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8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
1/14
MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013Friday, December 06, 2013 1
MRF(MRF IN, CMP: Rs17,407, Not Rated)
Sustained large FCF generation to result in re-rating
December 6, 2013
Basudeb Banerjee + 91 22 4088 0375
Ankit Pande + 91 22 4088 0393
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
2/14
MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
Table of content
MRF: Sustained large FCF generation to result in re-rating 3
Maintaining share in a weak market led by favourable mix: Focus set to remain towards the personal mobility related branded 4
segment tyres
Strong distribution and brand power to aid growth: Prudent capacity addition keeping utilisation around the ~85-90% level 5
Industry leading margin set to sustain ahead:Lower CV tyre centricity, better brand power in the PCR and scale factor helping 6
MRF deliver robust margin on a sustained basis
Larger chunk of capex already done in FY10-12: Robust FCF generation to the tune of Rs8 bn pa to make MRF debt free by FY15E 7
Good scope for re-rating on back of healthy cash flows: Global peers with similar ROE trading at ~9-10x forward earnings 8
Risks to the business 9
Financial statements 10-11
Company profile 12
2
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
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MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
EPS PE EV/EBITDA ROCE ROE
(Rs mn) Growth (%) (Rs mn) Margin (%) (Rs mn) Growth (%) (Rs) (x) (x) (%) (%)
FY11 97,353 30.6 8,300 8.5 6,194 75.0 1,460.8 11.9 10.4 17.5 31.1
FY12 118,261 21.5 12,581 10.6 5,717 (7.7) 1,348.4 12.9 6.8 23.5 22.2
FY13 122,479 3.6 17,797 14.5 8,080 41.3 1,905.6 9.1 4.4 30.3 24.8
FY14E 132,531 8.2 19,383 14.6 10,210 26.4 2,408.1 7.2 3.6 30.5 24.5
FY15E 148,003 11.7 19,310 13.0 10,685 4.7 2,520.1 6.9 3.2 25.8 20.6
YE
September
Revenue EBITDA Adj PAT
Sustained large FCF generation to result in re-rating
MRF IN, CMP: Rs17,407 Not Rated
3
Financials and valuation
Note: Pricing as on 05 December 2013; Source: Company data, quant Global Research estimates
Source: Bloomberg
Source: BSE
Price movement (Rs) vs the Sensex
Source: Bloomberg
Sep-13 Jun-13 Mar-13
Promoters 27.3 27.3 27.2
FIIs 4.5 4.6 4.3
DIIs 11.0 10.9 10.7
Others 57.1 57.3 57.7
Shareholding pattern (%)
Market cap: Rs73.8 bn (US$1.19 bn)
52-week high/low: Rs18,025/Rs11,011
Share o/s: 4.2 mn
Share o/s (fully diluted): 4.2 mn
Avg daily trading vol (3m): 15.3('000)
Avg daily trading val (3m): Rs231.7 mn (US$3.8 mn)
We believe MRF Ltd. (MRF IN) will become net debt free by FY15 led by robust cash flow generation over the next two
years. We expect MRF to deliver FCF p.a to the extent of Rs7-8 bn in FY14 and FY15E driven by a 9-10% revenue CAGR in
FY13-15E along with visibility of EBITDA margin remaining ~13-15%. Unlike, Apollo Tyres and JK Tyres, MRFs
concentration of low margin CV tyre is much lower at ~32%. Whereas, high growth and high margin personal mobility
segments like PCR and 2-W tyres contribute ~17% and ~22% of revenue. With ROE expected to stabilise around the 20-
24% range, stock is presently trading around 1.3x P/B and 7x fwd. earnings on back of a 15% earnings CAGR in FY13-15E.
We see good scope for re-rating of MRF left ahead from present ~7x fwd earnings vs global peers with similar ROE &
margin profile trading at ~9-10x fwd earnings.
Expecting a 10% revenue CAGR in FY13-15E led by higher exposure to less cyclical segments: We expect MRF to slightly
add to its existing market share by ~100bp and operate with a share of ~30% by FY15E led by ~40% exposure to branded
personal mobility segment tyre segments. Operating at optimal utilisation levels of 85-90%, M&HCV tyres contribute ~32%
of its revenue (market share in overall M&HCV tyres at ~21% and 10% in TBRs) with tractor tyres contributing almost 18%
of its revenue. With pan India dealership network of ~9,200 outlets, MRF is well poised to retain leadership ahead.
Margin set to remain around 13-15% in FY14-15E: We expect EBITDA margin to remain around 13-15% in FY14-15E on
back of superior product mix, stable Raw material basket (RMB) price and improving scale. With CV tyres mix expected to
remain low as growth is set to be driven by PCR, 2-W & tractor tyres, mix is expected to remain favourable in FY14-15E.
Robust FCF generation to keep MRF debt free in the next capex cycle: We expect MRF to generate FCF of Rs7-8 bn p.a in
FY14-15E led by strong margin visibility and normalised capex/sales of 4%, after completing the larger capex cycle in FY10-
12 (~Rs21 bn). We expect MRF to operate at a ROE of 20-24% and ROCE of 25-30% in FY14-15E. With cash on books
expected at ~Rs12 bn by FY15E, we believe MRF will be well placed to fund the next capex cycle fully without raising debt.
17,000
17,500
18,000
18,500
19,000
19,500
20,000
20,500
21,00021,500
22,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
Nov-12
Dec-12
Jan-13
Jan-13
Feb-13
Mar-13
Apr-13
Apr-13
May-13
Jun-13
Jun-13
Jul-13
Aug-13
Aug-13
Sep-13
Oct-13
Oct-13
Nov-13
MRF I N Se nse x (RHS)
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
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MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
285.8 286.2
337.1
369.0
385.2
400.0
415.0
460.0
(12)
(7)
(2)
3
8
13
18
200
220
240
260
280
300320
340
360
380
400
420
440
460
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
Dom es tic Tir e m ar ke t s iz e ( Rs bn) Gr owth (%) (RHS )
15.9
17.8
19.9
23.7
27.6 27.6
28.7 29.0
15
18
21
24
27
30
33
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
MRF value market share (%)
1
6
11
16
21
26
31
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY1
4E
FY1
4E
Re ve nu e (Rs mn ) Growt h (%)(L HS)
Source: Company data, quant Global Research estimates
Source: Company data, quant Global Research estimates
Expecting MRF to grow its revenue at a 10% CAGR in FY13-15E
MRF domestic market share set to remain steady around the 27-29% levels
MRFmaintaining share in a weak market led by favourable mix
Focus set to remain towards the personal mobility related branded segment tyres
4
Source: ATMA, quant Global Research estimates
Expecting domestic tyre market to grow @6% in FY13-15E
With focus towards relatively stable segments in the form of PCR/2-
W/tractor segments, we believe MRF is well poised to maintain its
leadership in the weak market amid rising competition from MNCs:
Revenue drivers
We believe, MRF is well placed under present weak demand
environment, with focus towards steady demand from PCR/2-W
and tractor tyres, thus outperforming CV centric player like
Apollo Tyres. We believe, rising TBR penetration & expected
recovery in CV cycle by FY15 end are the key catalysts for revival
in CV tyre demand ahead. With around 9,200 dealer ship outlets
spread pan India, MRF has the best S&D network amongst peers.
We expect MRF maintain leadership with share of ~28-30%ahead. We factor in a 10% revenue CAGR for MRF in FY13-15E.
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
5/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
1511
16521739
18801925
21552214
2568
28352779 2806
2863
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
3000
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
Realisation/Tyre (Rs)
17.4
19.8 20.6
24.9 25.4
28.5
31.7
34.3
38.4
44.2
48.6
53.5
15
25
35
45
55
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
Capacity (mn tyres)
4.1
3.1
7.5
8.4
2
4
6
8
10
Overall domestic market T&B 2/3-W PCR
Market CAGR (FY11-13)
Source: : ATMA, CEAT Presentation, quant Global Research estimates
Source: Company data, quant Global Research Estimates
Steady pricing on a blended basis despite falling raw material basket price
MRF focusing towards the higher margin and stable growth areas more
5
Capacity increasing at a steady pace in sync with demand, keeping utilisation levels
steady around the 85-90% level on an average
Source: Company data, quant Global Research Estimates
MRFstrong distribution and brand power to aid growth
Prudent capacity addition keeping utilisation around the ~85-90% level
We believe MRF the proven leader in the domestic tyre market is
set to retain its leadership across segments with its strong S&D
network and brand equity. For MRF, ball park market share in the
PCR, CV and tractor rear segments are 21%, 20% and 33% withshare in the TBR segment being a mere 10% as incremental capacity
in this segment will be coming up gradually ahead.
With plants located at eight locations spread across southern India,
MRF is presently operating with a capacity of ~45 mn tyres p.a and
is broadly running at ~85-90% utilisation. With the latest plant at
Trichy getting added in CY12, MRF has spent ~Rs22 bn in FY11-13,
to enhance its capacity by ~40% to present levels. We believe MRF
will focus towards the TBR and PCR segments for its incremental
capacity addition with capex/TPD requirement at ~Rs40 mn.
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
6/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
MRFindustry leading margin set to sustain ahead
Lower CV tyre centricity, better brand power in the PCR and scale factor helping MRF
deliver robust margin on a sustained basis
6
Source: Company Data, quant Global Research Estimates
Margin set to remain above 15% in coming couple of quarters; one-off costs
impacted 4QFY13 margin
Gross margin improving every quarter; expecting further improvement in coming
quarters with NR prices further correcting to ~Rs150/kg levels
Source: Company Data, quant Global Research Estimates
Expecting EBITDA margin to remain around 15% in FY14E; factoring in FY15E margin
at a conservative 13%
Source: Company Data, quant Global Research Estimates
10.6%
12.3%
8.2%
2.2%1.2%
12.3%
17.5%
16.9%15.0%
11.8%
8.5%
9.8%
11.2%
9.2%
6.0%6.9%
9.0%
10.9%
10.7%
11.7%
13.3%
15.3%15.8%
13.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
De
c-07
Ma
r-08
Ju
n-08
Sep-08
De
c-08
Ma
r-09
Ju
n-09
Sep-09
De
c-09
Ma
r-10
Ju
n-10
Sep-10
De
c-10
Ma
r-11
Ju
n-11
Sep-11
De
c-11
Ma
r-12
Ju
n-12
Sep-12
De
c-12
Ma
r-13
Ju
n-13
Se
-13
MRF EBITDA margin
20%
25%
30%
35%
40%
45%
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Se
-13
MRF gross margin Mean GM
8.9
12.7
11.5
8.5
10.6
14.5 14.6
13.0
6
7
8
9
10
11
12
13
14
15
16
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
EBITDA margin (%)
We expect EBITDA margin to sustain above 15% in next couple of
quarters on back of favourable RMB costs along with gradual uptick
in scale in a weak market. Pricing discipline across the industry has
remained robust in past couple of years despite a ~15% overalldecline in the RMB. Going ahead, we believe rise in TBR penetration
& increase in competitive intensity from MNCs to spruce up pricing
power and in turn margin in the TBR segment. Despite ~25% higher
capex/TPD addition, lower margin scenario presently is impacting
ROCE of the TBR business segment. Fortunately MRFsshare in TBR
is barely 10% contributing merely 15-20% of its revenue.
We do not see the influx of MNC manufacturers by FY16 in the
domestic market as a potential risk to the margin structure and
overall industry pricing discipline as typically MNCs do not tend to
grab share sacrificing margins.
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
7/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
MRF larger chunk of capex already done in FY10-12
Robust FCF generation to the tune of Rs8 bn pa to make MRF debt free by FY15E
7
Source: Company data, quant Global Research estimates, Bloomberg
Factoring a 10% CAGR in capacity addition ahead @ Rs40-50 mn/TPD
Set to become a net cash entity by FY15E on back of strong FCF generation
Source: Company data, quant Global Research estimates
Trading close to 1.3x P/B with mean ROE of around 22-23%
Source: Company data, quant Global Research estimates
Balance sheet health to improve further in FY14-15E
On back of a 10% revenue CAGR in FY13-15E, we expect MRF to
turn cash in FY15E on back of our assumption of operating
margin at ~13-15%. With majority of capex cycle already getting
over, we believe MRF would generate FCF even at a conservative
margin of 10%. Under present scenario of pricing discipline and
visibility of favourable RMB pricing, we do not see any major risk
to our margin and thus in turn our FCF expectations.
We expect MRF to operate at a ROCE of ~25-30% in FY14E & 15E
and have a net cash of ~Rs12 bn on books by FY15E. Thus MRF
would be well positioned to fund for the next big capex cycle,
even a optimal margin level without leveraging its books or take
the higher dividend payout route to improve its ROCE further.
13.7
20.4
23.2
31.1
22.2
24.8 24.5
20.6
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
12
16
20
24
28
32
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
ROE (%) BVPS (Rs) (RHS)
5,836
1,623
8,697
11,260
6,200
4,0005,000 5,000
(3,793)
5,514
(6,724) (6,120)
(4,250)
7,576 7,9108,550
(8,000)
(6,000)
(4,000)
(2,000)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
Capex (Rs mn) FCF (Rs mn)
13.5
21.8
24.1
17.5
23.5
30.3 30.5
25.8
(0.4)
(0.2)
0.0
0.2
0.4
0.6
0.8
1.0
5
10
15
20
25
30
35
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
ROCE (%) Ne t d ebt /Eq uit y (x ) (RHS)
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8/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
0
5
10
15
20
25
Oct-05
Ja
n-06
Ap
r-06
Jul-06
Oct-06
Ja
n-07
Ap
r-07
Jul-07
Oct-07
Ja
n-08
Ap
r-08
Jul-08
Oct-08
Ja
n-09
Ap
r-09
Jul-09
Oct-09
Ja
n-10
Ap
r-10
Jul-10
Oct-10
Ja
n-11
Ap
r-11
Jul-11
Oct-11
Ja
n-12
Ap
r-12
Jul-12
Oct-12
Ja
n-13
Ap
r-13
Jul-13
Oct-13
1
2
3
4
5
6
7
8
9
10
11
Oct-0
5
Apr-0
6
Oct-0
6
Apr-0
7
Oct-0
7
Apr-0
8
Oct-0
8
Apr-0
9
Oct-0
9
Apr-1
0
Oct-1
0
Apr-1
1
Oct-1
1
Apr-1
2
Oct-1
2
Apr-1
3
Oct-1
3
(X)
GLOBAL
CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E
Michelin ML FP 10,519 56.2 14,983 15,428 16.1 17.3 10.8 9.4 4.8 4.4 15.2 15.4
Goodyear GT US 5,429 22.0 19,803 20,440 10.5 10.9 8.7 7.8 5.2 4.8 64.3 44.3
Bridgestone 5108 JP 29,338 36.1 35,261 37,230 16.5 16.8 11.0 10.0 5.5 5.1 17.1 16.3
Hankook 161390 KS 7,248 58.5 6,829 7,301 20.2 20.1 9.7 9.2 6.5 6.1 21.8 19.3
Pirel l i PC IM 3,881 8.0 4,550 4,833 17.7 18.1 14.1 11.5 6.8 6.2 14.2 15.9
Continental CON GY 22,193 111.0 24,502 26,056 15.4 15.7 14.0 12.3 7.3 6.7 24.2 23.6
Cooper Ti res CTB US 1,559 23.9 3,617 3,821 12.5 11.6 9.6 9.5 4.1 4.2 13.1 12.5
Titan International TWI US 915 17.1 2,207 2,304 9.5 10.2 18.8 16.7 5.9 5.3 11.9 13.7
Mean 12.1 10.8 5.8 5.4 22.7 20.1
DOMESTIC
FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E
Apollo Tyres APTY IN 644 1.3 2,176 2,357 12.0 11.9 5.6 5.1 3.4 3.2 18.9 17.3
Balkri shna Tyres BIL IN 440 4.5 544 594 23.9 22.7 6.6 7.0 5.7 5.1 25.5 19.5
CEAT CEAT IN 175 5.1 902 991 12.1 10.7 3.7 3.9 2.5 2.8 31.4 23.3
JK Tyre & Industries JKI IN 107 2.6 1,237 1,400 11.5 11.2 2.4 2.0 3.2 2.9 29.7 30.3
MRF * MRF IN 1,203 283.7 2,149 2,400 14.6 13.0 7.3 6.9 3.6 3.2 24.5 20.6
Mean 5.1 5.0 3.7 3.4 26.0 22.2
EBITDA margin (%) P/E (x) EV/EBITDA (x) ROE (%)Company name Ticker
Mkt Cap
(US$ mn)CMP (US$)
Revenue (US$ mn)
ROE (%)Company name Ticker
Mkt Cap
(US$ mn)CMP (US$)
Revenue (US$ mn) EBITDA margin (%) P/E (x) EV/EBITDA (x)
MRFgood scope for re-rating on back of healthy cash flows
Global peers with similar ROE trading at ~9-10x forward earnings
8
Scope for re-rating ahead on back of healthy cash flows leading to
de-leveraging amid strong earnings growth momentum:
We believe there is a good scope for re-rating of MRF valuation
multiples ahead on back of visibility of improving cash flows
along with strong earnings momentum. On back of MRF turning
into a net cash entity, we believe, MRF is well poised to play the
next demand up-cycle capex needs, funding the capex from
internal accruals, thus boosting earnings.
As per global comparables with similar ROE profiles along with
MRFs past valuation cycles, we believe MRF has the scope of
getting re-rated to the extent of 9-10x in coming quarters from
present levels of 7-8x.
Trading at ~7x 1-yr fwd earnings; expecting uptick on back of strong margin led
robust earnings momentum
Trading at ~3.2x 1-yr fwd EV/EBITDA; huge scope for re-rating on back of kind of
balance sheet health improvement expected in FY14-15E
Source: Company data, quant Global Research estimates
Source: Bloomberg, quant Global Research estimatesSource: Bloomberg, Company data, quant Global Research estimates
Valuation comparables
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
9/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013 9
MRFrisks to the business
Risks to the business
Prolonged weakness in the replacement tyre market across segments of PCR and CV to impact FY15 revenue estimates with risk of drop
in pricing discipline in the industry amid rising competition.
Over supply in the domestic market led by influx of MNC players can pose as a risk to the pricing discipline in the industry from FY16E.
Any major revival in demand and rising TBE penetration will be the key to remain insulated from the risk.
Major incremental weakness in INR vs USD would impact margin as MRF is broadly a 10-12% net importer as percentage of revenue.
Major run up in the RMB led by global commodity upsurge amid weak demand sentiment in the domestic market. Though pricing power
across the industry is strong at current juncture, inherent risk of inability to fully pass on cost inflation will always remain in the business.
Misallocation of capital towards unrelated acquisitions, JVs etc through equity dilution or increase in leverage is an inherent risk.
8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED
10/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013
MRFfinancial statements
YE Sep (Rs mn)
Note: Pricing as on 5 December 2013; Source: Company data, quant Global Research estimates
10
Income Statement (Rs mn) FY11 FY12 FY13 FY14E FY15E
Net revenue 97,353 118,261 122,479 132,531 148,003
Expenditure 89,053 105,680 104,682 113,148 128,693
Raw materials 71,071 83,527 79,684 87,039 99,980
Other expenses 17,983 22,153 24,998 26,109 28,713
EBITDA 8,300 12,581 17,797 19,383 19,310
D ep re ci ati on a nd a morti za ti on e xp en se 2,476 3,010 3,740 4,013 4,415
EBIT 5,824 9,571 14,057 15,371 14,895
Non-operating income 2,800 320 250 750 1,400
Interest including finance charges 930 1,545 1,960 881 581
Adjusted pre-tax profit 7,694 8,346 12,347 15,239 15,714
Unusual or infrequent items
Reported pre-tax profit 7,694 8,346 12,347 15,239 15,714
Less: taxes 1,500 2,629 4,267 5,029 5,028
Reported net profit 6,194 5,717 8,080 10,210 10,685
Ad d: e xtra ord in ary i te ms (p os t-ta x b as is ) - - - - -
Less: minority/associate earnings - - - - -
Re porte d ne t p rofi t for s ha re hol de rs 6,194 5,717 8,080 10,210 10,685
Adjusted net profit for shareholders 6,194 5,717 8,080 10,210 10,685
EPS (Rs), based on wtd avg shares 1,461 1,348 1,906 2,408 2,520
EPS (Rs ), b as ed on fu ll y d il ute d s ha re s 1,461 1,348 1,906 2,408 2,520
Year-end shares outstanding (mn) 4.2 4.2 4.2 4.2 4.2
Wei ghted average shares outs tandi ng ( mn) 4.2 4.2 4.2 4.2 4.2
Ful ly di lute d s ha res outs ta ndi ng (mn) 4.2 4.2 4.2 4.2 4.2
Balance Sheet (Rs mn) FY11 FY12 FY13 FY14E FY15E
Equi ty capi ta l 42 42 42 42 42
Reserves and surplus 22,901 28,567 36,516 46,581 57,120
Total equity 22,944 28,609 36,559 46,623 57,162
Deferred tax liabil ity (net)
Long term borrowings 9,614 11,026 11,313 6,313 5,313
Short tem borrowings 4,101 5,287 - - -
Tota l borrowings 13,714 16,313 11,313 6,313 5,313
Minority interest - - - - -
Current l iabi l i ties 26,669 27,353 28,435 29,989 25,623
Total liabilities 63,327 72,275 76,306 82,925 88,098
Cash and cash equivalents 572 648 3,094 5,858 13,262
Inventory 15,290 16,648 17,151 18,558 13,496
Trade receivables 13,024 14,541 15,287 16,541 18,472
Other current assets 3,563 2,814 2,890 3,095 3,411
Total current assets 32,450 34,650 38,421 44,053 48,640
Gross block 37,400 50,676 54,822 59,822 66,322
Le ss : d ep re ci ati on and amo rti za ti on (18,604) (21,490) (25,230) (29,243) (33,658)
Add: capita l work-in-proces s 11,353 4,147 4,000 4,000 2,500
Tota l fixed assets 30,148 33,332 33,592 34,580 35,165
Investments 729 4,293 4,293 4,293 4,293
of which, l iquid investment 674 4,238 4,238 4,238 4,238
Other assets - - - - -
Total assets 63,327 72,275 76,306 82,925 88,098
Net working capita l 14,384 17,597 17,841 19,154 20,704
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MRFfinancial statements
YE Sep (Rs mn)
Source: Company data, quant Global Research estimates Note: as per closing price of 5 Dec 2013
11
Cash Flow Statement (Rs mn) FY11 FY12 FY13 FY14E FY15E
Operating cashflow
Pre-tax income 7,694 8,346 12,347 15,239 15,714
Add: de pre ci ati on a nd a morti za ti on 2,476 3,010 3,740 4,013 4,415
Add: interest expense (net) 930 1,545 1,960 881 581
Less: other adjustments - - - - -
Less: taxes paid (1,500) (2,629) (4,267) (5,029) (5,028)
Add: working capital changes (3,527) (3,213) (244) (1,313) (1,550)
Total operating cashflow 6,073 7,059 13,536 13,792 14,132
Investing cashflow
Capital expenditure (11,260) (6,200) (4,000) (5,000) (5,000)
Investments (2) (3,564) - - -
Others (930) (1,545) (1,960) (881) (581)
Total investing cashflow (12,192) (11,309) (5,960) (5,881) (5,581)
Financing cashflow
Share issuances - - - - -
Loans 557 2,599 (5,000) (5,000) (1,000)
Less: Others 5,607 1,727 (130) (146) (146)
Total financing cashflow 6,164 4,326 (5,130) (5,146) (1,146)
Net change in cash 45 76 2,446 2,764 7,404
Opening cash 528 572 648 3,094 5,858
Add: other adjustments - - - - -
Closing cash 572 648 3,094 5,858 13,262
Growth Ratios (%) FY11 FY12 FY13 FY14E FY15E
Net revenue 30.6 21.5 3.6 8.2 11.7
EBITDA (3.3) 51.6 41.5 8.9 (0.4)
Adjus ted net profit 75.0 (7.7) 41.3 26.4 4.7
Ratios (%)
Effective tax rate 19.5 31.5 34.6 33.0 32.0
EBITDA margin 8.5 10.6 14.5 14.6 13.0
Adjus ted net income margin 6.4 4.8 6.6 7.7 7.2
Net debt/equity 0.5 0.4 0.1 (0.1) (0.2)
ROaCE 17.5 23.5 30.3 30.5 25.8
ROaE 31.1 22.2 24.8 24.5 20.6
Tota l ass et turnover ratio (x) 2.6 2.7 2.5 2.5 2.4
Inventory days 57.3 51.4 51.1 51.1 33.3
Debtor days 48.8 44.9 45.6 45.6 45.6
Per share numbers (R s)
Di luted earnings 1,461 1,348 1,906 2,408 2,520
Cas h earnings 2,045 2,058 2,788 3,354 3,561
Free cas h (1,223) 203 2,249 2,074 2,154
Book va lue 5,411.2 6,747.4 8,622 10,996 13,482
Valuations (x)
Price to di luted earnings 11.9 12.9 9.1 7.2 6.9
EV/EBITDA 10.4 6.8 4.4 3.6 3.2
Pri ce to book 3.2 2.6 2.0 1.6 1.3
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MRFcompany profile
Company profile
MRF, Indiaslargest manufacturer of automotive tyres and tubes, was incorporated as a private limited company in 1960 to take over the
business of a partnership firm called TheMadras Rubber Factorystarted by the late Mr. K.M. Mammen Mappillai. Over the years, the
company has established a country-wide dealer network and enjoys a strong brand image.
Being the leader in the domestic tyre market with a share of ~28%, its revenue mix is quite diversified. CV, PCR, 2-W and tractors
contribute roughly 40%, 17%, 23% and 18% of its revenue. Exports contribute roughly 10% of its revenue.
It has eight manufacturing plants set across Southern India.
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Disclaimer
Ratings and other definitions
Stock rating system
BUY. We expect the stock to deliver >15% absolute returns.
ACCUMULATE.We expect the stock to deliver 6-15% absolute returns.
REDUCE. We expect the stock to deliver +5% to -5% absolute returns.
SELL. We expect the stock to deliver negative absolute returns of >5%.
Not Rated (NR). We have no investment opinion on the stock.
Sector rating system
OVERWEIGHT. We expect the sector to relatively outperform the Sensex.
UNDERWEIGHT. We expect the sector to relatively underperform the Sensex.
NEUTRAL. We expect the sector to relatively perform in line with the Sensex.
We,Basudeb Banerjee and Ankit Pande, hereby certify that all of the views expressed in this presentation accurately reflect our personal views about the subject company
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Institutional Equities Research coverage universe
distribution of ratings
13
45%
27%
17%
12%
0%
5%
10%
15%
20%
25%
30%
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Buy Accumulate Reduce Sell
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Title
612, maker chambers IV, nariman point,
mumbai 400 021, india
phone 91 22 4088 0100, 3025 0100
fax 91 22 4088 0198, 3025 0198
Thank you
Basudeb Banerjee
91 22 4088 0375
Ankit Pande
91 22 4088 0393