9 August 2021
1QFY22 Results Update | Sector: Automobile
MRF
Estimate change
TP change
Rating change
Motilal Oswal values your support in the
Asiamoney Brokers Poll 2021 for India
Research, Sales, Corporate Access and
Trading team. We
request your ballot.
CMP: INR80,014
TP: INR83,730 (+5%)
Neutral
Operating de-leverage impacts performance
Price increases to pass on cost inflation happening gradually
MRF’s 1QFY22 operating performance was impacted by operating
deleverage and RM cost inflation. The industry is taking gradual price
increases to dilute the impact of severe cost inflation.
We cut our FY22E/FY23E EPS by ~11%/3%, factoring in the RM cost
inflation. Maintain
Neutral.
Revenue/EBITDA/PAT declined 13%/35%/49% QoQ to
INR41.3b/INR4.9b/INR1.6b.
1QFY22 revenue was down 13% QoQ (+70% YoY) to INR41.3b. The decline
was largely in line with peers [CEAT: 17% QoQ and APTY (S/A): 11% QoQ].
The decline in gross margin was restricted to 60bps QoQ (205bps YoY) at
37.9%. The decline of just 60bps QoQ is largely on account of a sharp
change in finished goods inventory. The gross margin decline was higher in
peers (CEAT: -310bps QoQ and Apollo S/A: -440bps QoQ) due to 10–12%
commodity cost inflation during the quarter.
EBITDA was down 35% QoQ (+47% YoY) to INR4.9b. The EBITDA margin
declined 390bps QoQ (180bps YoY) to 11.8%. This margin decline was
better than that in APTY (S/A) (-500bps QoQ / -40bps YoY), but worse than
that in CEAT (-270bps QoQ / -40bps YoY).
High other income and lower interest cost restricted PAT decline to 49%
QoQ (+846% YoY) at INR1.6b.
Cyclical recovery in both OEMs and replacement would enable the faster
absorption of new capacities (Gujarat plant) and drive the benefit of
operating leverage.
The industry pricing environment seems to be stable, with all players taking
price increases to pass on the substantial cost inflation. While there is likely
to be a transitory impact of the cost inflation in 2QFY22, we expect margins
to begin recovering from 2HFY22 (assuming stable commodity prices).
MRF’s competitive positioning within the sectors has weakened over the
past few years, further reflected in the dilution of pricing power in the PCR
and TBR segments. This, coupled with the impact of capex over the last
three years, has resulted in substantial dilution in its superior return ratios.
Current valuations at 27.2x/20.7x FY22E/FY23E EPS fairly capture the
changing competitive dynamics for MRF. We maintain a Neutral rating,
valuing it at 20x Sep’23E EPS (v/s 21.5x/14.5x its five-/10-year average P/E)
to arrive at our TP of INR83,730.
Revenue decline in-line v/s peers; price hike dilutes cost impact
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
MRF IN
4
339.4 / 4.6
98515 / 55326
-4/-21/-15
2353
Financials & valuations (INR b)
FY21 FY22E FY23E
Y/E March
Sales
161.6 191.0 204.5
EBITDA
29.4
29.0 35.1
Adj. PAT
12.8
12.5 16.4
EPS (INR)
3,012 2,942 3,862
EPS Growth (%)
-10.2
-2.3 31.3
BV/Share (INR)
31,636 34,428 38,090
Ratios
RoE (%)
10.0
8.9 10.7
RoCE (%)
10.0
9.1 10.8
Payout (%)
5.0
5.1
5.2
Valuations
P/E (x)
26.6
27.2 20.7
P/BV (x)
2.5
2.3
2.1
Div. Yield (%)
0.2
0.2
0.2
FCF yield (%)
10.2
0.4
2.1
Shareholding pattern (%)
As On
Jun-21 Mar-21
Promoter
27.8
27.8
DII
13.7
14.3
FII
14.1
13.5
Others
44.5
44.4
FII Includes depository receipts
Valuation and view
Jun-20
27.9
18.3
6.3
47.6
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com)
Research analyst: Vipul Agrawal
(Vipul.Agrawal@MotilalOswal.com) |
Aniket Desai
(Aniket.Desai@motilaloswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
3 September 2019
1