Buy MRF; target of Rs 13416: Angel Broking

Angel Broking is bullish on MRF and has recommended buy rating on the stock with a target of Rs 13416 in its December 3, 2012 research report.

“MRF being a market leader in the tyre industry, we expect a sustained replacement demand to facilitate a modest revenue growth at 10.2% CAGR over SY2012-14E. Moreover, an industry shift to radialization across all tyre segments coupled with stabilizing rubber prices (hovering at Rs175/kg currently, compared to its peak of Rs243/kg in Apr’11), has been the key reason for 234bp yoy expansion of EBITDA margin to10.6% for SY2012 from 8.3% in SY2011. We expect rubber prices to be stable at these levels, thus leading to steady EBITDA margin going forward. We expect the bottom-line to grow at a modest pace over SY2012-14E backed by a moderate growth in the top-line.”

“For 4QSY2012, MRF reported a revenue growth of 14.3% yoy to Rs2,994cr from Rs2,620cr in 4QSY2011. Fall in rubber prices led to a 477bp expansion of EBITDA margin to 11.7% on a yoy basis. However, net profit for the quarter is not comparable on a yoy basis since 4QSY2011 incorporates adjustment for change in method of depreciation.”

“We expect MRF’s revenue to post a 10.2% CAGR over SY2012-14E to Rs14,405cr, while EBITDA margin is expected to remain stable at 10.6% owing to expected stability in rubber prices. Consequently the net profit is expected to post an 11.5% CAGR over SY2012-14E to Rs711cr. At the current market price, MRF is trading at a PE of 6.5x its SY2014E earnings and P/BV of 1.1x for SY2014E. As we rollover to SY2014, we maintain our buy recommendation on the stock with a revised target price of Rs13,416, based on a target P/E of 8x for SY2014E earnings,” says Angel Broking research report.

Public holding more than 90% in Indian cos

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