Buy MRF; target Rs 14,331: Angel Broking

Angel Broking is bullish on MRF and has recommended buy rating on the stock with a target price of Rs 14,331 in its March 04, 2013 research report.

"For 1QSY2013, MRF reported a muted 5.2% yoy revenue growth to Rs 3,026cr (Rs 2,875cr in 1QSY2012) on account of slowdown in auto industry. Declining rubber prices led to a 437bp yoy expansion of EBITDA margin to 13.3% from 9.0% in the same quarter last year. Consequently, the net profit for the quarter surged by 59.6% yoy to Rs 180cr from Rs 113cr in 1QSY2012.

Declining rubber prices to drive bottom-line: Rubber, a major raw material in the manufacture if tyres have been volatile since two years. Rubber prices have declined to level of Rs 157/kg currently due to declining demand owing to slowdown in auto industry; increased production during the last three months; and inventory pileup which resulted from huge imports in times of favorable international prices. Rubber prices are expected to remain relatively low for the next one or two quarters owing to bearish global scenario which would subsequently result in expansion of EBITDA margin and consequently improved net profit. We expect the EBITDA margin to remain relatively unchanged in SY2014E due to expected pass on of price correction in the OEM segment.

Outlook and valuation: We expect MRF to post a 7.7% revenue CAGR over SY2012-14 to Rs 13,767cr, while EBITDA margin is expected to expand by 229bp in SY2013 due to decline in rubber prices. However, we expect margin to remain stable in SY2014 at 12.8%. Consequently, the net profit is expected to post a 15.2% CAGR over SY2012-14 to Rs 760cr. At the current market price, MRF is trading at a PE of 6.5x its SY2014E earnings and at a P/BV of 1.1x for SY2014E. We maintain our Buy rating on the stock with a revised target price of Rs 14,331, based on a target P/E of 8.0x for SY2014E earnings," says Angel Broking research report.

Institutional holding more than 40% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More