Accumulate MRF; target of Rs 21639: Angel Broking

Angel Broking's report on MRF

"For 1QSY2014, MRF reported a top-line growth of 5.8 percent yoy to Rs 3,201cr, slightly higher than our estimate of Rs 3,106cr. The EBITDA margin came in at 13.1 percent, a marginal drop of 24bp yoy. The raw material cost as a percentage of net sales declined by 171bp yoy which was offset by a rise in employee cost and other expenses as a percentage of net sales by 103bp and 91bp, respectively, on a yoy basis. The interest cost for the quarter came in higher than our estimate at Rs 59cr. Consequently, the net profit for the quarter came flat on a yoy basis at Rs 180cr, 13.6 percent lower than our estimate."

"MRF's diversified portfolio with leading position in majority of its segments will help it in reaping early benefits of revival in auto demand owing to expected easing of interest rate and recovery in investment cycle post the outcome of general elections. Further, robust growth in auto industry during FY2009-12 provides huge opportunity in replacement market which will aid in revenue growth for the company."

"During 1QSY2014, the domestic rubber price declined by 8.8 percent yoy and currently trades at Rs 144/kg. Considering the estimated surplus of 200,000 tonne in global natural rubber supply in 2014 as per a report by the Economist Intelligence Unit, we expect rubber prices to remain at lower levels which will help in stabilizing the company's EBITDA margin."

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