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MRF 4QSY2013 performance highlights and results update
For 4QSY2013, MRF reported a top-line growth of 5.1% yoy to Rs.3,147cr. The EBITDA margin has expanded by 214bp yoy to 13.8% due to a sharp fall in rubber prices during the quarter. Raw material cost as a percentage of net sales fell by 466bp yoy which although was partially offset by an increase of 122bp yoy and 130bp yoy in other expenses and employee cost as a percentage of sales, respectively. The net profit for the quarter increased by 11.7% to Rs.184cr from Rs.165cr in 4QSY2012.
Low rubber prices to benefit margins: Domestic rubber prices have declined to an average of Rs.174/kg in SY2013 as compared to an average of Rs.193/kg in SY2012 and currently trade at Rs.152/kg. This led to an expansion in EBITDA margin by 394bp yoy to 14.6% during SY2013. Considering the estimated surplus of 134,000 tonne in global natural rubber supply in 2013 as per a report by the Economist Intelligence Unit, we expect rubber prices to remain at lower levels which will help in stabilizing the company’s EBITDA margin.
Diversified portfolio with leading position: MRF’s diversified portfolio with leading position in majority of the segments will help it in reaping early benefits of revival in auto demand owing to expected easing of interest rate and recovery in investment cycle post the outcome of general election.
Outlook and valuation: We expect MRF to post an 8.3% net sales CAGR over SY2013-15 to Rs.14,229cr while the EBITDA margin is expected to decline marginally by 76bp and stabilize at 13.8% in SY2015. Consequently, the net profit is expected to grow at 9.5% CAGR over SY2013-15 to Rs.962cr. At the current market price, MRF is trading at a PE of 7.8x its SY2015E earnings and at a P/BV of 1.4x for SY2015E. We recommend an Accumulate rating on the stock with a revised target price of Rs.20,425, based on a target P/E of 9.0x for SY2015E earnings.
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