MRF - 4QSY2012 Result Update - Angel Broking

For 4QSY2012, MRF reported a revenue growth of 14.3% yoy to Rs.2,994cr from Rs.2,620cr in 4QSY2011. Fall in rubber prices led to a 477bp expansion of EBITDA margin to 11.7% on a yoy basis. However, net profit for the quarter is not comparable on a yoy basis since 4QSY2011 incorporates adjustment for change in method of depreciation.

Lower rubber prices continue to benefit the bottom-line: MRF being a market leader in the tyre industry, we expect a sustained replacement demand to facilitate a modest revenue growth at 10.2% CAGR over SY2012-14E. Moreover, an industry shift to radialization across all tyre segments coupled with stabilizing rubber prices (hovering at Rs.175/kg currently, compared to its peak of Rs.243/kg in Apr'11), has been the key reason for 234bp yoy expansion of EBITDA margin to10.6% for SY2012 from 8.3% in SY2011. We expect rubber prices to be stable at these levels, thus leading to steady EBITDA margin going forward. We expect the bottom-line to grow at a modest pace over SY2012-14E backed by a moderate growth in the top-line.

Outlook and valuation: We expect MRF's revenue to post a 10.2% CAGR over SY2012-14E to Rs.14,405cr, while EBITDA margin is expected to remain stable at 10.6% owing to expected stability in rubber prices. Consequently the net profit is expected to post an 11.5% CAGR over SY2012-14E to Rs.711cr. At the current market price, MRF is trading at a PE of 6.5x its SY2014E earnings and P/BV of 1.1x for SY2014E. As we rollover to SY2014, we maintain our Buy recommendation on the stock with a revised target price of Rs.13,416, based on a target P/E of 8x for SY2014E earnings.

Source : Equity Bulls

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