbers, know this: it generated Rs. 30,360 crore of operating profit in the last 15 years, converted 73 per cent of it into operating cash flows, and re-invested Rs. 20,744 crore in fixed assets with an average RoCE of 18 per cent. What it paid as dividends was a paltry Rs. 446 crore in these 15 years. But it earned 18 per cent on re-invested capital to create true compounding for its stockholders!