MRF nears 52-week low ahead of March quarter results

MRF shares slipped 2 per cent to Rs 54,500 on Friday, falling 5 per cent in one week ahead of the January-March quarter (Q4FY19) results next week. The stock is now 1 per cent away from its 52-week low price of Rs 53,901, touched on February 19, 2019, in intra-day trade.

In the past three weeks, the MRF stock has slipped 10 per cent, as compared to no changed benchmark index S&P BSE Sensex.

The company's board of directors is scheduled to meet on Thursday to consider the audited results for the quarter and year ended March 31, 2019.

The markets will be closed on Monday, April 29, on account of General Election (Lok Sabha) and on Wednesday, May 1, on account of Maharashtra Day.

For the October-December quarter (Q3FY19), MRF had reported 483 bps decline in Ebitda (earnings before interest, tax, depreciation and amortization) margin at 13.7 per cent from 18.5 per cent in year-ago quarter. The company’s net profit was down 18 per cent year on year (YoY) at Rs 279 crore, while revenue grew 6 per cent at Rs 4,034 crore in Q3FY19 over previous year quarter.

The replacement demand for tyres has softened since November 2018 due to tight liquidity conditions.

Kotak Institutional Equities in Q4FY19 quarterly earnings preview said it expects MRF revenues to grow by 7 per cent YoY led by low-single digit volume growth (building in market share loss in MHCV segment and slowdown in two-wheeler replacement segment) and 4-5 per cent increase in ASPs due to price hikes taken by the company to offset cost pressures.

The brokerage firm expects Ebitda margin to improve by 210 bps qoq (down 190 bps yoy) due to 180 bps qoq improvement in gross margin led by benefit reduction in prices of crude derivatives such as carbon black, synthetic rubber, fabric, etc. H1FY19. The gross margin to remain largely flattish qoq, it said.

Analysts at Deutsche Bank cut MRF’s FY20/21E EPS forecasts by 9 per cent/10 per cent. The cut is driven by lowered volume growth expectations for the 4W/2W sectors, downward adjustments to non-operating income estimates and an increase in interest cost estimates.

Meanwhile, rating agency ICRA expects the domestic tyre demand to grow by 7-9 per cent over the next five years (FY2019-23). With stable demand outlook and strong credit profile, domestic tyre makers will continue to invest in capacities.