The Hindu Business Line : MRF: Buy

Long-term investors can consider exposure in the MRF stock. Strong fundamentals, improved performance and steady growth prospects are major positives.

MRF is among the top tyre-producing companies in the country. It has a strong presence in the replacement market. and is trying to gain a better foothold in the original equipment segment. Significant exposure to the replacement market will link the company's performance to industrial and agricultural growth.

Steady revenues

Though the revenues have grown steadily in the recent quarters, profitability has been under pressure owing to aspurt in input prices. The price of raw materials such as natural rubber and carbon black have shot up in recent years. The company has however managed to mitigate damage to profitability by effecting price hikes.

MRF is likely to record a steady growth in earnings, driven by demand from passenger car and commercial vehicles segment. The growth in automobile production seen in the recent years would translate into demand from the replacement market and add to MRF's revenue stream. and add to MRF's revenue stream.

Results for the quarter-ended March 2006 reaffirm our positive outlook. Revenues rose 25 per cent to Rs 880 crore and post-tax earnings to Rs 5.8 crore from Rs 0.8 crore.

Risks

Sustained rise in price of key inputs remains a cause for concern. Any further increase in the price of raw materials would affect profitability. Though the company has managed to effect price hikes in the past, its ability to carry out the same will determine earnings growth. Any slowdown in economic and industrial activity would also affect the growth prospects.

B. Krishnakumar

More Stories on : Stocks | Recommendation | Tyres

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page