MRF hits 52-week low of Rs 73,111 on margin concerns; dips 9% in 3 weeks

The stock down 3% to Rs 73,111 on the BSE in intra-day trade today has fallen below its previous low of Rs 73,756 touched on December 22, 2020.

Shares of MRF hit a 52-week low of Rs 73,111 on Monday, down 3 per cent on the BSE, in otherwise firm market on margin concerns. The stock of the rubber products-maker has dipped below its previous low of Rs 73,756 hit on December 22, 2020. In comparison, the S&P BSE Sensex was up 0.78 per cent at 57,554 points at 01:30 pm.

In the past three weeks, MRF hs tanked 9 per cent after reporting a disappointing set of numbers for the quarter ended September 2021 (Q2-FY22). The company’s standalone net profit slipped 54.5 per cent year on year (YoY) at Rs 184 crore, impacted by raw material cost inflation and higher other cost during the period under review.

Net sales during the quarter grew 15.4 per cent YoY to Rs 4,832 crore, as compared to over 30 per cent in previous two quarters. Earnings before interest, taxes, depreciation, and amortization (Ebitda) margin declined 980 basis points YoY (120bps QoQ) to 10.6 per cent, further impacted by higher other expenses.

"MRF lagged peers in revenue growth due to weaker performance of TBB and farm segment. The industry is taking gradual price increases to dilute impact of severe cost inflation. Ebitda margin decline was higher than its peers Ceat and Apollo Tyres," analysts at Motilal Financial Services said.

The company's competitive positioning within the sector has weakened over the past few years, which is also reflected in the dilution of pricing power in the PCR and TBR segment. This, coupled with the impact of capex carried out over the last three years, has resulted in a substantial dilution in its superior return ratios, the brokerage firm said.

"Cyclical recovery in both OEM and Replacement will enable faster absorption of new capacities (Gujarat plant) and drive benefits from operating leverage. The pricing environment for the industry seems to be stable, with all players gradually raising prices to pass-on substantial cost inflation. While there will be a transitory impact of cost inflation in 3QFY22, we expect margin to start recovering towards FY22-end (assuming stable commodity prices)," it added.

Meanwhile, in the past one month, the stock of the tyre manufacturer has underperformed the market by falling between 4 per cent as comoared to the S&P BSE Sensex that slipped 3 per cent during the same period.

According to a Business Standard report, listed tyre makers could face more margin headwinds going ahead given the sharp rise in natural rubber prices, elevated crude oil prices and limited price hikes. From their lows in the December quarter last year, natural rubber prices which are currently at about Rs 192 per kg have risen by a sharp 45 per cent. CLICK HERE TO READ FULL REPORT