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MRF significantly lagging peers on many fronts in the race to recovery

. So far this calendar year, the MRF stock has risen a modest 3% while competitors Ceat and Apollo Tyres have given returns of 15% and 30%, respectively. (Photo: Mint)Premium
. So far this calendar year, the MRF stock has risen a modest 3% while competitors Ceat and Apollo Tyres have given returns of 15% and 30%, respectively. (Photo: Mint)

  • MRF has disappointed much more than peers, as its margin lead over peers has shrunk, with structural fall in margins in the two-wheleer segment, where MRF is the leader, and its low share in the TBR segment

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Investors in MRF Ltd are likely to be upset by the company's September quarter earnings. Sequentially, MRF’s revenue grew 17% driven by volume normalisation in the OE and replacement segments and some price hikes. Although revenue growth was slightly ahead of analysts’ expectations, peers Ceat Ltd and Apollo Tyres have performed much better on this parameter. 

“MRF has been underperforming CEAT and Apollo Tyres in terms of revenue growth over the past few quarters, which is a cause for concern," analysts at Kotak Institutional Equities said in a report.

Another disappointment came from the company’s operating performance. Its gross margin contracted 240 basis points sequentially to 35.5%, impacted by a sharp rise in key input costs such as rubber. The problem of cost inflation is not unique to MRF, the entire tyre sector is grappling with it. Yet, competitors have managed to have a better grip here.

“Industry margins are under pressure due to sharp rise in input costs. We expect margin pressure to continue in 3Q, as the commodity basket has further inched up from the 2Q levels. MRF has disappointed much more than peers, as its margin lead over peers has shrunk, with structural fall in margins in the 2-wheleer segment (where MRF is the leader) and MRF’s low share in the TBR segment," said analysts at IIFL Securities Ltd.

But that’s not all, according to analysts the company is losing market share in the TBR and PCR segments. “Aggressive competition in the recent past has dethroned MRF from the top spot in the PCR and T&B segment, and resulted in an overall market share loss. This, coupled with the impact of capex carried out over the last three years, has resulted in a substantial dilution in its superior return ratios," said analysts at Motilal Oswal Financial Services.

All these concerns are well reflected in the stock’s muted performance. So far this calendar year, the MRF stock has risen a modest 3% while competitors Ceat and Apollo Tyres have given returns of 15% and 30%, respectively.

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