Broker's call: MRF (Accumulate)

| Updated on February 08, 2019 Published on February 09, 2019

Elara Capital

MRF (Accumulate)

CMP: ₹56,470.15

Target: ₹68,974

MRF revenues increased 6 per cent y-o-y to ₹4,030 crore (1 per cent above our estimate). This is in comparison to CEAT/ Apollo standalone revenue growth of 8 per cent/ 17 per cent y-o-y. MRF EBITDA declined 21 per cent y-o-y while grew 1 per cent q-o-q to ₹550 crore (2 per cent below our esimatet). EBITDA margin dipped 30 bps q-o-q to 13.7 per cent (outperforming CEAT/ Apollo standalone dip of 80sbps/100 bps q-o-q). RMC/ sales increased 50 bps q-o-q to 61.3 per cent. Other expenses increased 18 per cent y-o-y and 3 per cent q-o-q to ₹710 crore (versus CEAT standalone increase of 17 per cent y-o-y and 8 per cent q-o-q); likely led by higher ad-expenses.

Valuation: We believe post capacity ramp-up, MRF would continue to benefit from robust TBR (truck & bus radial) replacement growth expected in the next couple of years and market share gains in TBB (truck bus bias) segment. We expect margins to bounce back in Q4, with reduced RM basket. We reduce FY19-21E EPS by 12-14 per cent owing to volume and margin cuts. We reiterate ‘Accumulate’ on MRF with a new TP of ₹68,974 from ₹76,574 based on 17x (unchanged) weighted average FY20-21E EPS of ₹4,057 as we roll forward.

Further market share loss in OEM segment and slowdown in replacement segment remains key risk to our call.

Published on February 09, 2019
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