MRF: Maintaining op margins key to growth
Shares of MRF Tyres, the largest domestic producer of automotive tyres in the country, tanked 9% on Monday, even as it reported a turnaround for its fourth quarter ended September 2009 with net profit of Rs 96 crore compared with a loss of Rs 4 cr...
By Shikha Sharma, ET Bureau |
Shares of MRF Tyres, the largest domestic producer of automotive tyres in the country, tanked 9% on Monday, even as it reported a turnaround for its fourth quarter ended September 2009 with net profit of Rs 96 crore compared with a loss of Rs 4 crore in the year-ago period.
What appears to be playing on the mind of investors is the sharp rise in the price of natural rubber, a key raw material for tyres, which make up nearly three-fourth of the operating cots has shot up 40% since June due to a shortfall in domestic production and high import duty. So, the movement in rubber price, continued volume growth and the ability of the tyre makers to raise the selling price will determine the profitability of the companies in near term.
Meanwhile, net profit for the full year ended September jumped to Rs 250 crore compare Rs 143 crore on the consolidated basis backed by strong volume growth and moderation in operating expenses, including raw materials over the previous year. Net sales grew 12% on a YoY basis, mainly on account of the volume growth. The latter was, in turn, driven by a sharp rebound in commercial vehicles sales and general improvement in economic activity, which means higher volume of road cargo. Nearly 70% of the tyre sales by value are accounted for by truck and bus tyres in India. A little also came from the recent uptick in the sales of passenger cars and SUVs.
The company reported an operating margin of 12% for the financial year 2009 compared to 8.5% in the corresponding period last year. This was driven by faster growth in topline and marginal growth of 2% in raw material cost, which forms 70% of total operational cost, during the year. However, the bottomline growth was moderated by a marginal increase in interest expense besides 47% increases in deprecation provision. The surge in deprecation cost is due to change in provisioning method from straight line to written-down-value method (WDV).
Although the bottomline reported smart turnaround last quarter, sustainability of the growth momentum will depend on how the company maintains operating margins at the current level.
What appears to be playing on the mind of investors is the sharp rise in the price of natural rubber, a key raw material for tyres, which make up nearly three-fourth of the operating cots has shot up 40% since June due to a shortfall in domestic production and high import duty. So, the movement in rubber price, continued volume growth and the ability of the tyre makers to raise the selling price will determine the profitability of the companies in near term.
Meanwhile, net profit for the full year ended September jumped to Rs 250 crore compare Rs 143 crore on the consolidated basis backed by strong volume growth and moderation in operating expenses, including raw materials over the previous year. Net sales grew 12% on a YoY basis, mainly on account of the volume growth. The latter was, in turn, driven by a sharp rebound in commercial vehicles sales and general improvement in economic activity, which means higher volume of road cargo. Nearly 70% of the tyre sales by value are accounted for by truck and bus tyres in India. A little also came from the recent uptick in the sales of passenger cars and SUVs.
The company reported an operating margin of 12% for the financial year 2009 compared to 8.5% in the corresponding period last year. This was driven by faster growth in topline and marginal growth of 2% in raw material cost, which forms 70% of total operational cost, during the year. However, the bottomline growth was moderated by a marginal increase in interest expense besides 47% increases in deprecation provision. The surge in deprecation cost is due to change in provisioning method from straight line to written-down-value method (WDV).
Although the bottomline reported smart turnaround last quarter, sustainability of the growth momentum will depend on how the company maintains operating margins at the current level.
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