CMP 10733.95

Target Price 12129.00

ISIN: INE883A01011

Nov 30th

, 2012

MRF LIMITED Result Update: Q4 FY 12

BUYBUYBUYBUY

Stock Data

Sector Tyres & Rubber

Products

BSE Code 500290

Face Value 10.00

52wk. High / Low (Rs.) 11570.00/6471.60

Volume (2wk. Avg ) 2620.00

Market Cap ( Rs in mn ) 45512.00

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY12A FY13E FY14E

Net Sales 118701.80 137694.09 151463.50

EBITDA 12930.00 14153.53 15428.94

Net Profit 5723.50 6167.89 6652.73

EPS 1349.88 1454.69 1569.04

P/E 7.95 7.38 6.84

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX MRF Ltd

Source: Company Data, Firstcall Research

SYNOPSIS

MRF Ltd is India’s largest tyre manufacturer

& it is the first tyre company in India to reach

a turnover of 5000 Crores.

The Company engaged in the manufacture,

distribution, and sale of tyres for various

kinds of vehicles in India & internationally.

MRF exports its products to over 65

countries.

The company is provides tubes, flaps, tread

rubber, conveyor belts, specialty coatings, &

sports goods.

MRF Ltd has demonstrated the results during

the quarter; its boisterous growth of Net Sales

is steers by 14.27% to Rs. 29936.20 million.

The company has recommended a Final

Dividend of Rs.19/- per share on the paid-up

capital as at September 30, 2012.

MRF Ltd has recommended a Final Dividend

of Rs.10/- per share along with the 2 Interim

Dividends of Rs.3/- each i.e. 250% for the year

ended September 30, 2012.

Profit before interest, depreciation and tax is

Rs.3696.90 millions as against Rs.1832.50

millions in the corresponding period of the

previous year.

Net Sales and Operating Profit of the company

are expected to grow at a CAGR of 16% and 8%

over 2011 to 2014E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

MRF Ltd 10733.95 45512.00 1349.88 7.95 1.59 250.00

Apollo Tyres Ltd 84.45 42539.70 5.26 16.05 2.08 50.00

JK Tyres Ltd 114.25 4691.00 28.19 4.05 0.70 24.99

Ceat Tyres Ltd 105.00 3578.40 21.13 4.95 0.55 10.00

Investment Highlights Standalone

Results updates- Q4 FY12,

MRF LTD is a leader in the category holds the No.1

position for the last 21 years. It is the first tyre

company in India to reach a turnover of 5000

Crores. The Company is engaged mainly in the

manufacture of Rubber Products such as Tyres,

Tubes, Flaps, Tread Rubber and Conveyor Belt,

reported its financial results for the quarter ended

30 Sep, 2012. The fourth quarter witnesses a healthy

increase in sales is slumped up on account of an

enhanced Dealers network and robust

infrastructural Support system.

Months Sep-12 Sep-11 % Change

Net Sales 29936.20 26197.90 14.27

PAT 1647.60 3954.40 (58.34)

EPS 388.58 932.64 (58.34)

EBITDA 3696.90 1832.50 101.74

The company’s net profit slump to Rs.1647.60 million against Rs.3954.40 million in the corresponding quarter

ending of previous year, an decrease of 58.34%. Revenue for the quarter rose by 14.27% to Rs.29936.20 million

from Rs.26197.90 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.388.58 a share during the quarter, registering at 58.34% decrease over previous year

period. Profit before interest, depreciation and tax is Rs.3696.90 millions as against Rs.1832.50 millions in the

corresponding period of the previous year.

Expenditure :

During the quarter the total expenditure cost rose

by 9 per cent mainly on account of increase in stock

in trade along with consideration of depreciation in

the rupee impact and witnessed. Total expenditure

in Q4 FY12 was at Rs.27298.30 million as against

Rs.25062.70 million in Q4 FY11. Purchase of stock in

trade cost Rs.82.90 against Rs.50.80 millions in the

corresponding period of the previous year. Other

Expenditure was at Rs.4579.00 million and

Consumption of Raw Materials is Rs.21578.40

million in Q4 FY12 are the primarily attributable to

growth of expenditure.

Latest Updates

� MRF Ltd has recommended a Final Dividend of Rs.10/- per share along with the 2 Interim Dividends of Rs.3/-

each already paid works out to Rs. 25/- per equity share of Rs. 10/- (i.e. 250%) for the year ended September

30, 2012.

� The development of good highway, efforts are taken to improve durability and high speed characteristics in

all segments of tyres.

� The company has recommended a Final Dividend of Rs.19/- per share on the paid-up capital as at September

30, 2012.

Company Profile

Established as toy-balloon manufacturing company in 1946 by KM Mammen Mappillai, MRF quickly emerged as

the leading maker of tread rubber. Since then, the company hasn't looked back. A leader in the category MRF

holds the No.1 position for the last 21 years. The fact that it is the first tyre company in India to reach a turnover

of 5000 Crores is testament to its dominance of the industry. The Company is engaged mainly in the manufacture

of Rubber Products such as Tyres, Tubes, Flaps, Tread Rubber and Conveyor Belt.

MRF uses cutting - edge technologies in predictive testing and design validation before it leaves the drawing

board. These advances have significantly brought down the time to market for new designs.

Advanced raw materials are tested and approved in our NABL accredited laboratories. MRF works closely with

global suppliers in using the latest developments in materials across the globe. Our laboratories which have the

very latest in testing equipment closely monitor the quality of the material going into our tyres at the time of

approval and regularly after that.

The prototypes for verification and validation testing are manufactured in one of MRF's 6 factories all of which

are TS 16949/ISO 9001 certified. The tyres then go through testing for confirming the architecture and a series

of indoor testing to ensure that they meet MRF's tight standards and also those required by the OEM or by any of

the national standards like BIS/JIS/ETRTO/T&RA.

Products

� Tyres

• Two Wheelers

• OTR

• Trucks / Buses

• Farm Services

• LCV

• Tubes & Flabs

• SCV

� Conveyor Belt

MRF manufactures its MUSCLEFLEX brand of Conveyor Belting at one of the most advanced, 'State of the Art',

Facilities in India. Incorporating the latest manufacturing techniques in processes beginning with Mixing,

Calendaring and the like, to manufacturing of the Finished Products, all of which is In-House, MUSCLEFLEX-

Conveyor Belting has gained rapid acceptance in markets worldwide. Conveyor Belting Division is ISO 9001

certified. Belting is manufactured under a detailed Quality Assurance Plan involving meticulous raw material

testing, in-process controls and stringent finished product testing.

� Pretreads

Pretreads has emerged as the Mileage leader in procured retreading and also has the specialized expertise

required for retreading Radial Tyres of Truck, Bus, LCV and Passenger vehicle.

� Paints & Coats

Services

� T & S

MRF T&S is a one stop shop for a unique tyre shopping experience. T&S stocks the entire range of MRF tyres

and is equipped to provide services of computerized wheel alignment, wheel balancing and tyre changing. It

is an answer to the increasing number of world-class cars which are cruising on Indian roads. The

technicians at MRF T&S are trained at the MRF Tyredrome. Currently, there are 200 T&S franchisees across

the country and many more springing up each day.

� TYRE DROME

MRF Tyre Drome is the tyre care the state of the art tyre care equipment improved facilities and a world class

ambience. The company would not miss the customer friendly and professional tyre care services.

� Tyre Maintenance

On the basis of the customer views and satisfaction the company gives the suggestions about the tyre usage,

life the tyre, retread, precautions prevent from wearing out prematurely, use of same kind of tyres, if usage of

different tyres for a single car what is the inflation pressure on tyres.

� MIDD

MRF Institute of Driver Development (MIDD), which imparts training to unemployed young men in light and

heavy commercial vehicle (LCV and HCV) driving.

Exports

Exports tyres and conveyor belts to over 65 countries in America, Europe, Middle East, Japan and the Pacific

region. These markets are service offices in Dubai, Vietnam and Australia.

Manufacturing units Locations

� Goa

� Medak

� Arkonam

� Tiruvottiyur

� Puducherry

� kottayam

MRF Sports

Motorsports in India has always been synonymous with MRF. The development and popularity of various forms

of the sport can be directly attributed to the pioneering efforts of the Company.

� Racing

� Rallying

� Motocross or Karting.

Sports Goods Division

� LIL GENIO

� KITS

� BATS

� GLOVES

� BAT CARE

� DEALER NETWORK

� GUARDS

Awards & Achievement

� MRF voted the "Most Trusted" Tyre company in India by TNS 2006 global CSR study.

� MRF won the award for exports.

� MRF won the award for customer satifaction not once but 6 times in the last 7 years.

Subsidiaries

• MRF Corp Ltd

• MRF International Ltd

• MRF Lanka (P) Ltd

Sales Network

� South

� Bangalore

� Belgaum

� Calicut

� Cuddapah

� Coimbatore

� Chennai

� Ernakulum

� Erode

� Gulbarga

� Gundy

� Hospet

� Hubli

� Hyderabad

� Hasthinapur

� Kurnool

� Karimnagar

� Khammam

� Madurai

� Mangalore

� Namakkal

� Mysore

� Nellore

� Neyvelli

� Palakkad

� Pondicherry

� Rajahmundry

� Salem

� Shimoga

� Tirunelveli

� Trichy

� Trivandrum

� Vijayawada

� Vishakhapatnam

� vellore

� East

� Asansol

� Barbil

� Berhampur

� Bhubaneshwar

� Begusarai

� Dhanbad

� Guwahati

� Jamshedpur

� Kolkata

� Muzaffarpur

� Midnapore

� Patna

� Ranchi

� Rourkela

� Silchar

� Siliguri

� Tripura road

� North

� Agra

� Allahabad

� Barmer

� Bareilly

� Bhilwara

� Bikaner

� Chandigarh

� Dehradun

� Faridabad

� Gorakhpur

� Gurgaon

� Haldwani

� Hissar

� Jalandhar

� Jammu & Kashmir

� Jodhpur

� Jaipur

� Jhansi

� Kanpur

� Lucknow

� Ludhiana

� Meerut

� Muzaffarnagar

� New Delhi

� Panipat

� Parwanoo

� Patiala

� Rohtak

� Udaipur

� Varanasi

� yamunanagar

� West

� Ahmedabad

� Aurangabad

� Baroda

� Bhavnagar

� Bhopal

� Bhimandi

� Goa

� Gahdhidham

� Gwalior

� Indore

� Jabalpur

� Jamnagar

� Kolhapur

� Latur

� Nagpur

� Nasik

� Pune

� Raipur

� Rajkot

� Ratlam

� Surat

� Sakinaka

� Nerul

� Woril

Financial Highlight Standalone

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 97431.70 118701.80 137694.09 151463.50

Other Income 253.10 320.10 384.12 434.06

Total Income 97684.80 119021.90 138078.21 151897.55

Expenditure -85341.80 -106091.90 -123924.68 -136468.61

Operating Profit 12343.00 12930.00 14153.53 15428.94

Interest -930.20 -1587.80 -1889.48 -2154.01

Gross profit 11412.80 11342.20 12264.05 13274.93

Depreciation -2476.30 -3011.00 -3312.10 -3577.07

Profit Before Tax 8936.50 8331.20 8951.95 9697.86

Tax -2742.30 -2607.70 -2784.06 -3045.13

Net Profit 6194.20 5723.50 6167.89 6652.73

Equity capital 42.40 42.40 42.40 42.40

Reserves 22935.30 28535.60 34703.49 41356.23

Face value 10.00 10.00 10.00 10.00

EPS 1460.90 1349.88 1454.69 1569.04

Quarterly Profit & Loss Statement for the period of 31st

Mar, 2012 to 31st

Dec, 12E

Value(Rs.in.mn) 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12E

Description 3m 3m 3m 3m

Net sales 29928.00 30082.70 29936.20 32331.10

Other income 52.60 36.20 192.00 226.56

Total Income 29980.60 30118.90 30128.20 32557.66

Expenditure -26669.80 -26851.60 -26431.30 -29097.99

Operating profit 3310.80 3267.30 3696.90 3459.67

Interest -385.30 -393.30 -450.50 -522.58

Gross profit 2925.50 2874.00 3246.40 2937.09

Depreciation -720.10 -776.60 -867.00 -919.02

Profit Before Tax 2205.40 2097.40 2379.40 2018.07

Tax -704.10 -651.80 -731.80 -635.69

Net Profit 1501.30 1445.60 1647.60 1382.38

Equity capital 42.40 42.40 42.40 42.40

Face value 10.00 10.00 10.00 10.00

EPS 354.08 340.94 388.58 326.03

Ratio Analysis

Particulars FY11 FY12 FY13E FY14E

EPS (Rs.) 1460.90 1349.88 1454.69 1569.04

EBITDA Margin (%) 12.67% 10.89% 10.28% 10.19%

PBT Margin (%) 9.17% 7.02% 6.50% 6.40%

PAT Margin (%) 6.36% 4.82% 4.48% 4.39%

P/E Ratio (x) 7.35 7.95 7.38 6.84

ROE (%) 26.96% 20.03% 17.75% 16.07%

ROCE (%) 38.85% 34.64% 32.92% 31.35%

Debt Equity Ratio 0.66 0.61 0.53 0.46

Book Value (Rs.) 5419.27 6740.09 8194.79 9763.83

P/BV 1.98 1.59 1.31 1.10

Charts

Outlook and Conclusion

� At the current market price of Rs.10733.95, the stock P/E ratio is at 7.38 x FY13E and 6.84 x FY14E

respectively.

� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.1454.69 and

Rs.1569.04 respectively.

� Net Sales and Operating Profit of the company are expected to grow at a CAGR of 16% and 8% over 2011

to 2014E respectively.

� Price to Book Value of the stock is expected to be at 1.31 x and 1.10 x respectively for FY13E and FY14E.

The fourth quarter witnesses a healthy increase in overall sales and profit slumped down on account of powerful

combination of exciting products, an enhanced store network and robust infrastructural Support system. We

expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story

in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.12129.00 for

Medium to Long term investment.

Industry Overview

With the diminishing sources of petroleum and increasing concern for the environment, natural rubber becomes

more acceptable and preferred raw material because of its unique qualities, when compared to other elastomers,

including in synthetic rubber and it thus touches our life everyday in many ways and in good demand. Rubber

caters to a spectrum of diverse industries like automobile, aeronautics, electrical and electronics, materials

handling, health care, power transmission and has a host of other applications. Asia is the largest source of

natural rubber, accounting for around 94 per cent of the total world output. The three largest rubber producing

countries are Indonesia, Malaysia and Thailand, which together account for around 72 per cent of all natural

rubber production. Globally Rubber Industry witnessed a steady growth in the year 2011. The world NR

production increased by 5.5% to 10.97 million tones in 2011, compared to 7.3 % during the corresponding year

2010. Which is reflected in the increased consumption figures of all types of Rubber Products?

World-wide, the NR and SR rubber consumption increased to 10.92 million tones and 14.93 million tones during

2011 and recorded a growth of 1.4 % in NR and 6.0% SR consumption respectively and main NR Consuming

Countries are USA with 11.1% increase in the consumption. Japan stand next to USA with the growth rate of 2.0%

and India with 2.0% respectively during 2011. NR consumption in China showed a negative growth of 1.2 %

during 2011. The year 2011-12 was a much futuristic and competitive year for the Rubber Industry where there

was steep increase in the consumption of NR and SR Consumption ratio during 2011 was 45.58 and it was 43.57

during 2010.

Rubber Industry in India

The Rubber Industry is a key sector in the Indian economy and developing as a global manufacturing hub of

rubber products. India is the fourth largest producer and Second largest consumption of natural rubber in the

world and also the fifth largest consumer of natural rubber and synthetic rubber put together. The total

consumption in the country exceeds production, India manages to export natural rubber as and when there is a

price gap between international market and the domestic market. Since the global consumer needs are complex,

production of specialized products for specific applications is essential for entry and sustenance in global market.

The plantation sector is customized for production and supply. Indian rubber plantation industry

Commercialisation started in 1902, and predominantly spread over the states of Kerala, Tamil Nadu, Karnataka

and the North East. Indian farmers are equipped to process world class rubber The industry structure was

initially characterised by dominance of large estates, which later broke into a number of small holdings.

Currently, 75 per cent of rubber estates are nearly 200 hectares in area and 35 per cent are nearly 40 hectares

In-house quality control systems with advanced analytical and monitoring equipment are installed in all the

rubber processing companies in India to meet stringent national and international standards like ASTM, ISO and

BIS. RSS grades produced in India conforms to International Green Book Standards. Rubber manufacturers in

India need to maintain their competitiveness, Rubber Board of India acts as the binding force for the successful

development of the rubber sector in production and consumption. Board also provides a transparent platform to

promote export by ensuring the quality of rubber and ensures efficient market deliverables so that overseas

buyers can feel relaxed in trading of rubber with India. .

Rubber Cultivation in India

India is the fourth largest producer of natural rubber accounting for 6.5 per cent of the total world production.

Commercial cultivation of rubber in India was started in 1902, ideally rubber grows in the region between 10o

north and south of the equator where the rain fall, humidity and temperature are high and the elevation is below

450 meters. Many plant species produce natural rubber. Considerations of quality and economics, however, limit

the source of natural rubber to one species, namely Hevea brasiliensis The rubber tree may live for a hundred

years or even more. But its economic life period in plantations, on general considerations is, only around 32

years – 7 years of immature phase and 25 years of productive phase. It is a native of the Amazon basin and

introduced from there to countries in the tropical belts of Asia and Africa during late 19th century. It can be

termed as the most far reaching and successful of introductions in plant history resulting in plantations over 9.3

million hectares, 95 per cent of it across the globe in Asia

Conclusion

Despite not having the best of geographical regions favorable for growing natural rubber, India continued to hold

first position with a yield of 1867 kg per ha per annum in 2008-09. Export of natural rubber is perceived as a tool

to adjust the demand-supply balance in the domestic market so that the Indian farmer is not deprived of the

price fetched by his counterparts elsewhere. The domestic rubber prices were ruling above the international

prices from the end of March 2009 till early October ’11. Currently, natural rubber can be freely imported into

the country subject to payment of import duty. The current applied rate of duty for dry forms of natural rubber is

20% and that of latex is 70%. India is the pioneer in reclaim rubber. Reclaim rubber produced in India is unique

as it is mostly from truck and bus tyres, which have almost 70% natural rubber in it.

The Rubber Board has been implementing several schemes for the development of the rubber industry in the

country under different five-year/annual plans. The functions of the Board broadly divided by the Government of

India to undertaking & assisting scientific technological and economic research; imparting training to

students/growers on improved methods of cultivation; manuring and spraying; rendering technical advice to

rubber growers; marketing; collecting statistics from owners with a vision that manufacturing is not only aimed

at making money, but also to generate wealth that should be used for the overall economic and social growth of

the society and the country.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

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