MRF Q1 FY22 Results: All you need to know

Consolidated Revenue: Rs 4184 cr (up 70% YoY/ Down 13% QoQ)

Consolidated Net Profit: Rs 166 cr (up 1086% YoY/ Down 50% QoQ)

EBITDA Margin: 11.8% (Down 180 bps YoY/ Down 390 bps QoQ)

Triggers:

1. MRF’s performance for Q1 was impacted by high raw material cost. However, the industry is taking gradual price hikes to shift the burden of these increasing costs.
2. Aggressive competition in the recent past has made MRF lose its top spot in the passenger car radial (PCR) tyre segment and Truck & Bus (T&B) tyre segments. This resulted in overall market share loss. However, with new capacity expansions done, MRF should be able to defend its market position. 
3. MRF has been on a big capacity expansion drive since FY17. This has led to somewhat lower capacity utilization. This would keep margins and RoE in check over the medium term.

Outlook:

MRF’s competitive positioning within the sector has weakened over the past few years, which is also indicated from 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 weak return ratios. However, cyclical recovery in both OEMs and replacement would lead to higher utilization of new capacities (Gujarat plant) and drive the benefit of operating leverage. Also, consistent price hikes being taken by all players in the industry will lead to better margins in the second half of FY22.

Brokerage view

Following the earnings, Motilal Oswal has retained a ‘Neutral’ rating on the shares with a target price of Rs 83,730. Following the lacklustre earnings, MRF shares ended 1.6% lower at Rs 78.800 on NSE. The brokerage firm expects margins and RoE to remain under pressure over FY21–23E. The company expects a ~9% EBITDA CAGR over FY21–23E, with margins contracting ~100bp to 17.2%. PAT growth would be stronger (~13% CAGR) over FY21–23E, according to its estimates.