MRF Limited
Instrument
Non Convertible Debenture (NCD)
NCD – Proposed
Amount (Rs. Crore*)
500.0
100.0
Rating action
[ICRA]AA+ (Stable) Re-affirmed
[ICRA]AA+ (Stable) Re-affirmed
ICRA has re-affirmed the [ICRA]AA+ (pronounced ICRA double A plus) rating outstanding on the Rs.
500.0 Crore Non-Convertible Debenture (NCD) and Rs. 100 crore proposed NCD programmes of MRF
Limited (“MRF”/ “the Company”)†. The outlook on the rating is stable.
The re-affirmation of the rating considers the healthy financial profile of the company aided primarily by
robust demand from the replacement and export segments and the company’s sustenance of its
dominant market position in the Indian Tyre industry despite the weak domestic OE demand.
Supported by strong volumes and benign rubber prices, the Company’s profit margins witnessed sharp
expansion in the last six quarters, leading to significant improvement in MRF’s cash accruals. Driven
by these factors, the Company’s financial profile is presently characterised by healthy capital structure
(gearing of 0.7x as on 31.03.2013) and large cash balances and investments totaling over Rs. 700
crore as of March 2013.
The Company’s consistent track record of large scale operations, its competitive positioning, strong
brand loyalty and dominant market share across different segments continue to support the ratings.
With a well diversified product portfolio and large share of revenues from replacement markets (over
70%, greater than peers), MRF’s volumes are insulated from cyclicality in the domestic markets to a
considerable extent. That said, MRF also enjoys stable and healthy relationships with all major
domestic OEMs, which is expected to support future volumes given the expected long term favourable
demand outlook for the auto industry.
The rating, however, also considers the vulnerability of the Company’s margins to volatility in raw
material prices - notably that of natural rubber, synthetic rubber and oil derivatives. With average
landed cost of natural rubber (both domestic and international) on the rise over the last few months,
ability of the Company to enact positive pricing actions would remain crucial to sustain the current high
levels of profitability. Further, the highly capital intensive nature of the business, while acting as a
strong entry barrier, necessitates significant large re-investments in the business. With the industry
going through a period of cyclical oversupply currently, pricing flexibility of domestic manufacturers is
also expected to be under pressure. Therefore, MRF’s ability to rapidly ramp up operations, whilst
maintain its margins would be crucial to sustain its healthy credit profile.
Company Profile
Incorporated in 1960, MRF Limited (“MRF” / “The Company”) was initially started as a small
manufacturing unit producing balloons, latex cast squeaking toys and industrial gloves. Established as
a partnership firm under the name Madras Rubber Factory in 1949 at Chennai, the business was later
taken over and converted into a public limited company in 1960 and the company began manufacture
of tyres in technical collaboration with Mansfield Tyre and Rubber Company, USA. Currently, the
company has three subsidiaries - MRF Corp Limited, MRF International Limited, and MRF Lanka
Private Limited. MRF is currently managed by Mr. K.M. Mammen; and the promoters collectively hold
~27.0% stake (as on March 31, 2012) in the company. With an annual production capacity of 35.7 (as
on March 2012) million tyres, MRF has its manufacturing plants spread across eight locations in Tamil
Nadu, Kerala, Andhra Pradesh and Goa. MRF has a strong R&D support and marketing team with a
wide distribution network comprising over 100 sales offices and 400 field officers, and more than 4,000
dealers in India.
*
100 lakhs = 1 crore = 10 millions
For complete rating scale and definitions, please refer to ICRA’s website (www.icra.in) or other ICRA rating
publications
†
Recent Results
During the nine month period ended 30th June 2013, the company’s operating income and net profit
(standalone) stood Rs. 8,983.5 crore (corresponding previous nine month period ended 30th June
2012, Rs. 8,876.6 crore) and Rs. 618.1 crore (corresponding previous nine month period ended 30 th
June 2012, Rs.407.6 Crore) respectively.
August 2013
For further details please contact:
Analyst Contacts:
Mr. Subrata Ray (Tel. No. +91 22 61796386)
subrata@icraindia.Com
Relationship Contacts
Mr. Jayanta Chatterjee, (Tel. No. +91-80-43326401)
jayantac@icraindia.com
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