scorecardresearchMRF drops 7% after profit margins hit by high costs

MRF drops 7% after profit margins hit by high costs

Updated: 09 Nov 2022, 01:57 PM IST
TL;DR.
MRF's overall expenses increased as a result of higher raw material prices, which reduced profit margins. During the second quarter, total expenses jumped by 21.86% to 5,345.7 crore, compared with 4,386.7 crore in the corresponding period last year.
Over the last three years, the stock gave a return of 46.08% as compared to the Nifty 100, which gave a return of 51.43%, and in the last five-year period, it delivered only a 36.97% return.

Over the last three years, the stock gave a return of 46.08% as compared to the Nifty 100, which gave a return of 51.43%, and in the last five-year period, it delivered only a 36.97% return.

Shares of tyre major MRF dipped as much as 7.58% in Wednesday's intra-day trade after the company posted weak September quarter numbers. On the NSE, the stock opened at Rs. 91,450 against the previous close of Rs. 94,900 and fell further to hit an intra-day low of Rs. 87,700. At 1:45 p.m., the stock was trading at around 88,760/share, down 7.52% on the NSE.

On Tuesday, MRF reported a 32% drop in consolidated net profit at 130 crore in Q2 FY23 despite an 18.70% increase in net sales to 5,903.4 crore. The company had posted a net profit of 190 crore in the same quarter of the previous fiscal.

The company's overall expenses increased as a result of higher raw material prices, which reduced profit margins. During the second quarter, total expenses jumped by 21.86% to 5,345.7 crore, compared with 4,386.7 crore in the corresponding period last year.

Article
Stock price chart of MRF.

The company reported an operating profit of 480.6 crore for the September-ending quarter, down 7.77% when compared to 521.1 crore in the corresponding quarter of the last fiscal. EBITDA margin came in at 8.25%, down by 237 basis points (bps) from the same quarter of last year.

Management guided to steady revenue growth in the upcoming quarters, driven mainly by the OE segment, as replacement growth has moderated. Starting in Q3 FY23, management expects a flow-through of a fall in input costs (crude and rubber) and also some lag benefits from price hikes, IIFL reported.

MRF announced an interim dividend of 3 per equity share with a record date of November 18, 2022. Further, the company also approved an enhancement in the issue of non-convertible debentures through private placement from 100 crore to 150 crore. The board had approved the issue at its meeting on August 9, according to the PTI report.

Meanwhile, taking the stock previous closing price into consideration, the stock has rallied 29% so far this year. To date, the stock has risen 42% from its June mid-low of 66,651. On November 7, ahead of the Q2 results, the stock hit a new 52-week high of 96,000.

Over the last three years, the stock gave a return of 46.08% as compared to the Nifty 100, which gave a return of 51.43%, and in the last five-year period, it delivered only a 36.97% return.

On the fundamental side, the company has a return on equity of 12.46% and a ROCE of 12.46% (5-year average), respectively. It has a price-to-earnings ratio of 66.41x, compared to the peer average of 43.32x.

Further, FIIs raised their stake in MRF to 23.34 per cent in the September quarter, up from 14.1 percent in the same quarter of the last fiscal year. Domestic institutional investors and retail shareholders each owned 12.5% and 43.2%, respectively.

An average of 10 analysts polled by MintGenie have a 'sell' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

Article
How to determine if the stock prices are overvalued.
First Published: 09 Nov 2022, 01:57 PM IST