The Hindu Business Line : MRF: Buy

Though the recent trend of subdued growth in earnings may continue for a while, the long-term prospects are encouraging. Any pick-up in business volume and a marginal increase in profitability would have a magnifying impact on the bottomline.

The performance of MRF and other tyre producers has taken a knock owing to the sharp rise in the price of key raw materials such as rubber and carbon black. The pick-up in demand in domestic and export markets has mitigated the damage to the bottomline.

The reduction in excise duty on tyres sold in the replacement market (effected in the latest Budget) has also helped companies such as MRF and Apollo.

The steady increase in automobile production over the past couple of years and sustained growth in the industrial production are likely to propel demand for tyres from the replacement market.

MRF appears well positioned to capitalise on the growth potential. The company is also taking efforts to expand its presence in the original equipment market. Any breakthrough in this effort would help the cause as well.

On the flip side, the firm trend in price of key inputs, petro-based inputs in particular, is a cause for concern. Though the company has hiked product prices to mitigate the impact, any further rise in raw material price would hurt profitability. From a long-term perspective, the company appears to be in a strong growth trajectory.

B. Krishnakumar

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