MRF rating – Sell: RM headwinds took a toll on performance

The inventory is at the moment buying and selling at 21.6X FY2023E consolidated EPS, which is dear.

MRF reported Q4FY21 Ebitda of Rs 7.5 bn (+31% y-o-y), 9% beneath our estimates because of RM headwinds. Revenues elevated by 31% y-o-y, decrease than that reported by the opponents. RM headwinds and an inferior combine will proceed to place strain on margins going ahead. As per our estimates, the corporate has misplaced market share within the M&HCV phase in FY2021, a trigger for concern. Preserve Promote with revised FV of Rs 69,150 (from Rs 78,000). The inventory is at the moment buying and selling at 21.6X FY2023E consolidated EPS, which is dear.

Q4FY21 Ebitda 9% beneath estimates because of RM headwinds
MRF reported Q4FY21 Ebitda of Rs 7.5 bn (+31% y-o-y), 9% beneath our estimates because of RM headwinds, partly offset by better-than-expected income progress. Revenues elevated by 31% y-o-y (5% above estimates), which was probably pushed by (i) double-digit improve within the alternative phase and (ii) sharp restoration within the OEM phase. We wish to be aware that CEAT had reported quantity improve of fifty% y-o-y and Apollo Tyres (standalone operations) had reported quantity improve of 49% y-o-y throughout Q4FY21. Ebitda margin got here in at 15.7% (flat y-o-y, -540 bps q-o-q), 230 bps beneath our estimate of 18.0% because of RM headwinds.

Gross margin declined by 630 bps q-o-q in Q4FY21 because of (i) improve within the RM basket and (ii) weaker product combine (larger mixture of the OEM phase), partly offset by value will increase taken throughout December. Different bills elevated by 14% y-o-y solely (income improve of 31% y-o-y), primarily led by sharp minimize in commercial, promotional and travelling spends. Depreciation expense elevated by 12% y-o-y as the corporate commissioned its new plant in Gujarat. Reported PAT got here in at Rs 3.2 bn (-52% y-o-y) in Q4FY21, 18% beneath our estimates because of miss at Ebitda degree.

Minimize FY2022-23E EPS by 11-16%; SELL stays with revised FV of Rs 69,150
We’ve minimize our FY2022-23E EPS estimates by 11-16% led by decrease Ebitda margin assumptions because of RM headwinds. Tyre firms have reported sturdy working efficiency over the previous three quarters led by sturdy progress within the alternative phase and benign RM price (till Q3FY21). Nonetheless, going ahead, we anticipate gross margins to stay beneath strain led by (i) RM price pressures and (ii) an inferior product combine (larger mixture of the OEM phase). Additionally, MRF has misplaced market share within the M&HCV phase in FY2021, which is a trigger for concern. Preserve Promote; Honest Worth revised to Rs 69,150 (from Rs 78,000 earlier), valuing the inventory based mostly on 18X March 2023e EPS estimates. At CMP, the inventory is buying and selling at 21.6X FY2023e consolidated EPS, which is dear.