The Stock Story

Before investing in the stock market, one must have done substantial research on which stock to invest in or sell which stock. We must have come across various stories about how the stock rose to fame, which led to its downfall and so on. I have shared the stock story of NSE's three most valuable stocks - MRF, Eicher, and Titan.

MRF

MRF Limited (MRF) is an Indian company and the largest producer of tyres in India. The company produces rubber goods, including tires, treads, tubes and conveyor belts, paints, and toys. MRF shares have produced multi-fold returns for the shareholders over the decades. The company has a total of 9 manufacturing units across India and has increased its manufacturing capacity and revenue year-on-year.

Company History

A budding entrepreneur, K. M. Mammen Mappillai started a small toy balloon production facility in 1946 at Tiruvottiyur, Madras (now Chennai). In 1949, MRF established its first office at 334, Thambu Chetty Street, Madras, and in 1952 MRF ventured into the production of tread rubber. This move into tread-rubber production, was later to catapult MRF into a league that few had thought were possible. The consistency of the manufactured product was of such a high standard that MRF had become the industry leader with a 50 per cent share of the Indian tread-rubber market by the end of 1956.

The company was founded on November 5, 1960, as a private limited company and, in partnership with Mansfield Tire & Rubber Co, went on to produce tyres for car, aircraft, cycle. On April 1, 1961, the Madras Rubber Factory Private Limited was transformed into a public company, and additional capital was provided to start the manufacturing of automotive tyres and tubes in partnership with Mansfield Tire & Rubber Co., Mansfield, Ohio, USA. The company was granted permission to export Mansfield trademark tyres to all world markets except the USA and Canada. MRF also made strides in the manufacture of tyres, with the commissioning of the main plant in 1964. The year also marked the birth of the now celebrated MRF Muscleman. MRF was the first Indian company to sell tyres into the United States in 1967.

In 1973, MRF achieved a significant breakthrough by being among the first to produce Nylon tyres in India. In its history, the company crossed several milestones in 1980. In the same year it entered into a strategic partnership with BF Goodrich Tire Co., USA and the company's name, Madras Rubber Factory Ltd., was changed to MRF LtdIn 1987, by using indigenous technology developed by the company, the company obtained MRTP clearance and a letter of intent for the manufacture of procured tread rubber up to 6,000 tons per year. MRTP approval was also obtained for the establishment at Tada in Andhra Pradesh of a new plant to manufacture 1.5 million tyres and tubes per year. The same year, the company entered into a collaborative agreement with Vapocure of Australia to produce polyurethane paint formulations that can be quickly cured at room temperature and would also help create shatterproof glass. Funskool (India), Ltd., and Finance and Crystal Investment Co. Ltd, became the company's subsidiaries.

The company formed a new Firm, MRF INTERNATIONAL LIMITED in 1992, and was awarded the start-up certificate. In 1993, MRF became India's first tire firm to cross the INR 10 billion mark. In 1997, the company set up the Arakonam plant to produce bicycle tyres and tubes in Chennai and launched Nylogrip Zapper, a high-performance tyre for new-gen bikes. MRF Ltd. was listed in the Super 50 list of Indian Companies by Forbes in 2015.

Financial Performance

According to BSE numbers, from May 11, 2009, to May 9, 2019, the MRF shares grew sharply by 2,210 per cent. In the last five years, stock growth has risen to 154.83 per cent. On April 27, 1993, the company's share closed at Rs 11 compared to the current price of Rs 65287.20 on NSE.  On April 30, 2018, the scrip hit its lifetime high of Rs 81,423. For the fourth quarter ended March 31, MRF posted a double surge in consolidated net profit to Rs 679.02 crore. For the same period of fiscal 2018-19, the company posted a net profit of Rs 293.93 Crore. Operating revenue stood at Rs 3,685.16 crore down -9.58 per cent from last quarter sales of Rs 4075.75 crore and down -10.94 per cent from previous year's same quarter sales of Rs 4137.67 crore, MRF Ltd. said in a regulatory filing. The company posted a consolidated net profit of Rs 1,422,57 crore for the fiscal year 2019-20, up marginally from Rs 1,130,61 crore during the preceding fiscal year. Total revenue during FY19 stood at Rs 16,254.47 crore, compared to Rs 15,509.55 crore in the previous year, showing an annual increase of 4.80%.

Dividend Payment

The firm has an excellent report on dividend track and has regularly announced dividends over the last five years. The board of the company has approved a final Rs 94 dividend per share (940 per cent) for March 31. With two interim Rs 3 dividends paid over the year, MRF said the aggregate dividend for the last financial year is Rs 100 per share of Rs 10 each (1000 per cent). It results in a dividend yield of 0.15 per cent at the current share price of Rs 65287.20.

Bonus

The last bonus MRF had announced was in the ratio of 1:2 in 1975. 

Split

MRF is the Indian equity market's most expensive stock, which costs one share at Rs 65287.20. It is because MRF never split its stock. Companies break up their stock from time to time to maintain liquidity. MRF never resorted to splitting or issuing bonus shares, however. According to market analysts, the promoters do not want to increase their shareholder base or want only serious investors. The explanation behind this may be that a retail trader with a small investment would not be able to buy MRF stock, as the share price is high. Only investors with substantial investment and the long-term target will be voicing interest in the company's share. For a select few board members, that would also maintain decision-making authority.

Efficiency of Management

Mr Arun Mammen is Managing Director and CEO of MRF Ltd. In addition to MRF, he also serves as Director of Funskool [India] Ltd, a toy manufacturing firm. Mr Rahul Mammen Mappillai is the Whole-time Director of MRF Ltd. He had a role as Head of the Strategic Planning Department in formulating the company's long-term business strategy and other innovative measures such as the Balanced Score Card and the Performance Management Systems. He was instrumental in completing the Ankenpally project at Medak District, Andhra Pradesh, in record time.

    The company's top management includes Dr.Cibi Mammen, Mrs.Ambika Mammen, Mr.Vijay R Kirloskar, Mr.Varun Mammen, Mr.V Sridhar, Mr.Samir Thariyan Mappillai, Mr.Ranjit I Jesudasen, Mr.Rahul Mammen Mappillai, Mr.K M Mammen, Mr.Jacob Kurian, Mr.Ashok Jacob, Mr.Arun Mammen, Dr.Salim Joseph Thomas, Mrs.Vimla Abraham. The company has SCA & Associates as its auditors.

    The company's management is experienced in the field and has built a well-known brand in a product that is commoditised. Over the years, the administration has grown the company and brought it to the industry's leading position by successfully executing the past expansion projects. With the apparent availability of land and cash at hand, the management should not have difficulty completing projects in the future. The management's ability to maintain balance sheet strength during such times will be the critical differentiator if it can do so from other players.

    After analyzing MRF's management, we can see that it has a decent leadership that cares about the shareholders' expectations and beliefs in the growth of the industry. MRF appears to have a succession plan that would allow the next generation to take over the firm.

Factors which affected the stock price

Several important deals have taken place over time, affecting MRF Ltd stock price both positively and negatively.

➢    Sales crossed INR 2 billion in 1984. MRF tyres were the first tyres to fit onto the Maruti Suzuki 800-the first small, modern car in India.

➢ The company was named as 'Star Exporter' in 1989, a designation that allows the company to obtain preferentially treatment in a variety of customs, RBI, etc. areas.

➢    In 1990 Aruna Leathers & Exports Ltd. was merged with the group.

➢   In 1997, Credit Analysis and Research Ltd (CARE) awarded MRF Ltd a credit rating of 'PR1+' (superior) for its proposed Rs 100 Crore Commercial Paper (CP) programme.

➢  In 1998, MRF Tyres signed an alliance with Siel Honda Motors and Hindustan Motors, an OEM (original equipment manufacturer).

➢  As part of its export drive in the year 2000, the company set up a shop in Dubai to target markets in the USA.

➢  MRF Tyres Ltd. saw a downturn in demand for commercial vehicle tyres in 2002, and the growth of passenger cars also declined, hurting its profits.

➢ In 2004, MRF earned the highest rankings in the study in four of the five factors assessing overall satisfaction with the tyres' appearance, longevity, friction, and handling, and during 2002-03, MRF tyres turned out to be India's largest user of natural rubber. The business tied in with Maruti Udyog the same year to improve India's motorsports.

➢ In 2014, MRF signed a historic five-year agreement with the BCCI and announced association as Global Partner for ICC Cricket World Cup 2015.

➢ MRF Ltd signed a Memorandum of Understanding (MoU) with the Tamil Nadu government to invest 4500 crores in Tamil Nadu in 2015.

➢    MRF signed MOU to set up a plant in Gujarat in 2017.

MRF was associated with the introduction onto the market of new goods, which led to a rise in value. The timelines for the products and their published variants are listed below.

➢     The design of the Nylon Hot-Stretch unit was approved in November 1963.

➢     A letter of intent was obtained in 1985, in collaboration with Industrial Pirelli SPA, Italy, for the manufacture of conveyor beltings and hoses.

➢   In 1990, the company introduced onto the market 'Vapocure' colours.

➢   In 1998 MRF launched an MRF Zigma market sampling operation.

➢ MRF launched a variant of steel-belted premium radial tyres, called 'MRF ZVTS' in 2000.

➢     MRF Ltd launched premium Super Lug 50-FS and ZSLK Tyres truck tyres in 2007

By comparing the corresponding year of a product release with that year's stock price of MRF, a correlation can be found between these.

Conclusion

Overall, MRF Ltd appears to be a company that has been able to grow well over the last decade, capitalizing on the declining trend in its key raw materials. As a result, the organization has been able to increase its profit margins in the previous few years and produce substantial cash surpluses. Nevertheless, the tyre industry has faced market demand problems arising from the crisis that the automotive industry has been facing for some time; it remains to be seen if MRF Ltd. can maintain its profitability margins.

    The firm operates in a capital-intensive and extremely competitive market, requiring the company to spend on continuous capital without being able to maintain its profitability margins. In the past, the company has benefited from lower commodity prices from the tailwinds of the industry. However, it remains to be seen whether the company can maintain its balance sheet strength given significant competitor Capex and inexpensive import of tyres, particularly from China. However, the government's decision to place restrictions on the importation of tyres is likely to be of tremendous benefit to the industry at a difficult time like this, MRF said.

~ By Alex Thomas