MRF - 3QSY2012 Result Update - Angel Broking

For 3QSY2012, MRF reported revenue growth of 16.9% yoy to Rs.3,008cr from Rs.2,573cr in 3QSY2011, which can be attributed to sustained replacement demand. Fall in rubber price lead to a 477bp expansion of EBITDA margin to 10.7% on a yoy basis. Net profit for the quarter is not comparable on a yoy basis due to change in the method of depreciation from WDV to straight line method. Adjusting for the depreciation, PAT grew by 116.0% yoy from Rs.67cr in 3QSY2011 to Rs.145cr currently. Declining rubber prices to aid profits: We expect sustained replacement demand to facilitate revenue growth at 14.3% CAGR over SY2011-13E, in the recent environment of slowdown in auto industry. Moreover, an industry shift to radialization across all tyre segments coupled with stabilizing rubber prices (hovering at Rs.185/kg since Jun'12, compared to its peak of Rs.243/kg in Apr'11), is expected to lead to margin expansion by 228bp over SY2011-13E to 10.5% in SY2013E. Margin expansion along with decline in interest cost following a decline in loans would result in adj. net profit to post a 33.1% CAGR to Rs.607cr in SY2013E.

Outlook and valuation: We expect MRF's revenue to post a 14.3% CAGR over SY2011-13E, aided by sustained replacement demand. Declining rubber prices are expected to lead to EBITDA margin expansion by 228bp to 10.5% in SY2013E. Improved operating performance, coupled with declining interest cost would assist adj. net profit to report a 33.1% CAGR over SY2011-13E to Rs.607cr. At the CMP, MRF is trading at PE of 7.0x its SY2013E earnings and P/B of 1.2x for SY2013E. We maintain our Buy recommendation on the stock with a revised target price of Rs.12,884, based on a target P/E of 9.0x for SY2013E earnings.

Source : Equity Bulls

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