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Business News/ Markets / Stock Markets/  This tyre stock rises over 1,500 in 1 day on strong Q4 numbers, 169 dividend per share. Should you buy/sell?

This tyre stock rises over ₹1,500 in 1 day on strong Q4 numbers, ₹169 dividend per share. Should you buy/sell?

MRF stock price rallied strongly on May 4th to cross over ₹95,000 mark and almost near its 1-year high. The strong buying was attributed to healthy growth in Q4 and FY23 earnings, while the company's final dividend of ₹169 per share.

In a year, MRF stock price has outperformed benchmarks with more than 33% upside. Premium
In a year, MRF stock price has outperformed benchmarks with more than 33% upside.

Tyre and rubber products maker, MRF is the costliest stock on exchanges in terms of market price. This stock on Thursday climbed by more than 1,500 per share and moved closer to its 52-week high. Investors' strong buying in MRF comes after healthy Q4 and FY23 earnings coupled with a hefty dividend of 169 per share.

On May 4th trading session, MRF stock price jumped by 1,567.80 or 1.68% to end at 95,096.20 apiece. The stock climbed as high as 95,711.65 apiece in the intraday trade -- -which was a couple of rupees away from its 52-week high of 95,954.35 apiece.

So far in 2023, MRF stock has skyrocketed by nearly 6,820 or 7.7%.

While in a year, the stock price has zoomed by a breathtaking over 23,775 or 33.4% on BSE --- which is far better than any returns from fixed deposits and other saving schemes. MRF stock has even outperformed benchmarks.

Read here: Tata Power Q4 results: Consolidated PAT jumps 48.5% to 939 cr; declares 200% dividend

Robust growth in Q4, FY23:

MRF posted a massive 86.03% YoY and 94.53% QoQ growth in consolidated PAT to 313.53 crore in Q4FY23. Revenue jumped by 10.12% YoY and 3.49% QoQ to 5,841.72 crore.

In FY23, the tyre maker recorded a consolidated PAT of 1,069.74 crore as against 907.93 crore in FY22. Total income climbed to 23,261.17 crore in FY23 versus 19,633.71 crore in FY22. In the fiscal, the company's consolidated exports stood at 1,877 crore.

MRF said, the unprecedented increase in raw material prices, which was witnessed during the financial year 2021-22 due to the COVID-pandemic and also the war in Ukraine, extended into the current financial year.

It added, "Despite efforts being taken to pass on the cost increases in a graduated manner, the profitability continued to be low during the first three quarters of the year. However, with easing of raw material prices during the later part of the year, the benefits of lower raw material cost resulted in better profitability in the fourth quarter."

Huge dividend:

On Wednesday, MRF's board recommended a final dividend of a whopping 169 per equity share (1,690%) having a face value of 10 each.

It needs to be noted that MRF has already paid two interim dividends of 3 per share each (30%) in fiscal FY23.

Taking into consideration the final dividend, MRF is paying a total of a whopping 175 per share dividend (1,750%) for the entire fiscal FY23.

Read here: Hero Motocorp beats estimates in Q4 standalone PAT to 859 cr, up 37%; declares 1750% dividend

Is there more room to buy MRF stock?

In a research note, Kotak Institutional Equities analysts said, "We have increased our FY2024-25E EPS estimates by 2-7% on higher EBITDA

margin assumptions. Though the recent correction in crude and rubber prices augurs well for the company, we believe it is completely priced in."

Furthermore, the brokerage's note added, "muted demand trends in the export & replacement segment and moderation in growth of OEM segment will weigh on the growth trajectory."

Given weak demand trends in the replacement segment, Kotak's note said, "We expect the pricing pressure to increase, which may exert pressure on profitability. Maintain SELL rating on the stock; Fair Value revised to Rs66,000 (from Rs63,000 earlier) based on 16X June FY2025E consolidated EPS (16X March 2025E consolidated EPS earlier). Stock is trading at expensive valuations at 23X FY2025E consolidated EPS."

Similarly, Motilal Oswal in its note said, "MRF’s competitive positioning within the sector has weakened over the past few years, which is also being reflected in the dilution of pricing power in the PCR and TBR segments. This, coupled with the impact of capex to be carried out, should result in limited expansion in return ratios."

Motilal's note also added, "We expect MRF’s return ratios to see a relatively lower uptick v/s peers over the next two years as its RoE is expected to reach 10.5% by FY25 (lower than APTY/CEAT at 12.2%/13.7%)."

Currently, MRF's valuation is at 22.3x FY25E EPS which represents an almost 100% premium to its peers, despite a weakening competitive position and similar capital efficiencies.

Accordingly, Motilal maintained a 'Sell' rating on MRF stock price with a revised target price of 75,000 (18x Mar-25E EPS) as its pricing power has diluted over the years due to its weakening competitive position.


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 04 May 2023, 10:32 PM IST
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