This tyre company’s stock is burning rubber at ₹1 lakh apiece – Is there an upside left?

• MRF’s marketcap is at ₹42,262 crore, but with 4 million outstanding shares, its per share price remains high.
  
• The stock has given 44% returns in the last one year, and has been on an uptrend since this May.
  
• A report by Anand Rathi expects its volumes to grow at 6% and revenues at 10% over FY23-25.
  

If you want to invest in MRF, one of India’s leading tyre manufacturers, you will have to cough up ₹1 crore for 100 shares. Though each share of this company is worth around ₹1 lakh and it is also true that it has rallied 900% since 2012. At first glance, the stock may be pricey but a slightly closer look shows that the market capitalisation is not anywhere near ₹1 lakh crore.

The market cap of this company – at ₹42,262 crore — however is not close to that of India’s top companies – even as its single stock with a face value of ₹10, is the priciest that India has ever seen. Its outstanding shares, at 4 million, allow it to hold this high per-unit value.

India’s largest tyre manufacturers started as a toy balloon manufacturer in 1946. It graduated to supply tyres for all vehicles including two-wheelers, passenger vehicles, commercial vehicles and more.

The stock has given 44% returns in the last one year, and has been on an uptrend since it announced its Q4 earnings where its net profit went up 86% year on year to ₹313.5 crore, above analyst estimates.

The company’s operating margin expanded 460bps year-on-year to 14.7%, on account of lower input costs. The raw material cost contraction was more than that of peers. As per a report by Anand Rathi, EBITDA margins would be stable from Q4 as most of the benefit of lower input costs – that have already been factored in

“Replacement demand would gradually recover as economic activity improves and the impact of the high base fades. Original equipment manufacturers’ demand would be a healthy high single digit. We expect 6% volume and 10% revenue growth over FY23-25,” said the Anand Rathi report.

The research firm however expects a limited share price upside, and recommends a ‘hold’ on the stock at a revised 12-month target price of ₹96,000, with benign commodity movements and more-than-expected volume growth as upside risks.