How MRF become India’s Number 1 Stock?
MRF stands for Madras Rubber Factory Limited. It is a multinational company that has its headquarters in Chennai, India. It is widely regarded as the largest tyre manufacturer in India. In addition to tyres, the company produces a wide variety of other products like tubes, treads, toys, paints, and conveyor belts. By 6 August, 2018, MRF’s stock closed at a price of about Rs.76,892. This is one of the highest values ever recorded for a stock price in India. As of 6 August 2018, the company had a market capitalisation of about Rs.32,634 crore.
How did this come about? MRF was set up in the year 1946 and initially sold balloons and contraceptives. The company has shown consistent performance growth over the years. Beginning in 2000, the shares have kept surging in price. In January 2001, the stock was worth about Rs.1,200. By January 2016, the stock had grown to about Rs.40,500. This marked a period of tremendous growth for the company’s stock price. In mid 2018, it has grown to close to Rs.80,000.
Even though the company’s stock price is one of the highest ever recorded in India, it can be noticed that the market capitalisation is lower. One would expect that with a surge in the stock price, there would be a corresponding surge in the market capitalisation too. That is not the case when one considers a company like MRF. The difference is noticeable because MRF limits the number of shares that are available for trading. Excellent performance, rising sales, increased orders, and demand for the stock that is limited combined to increase the share price to over Rs.75,000. To compare, while billions of shares of other companies are traded, only three million of MRF shares are traded. This scarcity leads to higher demand, raising prices automatically.
The company was incorporated as a private limited company in the year 1960. In 1961, it was converted to a public company. Around this time, the company received permission to export its tyres around the world. The exceptions to this were the US and Canadian markets since one of MRF’s partners was already selling tyres in that region. But in the year 1967, MRF began exporting tyres to the United States of America. Beginning from this time, the company began entering into agreements with other tyre manufacturers and set a number of records for an Indian tyre manufacturer. The company has a number of firsts to its name when it comes to rubber technology. It has also won awards for exports. In 2000, the company entered the UAE market. This marked one of the initiatives of the company in establishing and consolidating its position in the Middle East. The company has signed a number of deals in India to set up new manufacturing plants.
According to the consolidated balance sheet of the company, the total assets of the company grew from Rs. 15048.47 crore in the financial year 2016–2017 to Rs.16,478.48 in the financial year 2017–2018. This was a solid increase. Compared to this, total current liabilities only rose from Rs.4,502.04 crore in the FY17 to Rs.4,589.89 crore in the FY18. This shows that the company was able to curtail the growth of its liabilities to a large extent while increasing its assets. This indicates a positive trend for the company. The company reduced its contingent liabilities from Rs.1,463.63 crore in FY17 to Rs.1,321.76 crore in the FY18.
The company’s net worth has consistently grown over the last decade. The company has also experienced high growth in its gross fixed assets. According to the audited financial results released for March 2018, the company’s sales has grown over the past year. The total income had also grown. While expenses grew, they were curtailed to within about Rs.100 crore of the previous year. These numbers are extremely good and have contributed to the mass spike in public interest in acquiring this stock.
All of these factors indicate that MRF is a growing company that has a stock price that is extremely high and might be poised to go higher still. The company has a number of positive factors that are in its favour. People trust the company since it has been operating for the last 70 years. The company has gone international since then and does have a number of tie-ups with other foreign companies. It has also cornered a niche market for itself when it comes to off-road tyres for cars in India. The company has always performed its own research and development and has come up with revolutionary new products. The visibility of the company is high. Also, the shares of the company have multiplied by leaps and bounds over the last twenty years. Due to this, it offers high returns for its investors. Therefore, it could be one of the top stocks in India. For more detailed information on MRF stock click here.
Now, it is not clear how sustainable this high price is. There could be a depreciation in price but considering the performance of the company at present, that could be a long time away. If you are an individual just looking to get into the stock market and have lesser capital, this high-priced MRF share is probably not the best one for you to invest in. It is not the best idea to invest all your money into a single share of the company. In such cases, it would be better to look at other investment options. For instance, investing in mutual funds does not require that much capital upfront and in addition to that, the performance of mutual funds is not as volatile as the performance of a stock. This offers a level of safety for the discerning investor.
Written By Priyanka Shah.