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B. Krishnakumar

Enhancing brand equity, celebrity route.

LONG-TERM investors may consider inclusion of MRF in their portfolio at the prevailing market price. The dominant position in the industry along with recent signs of improvement in performance and better business prospects make the company an attractive investment proposition.

Apart from the tyres produced, MRF is also known for its conservative policy of rewarding shareholders. The company's equity base stands unchanged at Rs 4.24 crore since inception and the book value works out to an impressive Rs 1,660 per share. MRF has a presence across almost all segments of the tyre industry.

MRF derives a major portion of the revenues from the lucrative replacement market segment. The company has also taken initiatives to gain a better presence in the original equipment market as well. The performance of MRF and other tyre companies have not been all that impressive in the past few quarters.

The sharp spurt in the price of key raw materials such as natural rubber and carbon black has dented the profitability of tyre producers. Tthe performance of MRF and other tyre companies is likely to improve. The recent growth in automobile production is likely to translate into growing demand for tyres from the replacement market in the near future. Taking into account the relatively better realisation and profitability associated with the replacement market, the performance of tyre producers, MRF, in particular, could benefit.

The recent signs of recovery in the tractor industry is another positive development for MRF. The company has a presence in this market and any improvement in tractor production would benefit earnings. Against this background, while the demand is expected to improve, the profitability too get better if the recent developments are any indication.

The tyre companies, including MRF, have effected price hikes to accommodate rising raw material prices. MRF increased tyre prices by about 2-3 per cent in July, the impact of which would be reflected in the coming quarters.

Moreover, the price of natural rubber has displayed signs of softening after a steady rise in the recent years. The tyre producers would stand to benefit if the prices settle at slightly lower levels.

MRF's performance has improved for the quarter ended June 2004. Turnover for this period rose 19.7 per cent to Rs 655.7 crore and post-tax earnings by 12 per cent to Rs 17.1 crore.

Taking into account the recent price revision and the possibility of higher demand from the replacement market, MRF's performance is likely to improve further.

In a recent development, MRF has commenced supplies to Hyundai for their Elantra model launched recently. This is a significant breakthrough for MRF in its initiative to gain a better presence in the original equipment market. This could have major positive implications for MRF from a long-term perspective.

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