Mrf Profits From Closing Stock Pile-Up
Automotive tyres giant MRF Ltd rode piggyback on closing stocks to post handsome growth in net profit during the year ended September 1997, even as most of the tyre companies showed dismal performance.
The piling of closing stocks to the tune of Rs 149.80 crore compared with Rs 96.98 crore last year helped MRF post a net profit of Rs 62.53 crore (Rs 48.20 crore) for the year ended September 1997.
A lower corporate tax of Rs 20 crore as against Rs 32 crore last year helped shore up the company's net profit.
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MRF, facing a slow down in automobile sector, reported a marginal four per cent growth in gross sales.
The inventory of raw materials and finished goods rose by 26.2 per cent to Rs 229.64 crore.
Inventory of finished goods rose by 86.7 percentto Rs -116.57 crore, while inventory of raw materials declined by 16.8 per cent to Rs 60.7 crore.
Stock piling reduced the cash flow of the company and in turn increased debtors. Sundry debtors during the period rose by 10.6 per cent to Rs 267.3 crore.
In the year to September 97, the company's cash flow declined to Rs 5.80 crore from Rs 18.9 crore in the previous year.
With a rise in inventory and trade and other receivables, cash flow from operating activities declined to Rs 66.8 crore from 84.6 crore.
Owing to purchase of fixed assets and additional expenses in buildings, cash flow through investing activities declined by Rs 26.5 crore.
An additional net borrowing of Rs 126.35 crore through privately placed debentures ensured that the company's cash flow from financing activities increased by Rs 13.4 crore.
Weak demand took its toll on the company's profits as the company could not raise the tyre prices despite a rise in cost of raw materials.
In volume terms, the company's sales of auto tyres rose by 8.3 per cent to 88.39 lakh numbers, while in value terms tyre sales rose by 5.7 per cent to Rs 1792.3 crore.
The investors, seeing the setback in 1996-97, did not take any interest in MRF scrips.
The Rs 625.5 book value scrip, which was being quoted at around Rs 3,000 in September 97, declined to Rs 2,175 in October 97.
The market price moved down to Rs 1,900 in January 97 and now it is quoted in the range of Rs 1,800-1,850.