Buy MRF; target of Rs 15225: Angel Broking
Angel Broking is bullish on MRF and has recommended buy rating on the stock with a target of Rs 15225 in its April 22, 2013 research report.
April 25, 2013 / 15:37 IST
Angel Broking is bullish on MRF and has recommended buy rating on the stock with a target of Rs 15225 in its April 22, 2013 research report.
“For 2QSY2013, MRF reported a 2.9 percent yoy decline in revenue to Rs2,906cr (Rs2,993cr in 2QSY2012), on account of slowdown in auto industry. Declining rubber prices led to a 440bp yoy expansion in the EBITDA margin to 15.3 percent from 10.9 percent in the same quarter last year. Consequently, the net profit for the quarter surged by 40.3 percent yoy to Rs211cr, from Rs150cr in 2QSY2012.” “Volatility in rubber (a major raw material for MRF) prices since the last two years has favorably impacted the company’s financials. Rubber prices have declined to an average of Rs160/kg in 2QSY2013 as compared to an average of Rs173/kg in 1QSY2013 and Rs191/kg in 2QSY2012. This led to an expansion in the EBITDA margin by 196bp qoq and 440bp yoy to 15.3 percent for the quarter. Going forward, since the company has taken price cuts in its products during 2QSY2013 and demand for its tyres is low due to a slowdown in the auto industry, we expect the EBITDA margin for 2HSY2013 to be lower compared to the current quarter, thus resulting in an overall margin of 14.1 percent for SY2013. We expect the EBITDA margin to contract by 65bp yoy in SY2014 due to price cuts, which could further escalate if the demand does not pick up.” “We expect MRF to post a 3.0 percent revenue CAGR over SY2012-14 to Rs12,587cr, while EBITDA margin is expected to expand by 348bp to 14.1 percent in SY2013, due to decline in rubber prices. However, we expect margin to contract in SY2014 to 13.5 percent on account of reduction in tyre prices. Consequently, the net profit is expected to post a 18.7 percent CAGR over SY2012-14 to Rs807cr. At the current market price, MRF is trading at a PE of 7.3x its SY2014E earnings and at a P/BV of 1.3x for SY2014E. We upgrade the stock to Buy rating on the stock with a revised target price of Rs15,225, based on a target P/E of 8.0x for SY2014E earnings,” says Angel Broking research report.
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