quant- mrf-err group- sustained large fcf generation to result in re-rating_ not rated

8/13/2019 quant- MRF-eRr Group- sustained large FCF generation to result in re-rating_ NOT RATED

1/14

MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013Friday, December 06, 2013 1

MRF(MRF IN, CMP: Rs17,407, Not Rated)

Sustained large FCF generation to result in re-rating

December 6, 2013

Basudeb Banerjee + 91 22 4088 0375

Ankit Pande + 91 22 4088 0393


2/14

MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013

Table of content

MRF: Sustained large FCF generation to result in re-rating 3

Maintaining share in a weak market led by favourable mix: Focus set to remain towards the personal mobility related branded 4

segment tyres

Strong distribution and brand power to aid growth: Prudent capacity addition keeping utilisation around the ~85-90% level 5

Industry leading margin set to sustain ahead:Lower CV tyre centricity, better brand power in the PCR and scale factor helping 6

MRF deliver robust margin on a sustained basis

Larger chunk of capex already done in FY10-12: Robust FCF generation to the tune of Rs8 bn pa to make MRF debt free by FY15E 7

Good scope for re-rating on back of healthy cash flows: Global peers with similar ROE trading at ~9-10x forward earnings 8

Risks to the business 9

Financial statements 10-11

Company profile 12

2


3/14


EPS PE EV/EBITDA ROCE ROE

(Rs mn) Growth (%) (Rs mn) Margin (%) (Rs mn) Growth (%) (Rs) (x) (x) (%) (%)

FY11 97,353 30.6 8,300 8.5 6,194 75.0 1,460.8 11.9 10.4 17.5 31.1

FY12 118,261 21.5 12,581 10.6 5,717 (7.7) 1,348.4 12.9 6.8 23.5 22.2

FY13 122,479 3.6 17,797 14.5 8,080 41.3 1,905.6 9.1 4.4 30.3 24.8

FY14E 132,531 8.2 19,383 14.6 10,210 26.4 2,408.1 7.2 3.6 30.5 24.5

FY15E 148,003 11.7 19,310 13.0 10,685 4.7 2,520.1 6.9 3.2 25.8 20.6

YE

September

Revenue EBITDA Adj PAT

Sustained large FCF generation to result in re-rating

MRF IN, CMP: Rs17,407 Not Rated

3

Financials and valuation

Note: Pricing as on 05 December 2013; Source: Company data, quant Global Research estimates

Source: Bloomberg

Source: BSE

Price movement (Rs) vs the Sensex

Source: Bloomberg

Sep-13 Jun-13 Mar-13

Promoters 27.3 27.3 27.2

FIIs 4.5 4.6 4.3

DIIs 11.0 10.9 10.7

Others 57.1 57.3 57.7

Shareholding pattern (%)

Market cap: Rs73.8 bn (US$1.19 bn)

52-week high/low: Rs18,025/Rs11,011

Share o/s: 4.2 mn

Share o/s (fully diluted): 4.2 mn

Avg daily trading vol (3m): 15.3('000)

Avg daily trading val (3m): Rs231.7 mn (US$3.8 mn)

We believe MRF Ltd. (MRF IN) will become net debt free by FY15 led by robust cash flow generation over the next two

years. We expect MRF to deliver FCF p.a to the extent of Rs7-8 bn in FY14 and FY15E driven by a 9-10% revenue CAGR in

FY13-15E along with visibility of EBITDA margin remaining ~13-15%. Unlike, Apollo Tyres and JK Tyres, MRFs

concentration of low margin CV tyre is much lower at ~32%. Whereas, high growth and high margin personal mobility

segments like PCR and 2-W tyres contribute ~17% and ~22% of revenue. With ROE expected to stabilise around the 20-

24% range, stock is presently trading around 1.3x P/B and 7x fwd. earnings on back of a 15% earnings CAGR in FY13-15E.

We see good scope for re-rating of MRF left ahead from present ~7x fwd earnings vs global peers with similar ROE &

margin profile trading at ~9-10x fwd earnings.

Expecting a 10% revenue CAGR in FY13-15E led by higher exposure to less cyclical segments: We expect MRF to slightly

add to its existing market share by ~100bp and operate with a share of ~30% by FY15E led by ~40% exposure to branded

personal mobility segment tyre segments. Operating at optimal utilisation levels of 85-90%, M&HCV tyres contribute ~32%

of its revenue (market share in overall M&HCV tyres at ~21% and 10% in TBRs) with tractor tyres contributing almost 18%

of its revenue. With pan India dealership network of ~9,200 outlets, MRF is well poised to retain leadership ahead.

Margin set to remain around 13-15% in FY14-15E: We expect EBITDA margin to remain around 13-15% in FY14-15E on

back of superior product mix, stable Raw material basket (RMB) price and improving scale. With CV tyres mix expected to

remain low as growth is set to be driven by PCR, 2-W & tractor tyres, mix is expected to remain favourable in FY14-15E.

Robust FCF generation to keep MRF debt free in the next capex cycle: We expect MRF to generate FCF of Rs7-8 bn p.a in

FY14-15E led by strong margin visibility and normalised capex/sales of 4%, after completing the larger capex cycle in FY10-

12 (~Rs21 bn). We expect MRF to operate at a ROE of 20-24% and ROCE of 25-30% in FY14-15E. With cash on books

expected at ~Rs12 bn by FY15E, we believe MRF will be well placed to fund the next capex cycle fully without raising debt.

17,000

17,500

18,000

18,500

19,000

19,500

20,000

20,500

21,00021,500

22,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

Nov-12

Dec-12

Jan-13

Jan-13

Feb-13

Mar-13

Apr-13

Apr-13

May-13

Jun-13

Jun-13

Jul-13

Aug-13

Aug-13

Sep-13

Oct-13

Oct-13

Nov-13

MRF I N Se nse x (RHS)


4/14


285.8 286.2

337.1

369.0

385.2

400.0

415.0

460.0

(12)

(7)

(2)

3

8

13

18

200

220

240

260

280

300320

340

360

380

400

420

440

460

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

Dom es tic Tir e m ar ke t s iz e ( Rs bn) Gr owth (%) (RHS )

15.9

17.8

19.9

23.7

27.6 27.6

28.7 29.0

15

18

21

24

27

30

33

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

MRF value market share (%)

1

6

11

16

21

26

31

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY1

4E

FY1

4E

Re ve nu e (Rs mn ) Growt h (%)(L HS)

Source: Company data, quant Global Research estimates


Expecting MRF to grow its revenue at a 10% CAGR in FY13-15E

MRF domestic market share set to remain steady around the 27-29% levels

MRFmaintaining share in a weak market led by favourable mix

Focus set to remain towards the personal mobility related branded segment tyres

4

Source: ATMA, quant Global Research estimates

Expecting domestic tyre market to grow @6% in FY13-15E

With focus towards relatively stable segments in the form of PCR/2-

W/tractor segments, we believe MRF is well poised to maintain its

leadership in the weak market amid rising competition from MNCs:

Revenue drivers

We believe, MRF is well placed under present weak demand

environment, with focus towards steady demand from PCR/2-W

and tractor tyres, thus outperforming CV centric player like

Apollo Tyres. We believe, rising TBR penetration & expected

recovery in CV cycle by FY15 end are the key catalysts for revival

in CV tyre demand ahead. With around 9,200 dealer ship outlets

spread pan India, MRF has the best S&D network amongst peers.

We expect MRF maintain leadership with share of ~28-30%ahead. We factor in a 10% revenue CAGR for MRF in FY13-15E.


5/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013

1511

16521739

18801925

21552214

2568

28352779 2806

2863

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

Realisation/Tyre (Rs)

17.4

19.8 20.6

24.9 25.4

28.5

31.7

34.3

38.4

44.2

48.6

53.5

15

25

35

45

55

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

Capacity (mn tyres)

4.1

3.1

7.5

8.4

2

4

6

8

10

Overall domestic market T&B 2/3-W PCR

Market CAGR (FY11-13)

Source: : ATMA, CEAT Presentation, quant Global Research estimates

Source: Company data, quant Global Research Estimates

Steady pricing on a blended basis despite falling raw material basket price

MRF focusing towards the higher margin and stable growth areas more

5

Capacity increasing at a steady pace in sync with demand, keeping utilisation levels

steady around the 85-90% level on an average

Source: Company data, quant Global Research Estimates

MRFstrong distribution and brand power to aid growth

Prudent capacity addition keeping utilisation around the ~85-90% level

We believe MRF the proven leader in the domestic tyre market is

set to retain its leadership across segments with its strong S&D

network and brand equity. For MRF, ball park market share in the

PCR, CV and tractor rear segments are 21%, 20% and 33% withshare in the TBR segment being a mere 10% as incremental capacity

in this segment will be coming up gradually ahead.

With plants located at eight locations spread across southern India,

MRF is presently operating with a capacity of ~45 mn tyres p.a and

is broadly running at ~85-90% utilisation. With the latest plant at

Trichy getting added in CY12, MRF has spent ~Rs22 bn in FY11-13,

to enhance its capacity by ~40% to present levels. We believe MRF

will focus towards the TBR and PCR segments for its incremental

capacity addition with capex/TPD requirement at ~Rs40 mn.



MRFindustry leading margin set to sustain ahead

Lower CV tyre centricity, better brand power in the PCR and scale factor helping MRF

deliver robust margin on a sustained basis

6

Source: Company Data, quant Global Research Estimates

Margin set to remain above 15% in coming couple of quarters; one-off costs

impacted 4QFY13 margin

Gross margin improving every quarter; expecting further improvement in coming

quarters with NR prices further correcting to ~Rs150/kg levels


Expecting EBITDA margin to remain around 15% in FY14E; factoring in FY15E margin

at a conservative 13%


10.6%

12.3%

8.2%

2.2%1.2%

12.3%

17.5%

16.9%15.0%

11.8%

8.5%

9.8%

11.2%

9.2%

6.0%6.9%

9.0%

10.9%

10.7%

11.7%

13.3%

15.3%15.8%

13.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

De

c-07

Ma

r-08

Ju

n-08

Sep-08

De

c-08

Ma

r-09

Ju

n-09

Sep-09

De

c-09

Ma

r-10

Ju

n-10

Sep-10

De

c-10

Ma

r-11

Ju

n-11

Sep-11

De

c-11

Ma

r-12

Ju

n-12

Sep-12

De

c-12

Ma

r-13

Ju

n-13

Se

-13

MRF EBITDA margin

20%

25%

30%

35%

40%

45%

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Se

-13

MRF gross margin Mean GM

8.9

12.7

11.5

8.5

10.6

14.5 14.6

13.0

6

7

8

9

10

11

12

13

14

15

16

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

EBITDA margin (%)

We expect EBITDA margin to sustain above 15% in next couple of

quarters on back of favourable RMB costs along with gradual uptick

in scale in a weak market. Pricing discipline across the industry has

remained robust in past couple of years despite a ~15% overalldecline in the RMB. Going ahead, we believe rise in TBR penetration

& increase in competitive intensity from MNCs to spruce up pricing

power and in turn margin in the TBR segment. Despite ~25% higher

capex/TPD addition, lower margin scenario presently is impacting

ROCE of the TBR business segment. Fortunately MRFsshare in TBR

is barely 10% contributing merely 15-20% of its revenue.

We do not see the influx of MNC manufacturers by FY16 in the

domestic market as a potential risk to the margin structure and

overall industry pricing discipline as typically MNCs do not tend to

grab share sacrificing margins.



MRF larger chunk of capex already done in FY10-12

Robust FCF generation to the tune of Rs8 bn pa to make MRF debt free by FY15E

7

Source: Company data, quant Global Research estimates, Bloomberg

Factoring a 10% CAGR in capacity addition ahead @ Rs40-50 mn/TPD

Set to become a net cash entity by FY15E on back of strong FCF generation


Trading close to 1.3x P/B with mean ROE of around 22-23%


Balance sheet health to improve further in FY14-15E

On back of a 10% revenue CAGR in FY13-15E, we expect MRF to

turn cash in FY15E on back of our assumption of operating

margin at ~13-15%. With majority of capex cycle already getting

over, we believe MRF would generate FCF even at a conservative

margin of 10%. Under present scenario of pricing discipline and

visibility of favourable RMB pricing, we do not see any major risk

to our margin and thus in turn our FCF expectations.

We expect MRF to operate at a ROCE of ~25-30% in FY14E & 15E

and have a net cash of ~Rs12 bn on books by FY15E. Thus MRF

would be well positioned to fund for the next big capex cycle,

even a optimal margin level without leveraging its books or take

the higher dividend payout route to improve its ROCE further.

13.7

20.4

23.2

31.1

22.2

24.8 24.5

20.6

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

12

16

20

24

28

32

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

ROE (%) BVPS (Rs) (RHS)

5,836

1,623

8,697

11,260

6,200

4,0005,000 5,000

(3,793)

5,514

(6,724) (6,120)

(4,250)

7,576 7,9108,550

(8,000)

(6,000)

(4,000)

(2,000)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

Capex (Rs mn) FCF (Rs mn)

13.5

21.8

24.1

17.5

23.5

30.3 30.5

25.8

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

5

10

15

20

25

30

35

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

ROCE (%) Ne t d ebt /Eq uit y (x ) (RHS)



0

5

10

15

20

25

Oct-05

Ja

n-06

Ap

r-06

Jul-06

Oct-06

Ja

n-07

Ap

r-07

Jul-07

Oct-07

Ja

n-08

Ap

r-08

Jul-08

Oct-08

Ja

n-09

Ap

r-09

Jul-09

Oct-09

Ja

n-10

Ap

r-10

Jul-10

Oct-10

Ja

n-11

Ap

r-11

Jul-11

Oct-11

Ja

n-12

Ap

r-12

Jul-12

Oct-12

Ja

n-13

Ap

r-13

Jul-13

Oct-13

1

2

3

4

5

6

7

8

9

10

11

Oct-0

5

Apr-0

6

Oct-0

6

Apr-0

7

Oct-0

7

Apr-0

8

Oct-0

8

Apr-0

9

Oct-0

9

Apr-1

0

Oct-1

0

Apr-1

1

Oct-1

1

Apr-1

2

Oct-1

2

Apr-1

3

Oct-1

3

(X)

GLOBAL

CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E CY13E CY14E

Michelin ML FP 10,519 56.2 14,983 15,428 16.1 17.3 10.8 9.4 4.8 4.4 15.2 15.4

Goodyear GT US 5,429 22.0 19,803 20,440 10.5 10.9 8.7 7.8 5.2 4.8 64.3 44.3

Bridgestone 5108 JP 29,338 36.1 35,261 37,230 16.5 16.8 11.0 10.0 5.5 5.1 17.1 16.3

Hankook 161390 KS 7,248 58.5 6,829 7,301 20.2 20.1 9.7 9.2 6.5 6.1 21.8 19.3

Pirel l i PC IM 3,881 8.0 4,550 4,833 17.7 18.1 14.1 11.5 6.8 6.2 14.2 15.9

Continental CON GY 22,193 111.0 24,502 26,056 15.4 15.7 14.0 12.3 7.3 6.7 24.2 23.6

Cooper Ti res CTB US 1,559 23.9 3,617 3,821 12.5 11.6 9.6 9.5 4.1 4.2 13.1 12.5

Titan International TWI US 915 17.1 2,207 2,304 9.5 10.2 18.8 16.7 5.9 5.3 11.9 13.7

Mean 12.1 10.8 5.8 5.4 22.7 20.1

DOMESTIC

FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E

Apollo Tyres APTY IN 644 1.3 2,176 2,357 12.0 11.9 5.6 5.1 3.4 3.2 18.9 17.3

Balkri shna Tyres BIL IN 440 4.5 544 594 23.9 22.7 6.6 7.0 5.7 5.1 25.5 19.5

CEAT CEAT IN 175 5.1 902 991 12.1 10.7 3.7 3.9 2.5 2.8 31.4 23.3

JK Tyre & Industries JKI IN 107 2.6 1,237 1,400 11.5 11.2 2.4 2.0 3.2 2.9 29.7 30.3

MRF * MRF IN 1,203 283.7 2,149 2,400 14.6 13.0 7.3 6.9 3.6 3.2 24.5 20.6

Mean 5.1 5.0 3.7 3.4 26.0 22.2

EBITDA margin (%) P/E (x) EV/EBITDA (x) ROE (%)Company name Ticker

Mkt Cap

(US$ mn)CMP (US$)

Revenue (US$ mn)

ROE (%)Company name Ticker

Mkt Cap

(US$ mn)CMP (US$)

Revenue (US$ mn) EBITDA margin (%) P/E (x) EV/EBITDA (x)

MRFgood scope for re-rating on back of healthy cash flows

Global peers with similar ROE trading at ~9-10x forward earnings

8

Scope for re-rating ahead on back of healthy cash flows leading to

de-leveraging amid strong earnings growth momentum:

We believe there is a good scope for re-rating of MRF valuation

multiples ahead on back of visibility of improving cash flows

along with strong earnings momentum. On back of MRF turning

into a net cash entity, we believe, MRF is well poised to play the

next demand up-cycle capex needs, funding the capex from

internal accruals, thus boosting earnings.

As per global comparables with similar ROE profiles along with

MRFs past valuation cycles, we believe MRF has the scope of

getting re-rated to the extent of 9-10x in coming quarters from

present levels of 7-8x.

Trading at ~7x 1-yr fwd earnings; expecting uptick on back of strong margin led

robust earnings momentum

Trading at ~3.2x 1-yr fwd EV/EBITDA; huge scope for re-rating on back of kind of

balance sheet health improvement expected in FY14-15E


Source: Bloomberg, quant Global Research estimatesSource: Bloomberg, Company data, quant Global Research estimates

Valuation comparables


9/14MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013 9

MRFrisks to the business

Risks to the business

Prolonged weakness in the replacement tyre market across segments of PCR and CV to impact FY15 revenue estimates with risk of drop

in pricing discipline in the industry amid rising competition.

Over supply in the domestic market led by influx of MNC players can pose as a risk to the pricing discipline in the industry from FY16E.

Any major revival in demand and rising TBE penetration will be the key to remain insulated from the risk.

Major incremental weakness in INR vs USD would impact margin as MRF is broadly a 10-12% net importer as percentage of revenue.

Major run up in the RMB led by global commodity upsurge amid weak demand sentiment in the domestic market. Though pricing power

across the industry is strong at current juncture, inherent risk of inability to fully pass on cost inflation will always remain in the business.

Misallocation of capital towards unrelated acquisitions, JVs etc through equity dilution or increase in leverage is an inherent risk.



MRFfinancial statements

YE Sep (Rs mn)

Note: Pricing as on 5 December 2013; Source: Company data, quant Global Research estimates

10

Income Statement (Rs mn) FY11 FY12 FY13 FY14E FY15E

Net revenue 97,353 118,261 122,479 132,531 148,003

Expenditure 89,053 105,680 104,682 113,148 128,693

Raw materials 71,071 83,527 79,684 87,039 99,980

Other expenses 17,983 22,153 24,998 26,109 28,713

EBITDA 8,300 12,581 17,797 19,383 19,310

D ep re ci ati on a nd a morti za ti on e xp en se 2,476 3,010 3,740 4,013 4,415

EBIT 5,824 9,571 14,057 15,371 14,895

Non-operating income 2,800 320 250 750 1,400

Interest including finance charges 930 1,545 1,960 881 581

Adjusted pre-tax profit 7,694 8,346 12,347 15,239 15,714

Unusual or infrequent items

Reported pre-tax profit 7,694 8,346 12,347 15,239 15,714

Less: taxes 1,500 2,629 4,267 5,029 5,028

Reported net profit 6,194 5,717 8,080 10,210 10,685

Ad d: e xtra ord in ary i te ms (p os t-ta x b as is ) - - - - -

Less: minority/associate earnings - - - - -

Re porte d ne t p rofi t for s ha re hol de rs 6,194 5,717 8,080 10,210 10,685

Adjusted net profit for shareholders 6,194 5,717 8,080 10,210 10,685

EPS (Rs), based on wtd avg shares 1,461 1,348 1,906 2,408 2,520

EPS (Rs ), b as ed on fu ll y d il ute d s ha re s 1,461 1,348 1,906 2,408 2,520

Year-end shares outstanding (mn) 4.2 4.2 4.2 4.2 4.2

Wei ghted average shares outs tandi ng ( mn) 4.2 4.2 4.2 4.2 4.2

Ful ly di lute d s ha res outs ta ndi ng (mn) 4.2 4.2 4.2 4.2 4.2

Balance Sheet (Rs mn) FY11 FY12 FY13 FY14E FY15E

Equi ty capi ta l 42 42 42 42 42

Reserves and surplus 22,901 28,567 36,516 46,581 57,120

Total equity 22,944 28,609 36,559 46,623 57,162

Deferred tax liabil ity (net)

Long term borrowings 9,614 11,026 11,313 6,313 5,313

Short tem borrowings 4,101 5,287 - - -

Tota l borrowings 13,714 16,313 11,313 6,313 5,313

Minority interest - - - - -

Current l iabi l i ties 26,669 27,353 28,435 29,989 25,623

Total liabilities 63,327 72,275 76,306 82,925 88,098

Cash and cash equivalents 572 648 3,094 5,858 13,262

Inventory 15,290 16,648 17,151 18,558 13,496

Trade receivables 13,024 14,541 15,287 16,541 18,472

Other current assets 3,563 2,814 2,890 3,095 3,411

Total current assets 32,450 34,650 38,421 44,053 48,640

Gross block 37,400 50,676 54,822 59,822 66,322

Le ss : d ep re ci ati on and amo rti za ti on (18,604) (21,490) (25,230) (29,243) (33,658)

Add: capita l work-in-proces s 11,353 4,147 4,000 4,000 2,500

Tota l fixed assets 30,148 33,332 33,592 34,580 35,165

Investments 729 4,293 4,293 4,293 4,293

of which, l iquid investment 674 4,238 4,238 4,238 4,238

Other assets - - - - -

Total assets 63,327 72,275 76,306 82,925 88,098

Net working capita l 14,384 17,597 17,841 19,154 20,704


11/14


MRFfinancial statements

YE Sep (Rs mn)

Source: Company data, quant Global Research estimates Note: as per closing price of 5 Dec 2013

11

Cash Flow Statement (Rs mn) FY11 FY12 FY13 FY14E FY15E

Operating cashflow

Pre-tax income 7,694 8,346 12,347 15,239 15,714

Add: de pre ci ati on a nd a morti za ti on 2,476 3,010 3,740 4,013 4,415

Add: interest expense (net) 930 1,545 1,960 881 581

Less: other adjustments - - - - -

Less: taxes paid (1,500) (2,629) (4,267) (5,029) (5,028)

Add: working capital changes (3,527) (3,213) (244) (1,313) (1,550)

Total operating cashflow 6,073 7,059 13,536 13,792 14,132

Investing cashflow

Capital expenditure (11,260) (6,200) (4,000) (5,000) (5,000)

Investments (2) (3,564) - - -

Others (930) (1,545) (1,960) (881) (581)

Total investing cashflow (12,192) (11,309) (5,960) (5,881) (5,581)

Financing cashflow

Share issuances - - - - -

Loans 557 2,599 (5,000) (5,000) (1,000)

Less: Others 5,607 1,727 (130) (146) (146)

Total financing cashflow 6,164 4,326 (5,130) (5,146) (1,146)

Net change in cash 45 76 2,446 2,764 7,404

Opening cash 528 572 648 3,094 5,858

Add: other adjustments - - - - -

Closing cash 572 648 3,094 5,858 13,262

Growth Ratios (%) FY11 FY12 FY13 FY14E FY15E

Net revenue 30.6 21.5 3.6 8.2 11.7

EBITDA (3.3) 51.6 41.5 8.9 (0.4)

Adjus ted net profit 75.0 (7.7) 41.3 26.4 4.7

Ratios (%)

Effective tax rate 19.5 31.5 34.6 33.0 32.0

EBITDA margin 8.5 10.6 14.5 14.6 13.0

Adjus ted net income margin 6.4 4.8 6.6 7.7 7.2

Net debt/equity 0.5 0.4 0.1 (0.1) (0.2)

ROaCE 17.5 23.5 30.3 30.5 25.8

ROaE 31.1 22.2 24.8 24.5 20.6

Tota l ass et turnover ratio (x) 2.6 2.7 2.5 2.5 2.4

Inventory days 57.3 51.4 51.1 51.1 33.3

Debtor days 48.8 44.9 45.6 45.6 45.6

Per share numbers (R s)

Di luted earnings 1,461 1,348 1,906 2,408 2,520

Cas h earnings 2,045 2,058 2,788 3,354 3,561

Free cas h (1,223) 203 2,249 2,074 2,154

Book va lue 5,411.2 6,747.4 8,622 10,996 13,482

Valuations (x)

Price to di luted earnings 11.9 12.9 9.1 7.2 6.9

EV/EBITDA 10.4 6.8 4.4 3.6 3.2

Pri ce to book 3.2 2.6 2.0 1.6 1.3


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MRF: sustained large FCF generation to result in re-ratingDecember 6, 2013 12

MRFcompany profile

Company profile

MRF, Indiaslargest manufacturer of automotive tyres and tubes, was incorporated as a private limited company in 1960 to take over the

business of a partnership firm called TheMadras Rubber Factorystarted by the late Mr. K.M. Mammen Mappillai. Over the years, the

company has established a country-wide dealer network and enjoys a strong brand image.

Being the leader in the domestic tyre market with a share of ~28%, its revenue mix is quite diversified. CV, PCR, 2-W and tractors

contribute roughly 40%, 17%, 23% and 18% of its revenue. Exports contribute roughly 10% of its revenue.

It has eight manufacturing plants set across Southern India.


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Disclaimer

Ratings and other definitions

Stock rating system

BUY. We expect the stock to deliver >15% absolute returns.

ACCUMULATE.We expect the stock to deliver 6-15% absolute returns.

REDUCE. We expect the stock to deliver +5% to -5% absolute returns.

SELL. We expect the stock to deliver negative absolute returns of >5%.

Not Rated (NR). We have no investment opinion on the stock.

Sector rating system

OVERWEIGHT. We expect the sector to relatively outperform the Sensex.

UNDERWEIGHT. We expect the sector to relatively underperform the Sensex.

NEUTRAL. We expect the sector to relatively perform in line with the Sensex.

We,Basudeb Banerjee and Ankit Pande, hereby certify that all of the views expressed in this presentation accurately reflect our personal views about the subject company

or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or

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Institutional Equities Research coverage universe

distribution of ratings

13

45%

27%

17%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Buy Accumulate Reduce Sell


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Title

612, maker chambers IV, nariman point,

mumbai 400 021, india

phone 91 22 4088 0100, 3025 0100

fax 91 22 4088 0198, 3025 0198

Thank you

Basudeb Banerjee

[email protected]

91 22 4088 0375

Ankit Pande

[email protected]

91 22 4088 0393

quant- mrf-err group- sustained large fcf generation to result in re-rating_ not rated

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