INVESTMENT MANAGEMENT

EQUITY RESEARCH REPORT

POST GRADUATE DIPLOMA IN MANAGEMENT

Under the Supervision of:

Prof. A.K Puri

Submitted by:

Agneesh Dutta (PGFB2106)

JAIPURIA INSTITUTE OF MANAGEMENT

A-32 A, Sector 62, Institutional Area, Noida- 201309 (U.P.)
 MRF Ltd.
Founded: 1946, Chennai
Founder: K. M. Mammen Mappillai
Headquarters: Chennai
Company Overview:
Madras Rubber Factory, also known as MRF or MRF Tyres, is an Indian multinational
company that makes tyres and the largest tyre maker in India. It has its headquarters in
Chennai, Tamil Nadu, India.
K. M. Mammen Mappillai started Madras Rubber Factory in 1946 in Tiruvottiyur, Madras, to
make toy balloons (now Chennai). In 1952, the company started making tread rubber for
tyres. Madras Rubber Factory limited was set up as a private company in November 1960. It
started making tyres with the help of the Ohio-based Mansfield Tire & Rubber company. On
April 1, 1961, the company went public. In 1964, an office was set up in Beirut, Lebanon, to
develop the export market, and the muscleman logo was created. It was the first Indian
company to send tyres to the US in 1967.
MRF began making Nylon tyres for the first time in 1973. In 1978, the company started
working with B. F. Goodrich to share technical knowledge. In 1979, the Mansfield Tire &
Rubber Co. sold its last share, and the company changed its name to MRF Ltd. The company
and Marangoni TRS SPA, which is based in Italy, came to an agreement on how to work
together technically to make pre-cured tread rubber for the retreading industry. MRF tyres
made the tyres for India's first modern small car, the Maruti 800.

Key Executives
Names Designation
Jacob Kurian Director
K M Mammen Chairman & Managing Director
Madhu P Nainan Vice President - Finance
Rahul Mammen Mappillai Managing Director

MRF Income Statement Analysis

Operating income for the year fell 0.5% compared to the previous year.
During fiscal, the company's operating profit grew by 23.8% compared to the previous year.
Operating profit margins went down from 14.7% in FY20 to 18.2% in FY21.
Depreciation costs went up by 16.1% and finance costs went down by 6.4% year over year.
Other income fell by 37.4% YoY.
Net profit for the year went down by 10.2% YoY.
Net profit margins went down from 8.8% in FY20 to 7.9% in FY21.
 No. of Mths Year Ending 12 Mar-20* 12 Mar-21* % Change

Net Sales Rs m 162,394 161,632 -0.5%

Other income Rs m 3,354 2,099 -37.4%

Total Revenues Rs m 165,747 163,731 -1.2%

Gross profit Rs m 23,820 29,493 23.8%

Depreciation Rs m 9,823 11,408 16.1%

Interest Rs m 3,008 2,816 -6.4%

Profit before tax Rs m 14,343 17,368 21.1%

Tax Rs m 117 4,598 3,836.4%

Profit after tax Rs m 14,226 12,771 -10.2%

Gross profit margin % 14.7 18.2

Effective tax rate % 0.8 26.5

Net profit margin % 8.8 7.9

Projected Profit and Loss Statement for year 2023

Projected PL Statement for 2023 Column1 Column2
Year 202203 202303
INCOME :
 Sales Turnover 18989.51 20134.978
Excise Duty 0 0
Net Sales 18989.51 20270.7739
 Other Income 314.92 331.389891
 Stock Adjustments 844.92 855.056304
Total Income 20149.35 21831.2868
EXPENDITURE : 0
 Raw Materials 13271.46 14919.4903
 Power & Fuel Cost 930.93 1040.73923
 Employee Cost 1471.94 1593.51788
 Other Manufacturing Expenses 907.72 982.230824
 Selling and Administration Expenses 1041.4 1086.24399
 Miscellaneous Expenses 190.76 210.518876
 Less: Pre-operative Expenses Capitalised 0 0
Total Expenditure 17814.21 19748.4479
Operating Profit 2335.14 2311.88483
 Interest 254.57 256.368308
Gross Profit 2080.57 2058.53386
 Depreciation 1201.41 1374.2476
Profit Before Tax 879.16 792.615348
 Tax 221.95 207.19564
 Fringe Benefit tax 0 0
 Deferred Tax 9.87 -2.00270086
Reported Net Profit 647.34 597.113332
 Extraordinary Items 3.41 3.33604665
Adjusted Net Profit 643.93 593.711558
 Adjst. below Net Profit 0 0
P & L Balance brought forward 0 0
Statutory Appropriations 0 0
 Appropriations 647.34 597.113332
P & L Balance carried down 0 0
Dividend 0 0
Preference Dividend 0 0
Equity Dividend % 1500 1937.5
Dividend Per Share(Rs) 150 193.75
Earnings Per Share-Unit Curr 1526.75 1408.29164
Earnings Per Share(Adj)-Unit Curr 1526.75 1408.29164
Book Value-Unit Curr 32493.56 35574.7636
Book Value(Adj)-Unit Curr 32493.56 35574.7636
Dividend Per Share Adj.(Rs) 150 193.75

Projected Balance Sheet for year 2023

Projected Balance Sheet for 2023 Column1 Column2
Year 202203 202303
SOURCES OF FUNDS :
 Share Capital 4.24 4.24
15079.568
 Reserves Total 13773.03 6
Equity Share Warrants 0 0
Equity Application Money 0 0
15083.701
Total Shareholders Funds 13777.27 3
950.43 1170.9619
3690.2707
 Unsecured Loans 1464.24 6
2736.5401
Total Debt 2414.67 4
774.92735
 Other Liabilities 508.04 8
18328.570
Total Liabilities 16699.98 2
APPLICATION OF FUNDS : 0
17947.746
 Gross Block 15216.32 5
 Less : Accumulated Depreciation 5750.05 7617.5305
Less:Impairment of Assets 0 0
10627.729
 Net Block 9466.27 5
Lease Adjustment 0 0
Asset Transferred 0 0
1329.5317
 Capital Work in Progress 1225.81 2
Producing Properties 0 0
5284.6287
 Investments 3665.22 9
Current Assets, Loans & Advances 0
4818.3528
 Inventories 4061.72 1
2327.8975
 Sundry Debtors 2283.26 1
575.53530
 Cash and Bank 114.85 8
1613.4166
 Loans and Advances 974.69 4
8492.3888
Total Current Assets 7434.52 3
Less : Current Liabilities and
Provisions 0
5980.5991
 Current Liabilities 5420.08 2
189.95750
 Provisions 180.04 5
Total Current Liabilities 5600.12 6169.4804
859.19286
Net Current Assets 1834.4 3
 Miscellaneous Expenses not written
off 0 0
Deferred Tax Assets 76.02 73.165054
440.88975
Deferred Tax Liability 469.32 1
Net Deferred Tax -393.3 -372.58479
1190.2588
 Other Assets 901.58 3
18328.570
Total Assets 16699.98 2
887.59378
 Contingent Liabilities 698.53 5

5 Factor ROE Analysis:

 Return on Assets*Asset Turnover*Leverage Ratio*Interest Efficiency*Tax
Formula Efficiency
  2022 2021 2020 2019  
Return on Asset 0.14 0.21 0.19 0.21  
Asset Turnover 1.14 1.06 1.13 1.24  
Leverage 1.21 1.14 1.18 1.20  
Interest
Efficiency 0.38 0.55 0.53 0.60  
Tax Efficiency 0.74 0.73 1.00 0.68  
5 Factor ROE 0.05 0.10 0.13 0.13  

Company Analysis
 Operating income during the year rose 55.9% on a year-on-year (YoY) basis.
 The company's operating profit increased by 115.0% YoY during the fiscal. Operating
profit margins witnessed a fall and down at 26.0% in FY22 as against 18.8% in FY21.
 Depreciation charges decreased by 1.4% and finance costs decreased by 28.2% YoY,
respectively.
 Other income declined by 12.4% YoY.
 Net profit for the year grew by 422.7% YoY.
 Net profit margins during the year grew from 5.0% in FY21 to 16.8% in FY22.

BALANCE SHEET OF MRF LTD.

No. of Months Year Ending 12 Mar-20 12 Mar-21 % Change
Net worth 122,147 134,137 9.8

Current Liabilities 52,522 72,677 38.4

Long-term Debt 7,790 8,118 4.2

Total Liabilities 194,423 225,819 16.1

Current assets 81,510 103,672 27.2

Fixed Assets 112,913 122,147 8.2
Total Assets 194,423 225,819 16.1
Balance sheet Analysis
 The company's current liabilities during FY22 stood at Rs 906 billion as compared to
Rs 709 billion in FY21, thereby witnessing an increase of 27.8%.
 Long-term debt down at Rs 448 billion as compared to Rs 657 billion during FY21, a
fall of 31.9%.
 Current assets rose 54% and stood at Rs 926 billion, while fixed assets rose 3% and
stood at Rs 1,899 billion in FY22.
  Overall, the total assets and liabilities for FY22 stood at Rs 2,824 billion as against Rs
2,439 billion during FY21, thereby witnessing a growth of 16%.

MRF Cash Flow Statement 2020-21

No. of months 12 12
Particulars % Change
Year Ending Mar-20 Mar-21

Cash Flow from Operating Activities Rs m 22,712 43,246 90.4%

Cash Flow from Investing Activities Rs m -1,637 -50,862 -

Cash Flow from Financing Activities Rs m -10,324 -2,497 -

-10,117
Net Cash Flow Rs m 10,766

Analysis of MRF's Cash Flow Statement

 During FY21, MRF's cash flow from operating activities (CFO) was Rs 43 billion,
which was a 90.4% increase from the previous year.
 During FY21, cash flow from investing (CFI) was Rs -51 billion, which was an
improvement of 3,007,2% from the previous year.
 Cash flow from financial activities (CFF) in FY21 was Rs -2 billion, which was a
76% increase from the previous year.
 Overall, the company's net cash flows were Rs -10 billion in FY21, which is down
from Rs 11 billion in FY20.

RATIOS:
 LIQUIDITY
Current Ratio = Current Assets/ Current Liabilities

Year 2022 2021 2020 2019 2018

Current Assets 7434.52 5421.61 6444.16 5550.11 4642.57
Current Liabilities 5600.12 6793.1 4589.55 4623.58 4167.15
 
Current Ratio 1.33 0.80 1.40 1.20 1.11

The company's current ratio went from 1.6x in FY20 to 1.4x in FY21, which shows that it got
worse. The current ratio shows how well a company can pay its short-term and long-term
debts.
Quick/Acid Test Current Assets - (Prepaid Expenses+Inventories)/Current Liabilities
Ratio =

Year 2022 2021 2020 2019 2018

Current Assets 7434.52 5421.61 6444.16 5550.11 4642.57
Inventories 4061.72 2880.33 2852.69 2950.93 2172.07
Current Liabilities 5600.12 6793.1 4589.55 4623.58 4167.15

Quick/Acid Test
Ratio 0.60 0.37 0.78 0.56 0.59

 SOLVENCY
Debt Equity Ratio = Total liability/ Shareholders' Equity

Year 2022 2021 2020 2019 2018

16699.9 15087.9 14136.7 12764. 11515.6
Total Liabilities 8 8 3 9 4
13777.2 13178.8 12004.3 10653.
Shareholders' Equity 7 6 5 3 9604.2
 
Debt Equity Ratio 1.21 1.14 1.18 1.20 1.20

Debt Ratio = Total liability/ Total Assets

Year 2022 2021 2020 2019 2018

16699.9 15087.9 14136.7 12764. 11515.6
Total Liabilities 8 8 3 9 4
16699.9 15087.9 14136.7 12764. 11515.6
Total Assets 8 8 3 9 4
 
Debt Ratio 1.00 1.00 1.00 1.00 1.00

Interest Coverage Ratio

= EBIT/ Finance Cost

Year 2022 2021 2020 2019 2018

2667.9
EBIT 2335.14 3107.9 2660.91 1 2556.82
Interest Expense 254.57 270.71 280.97 252.75 249.57
 
Interest Coverage Ratio 9.17 11.48 9.47 10.56 10.24

Leverage Ratio = Total Assets/ Shareholders' Equity

Year 2022 2021 2020 2019 2018
16699.9 15087.9 14136.7 12764. 11515.6
Total Assets 8 8 3 9 4
13777.2 13178.8 12004.3 10653.
Shareholders' Equity 7 6 5 3 9604.2
 
Leverage Ratio 1.21 1.14 1.18 1.20 1.20

In FY21, the company's interest coverage ratio went up from 5.8x in FY20 to 7.2x. The
interest coverage ratio of a company shows how easily the company can pay the interest
costs on its outstanding debt. It's better to have a higher ratio.

 PROFITABILITY
Operating Margin = EBIT/ Sales

Year 2022 2021 2020 2019 2018

EBIT 2335.14 3107.9 2660.91 2667.91 2556.82
18989.5 15921.3 15991.1
Total Sales 1 5 4 15837 14775.9
 
Operating Margin = 12.30% 19.52% 16.64% 16.85% 17.30%

Net Profit Margin = Net Profit/ Sales

Year 2022 2021 2020 2019 2018

Net Profit 647.34 1249.06 1394.98 1096.87 1092.28
18989.5 15921.3 15991.1
Sales 1 5 4 15837 14775.9
 
Net Profit Margin 3.41% 7.85% 8.72% 6.93% 7.39%

Interest Efficiency Ratio = EBIT/ Finance Cost

Year 2022 2021 2020 2019 2018

EBT/PBT 879.16 1700.27 1399.32 1608.89 1601.91
EBIT 2335.14 3107.9 2660.91 2667.91 2556.82
 
Interest Efficiency Ratio 37.65% 54.71% 52.59% 60.31% 62.65%

Return on Assets = EBIT/ Total Assets

Year 2022 2021 2020 2019 2018

EBIT 2335.14 3107.9 2660.91 2667.91 2556.82
 16699.9 15087.9 14136.7 11515.6
Total Assets 8 8 3 12764.9 4
 
Return on Assets 13.98% 20.60% 18.82% 20.90% 22.20%

Return on Capital
Employed = EBIT/ Capital Employed
Capital Employed = Total Assets - Current liability

Year 2022 2021 2020 2019 2018

EBIT 2335.14 3107.9 2660.91 2667.91 2556.82
11,099.8 8,294.8 9,547.1 8,141.3
Capital Employed 6 8 8 2 7,348.49
 
Return on Capital
Employed 21.04% 37.47% 27.87% 32.77% 34.79%

Return on Equity = Net Profit/ Shareholders' Equity

Year 2022 2021 2020 2019 2018

Net Profit 647.34 1249.06 1394.98 1096.87 1092.28
13777.2 13178.8 12004.3
Shareholders' Equity 7 6 5 10653.3 9604.2
 
Return on Equity 4.70% 9.48% 11.62% 10.30% 11.37%

Tax Efficiency PAT/PBT

Year 2022 2021 2020 2019 2018

PAT 647.34 1249.06 1394.98 1096.87 1092.28
PBT 879.16 1700.27 1399.32 1608.89 1601.91
 
Tax Efficiency % 73.63% 73.46% 99.69% 68.18% 68.19%

Return on Equity (ROE): From 11.6% in FY21 to 9.5% in FY21, the company's ROE
went down. The ROE shows how well a company can make money from the money its
shareholders put into it.

Return on Capital Employed (ROCE): The company's ROCE went up from 13.4% to
14.2% between FY20 and FY21. The Return on Capital Employed (ROCE) shows how
well a company is able to turn its total capital (shareholder capital plus debt capital) into
profits.
 Return on Assets (ROA): From 8.9% in FY20 to 6.9% in FY21, the company's ROA
went down. The ROA is a way to measure how well a company uses its assets to make
money.

 ACTIVITY:
Debtor Turnover Ratio = Net Credit Sales/ Average Accounts Receivable

Year 2022 2021 2020 2019  

18989.5 15921.3 15991.1
Net Sales 1 5 4 15837
2,248.7
Avg. accounts Receivables 2,197.73 2,184.62 2,309.33 7  
 
Debtor Turnover (in times) 8.64 7.29 6.92 7.04  

Average Collection Period (days)= 365/ Debtor Turnover Ratios

Year 2022 2021 2020 2019  

DTR 8.64 7.29 6.92 7.04  
 
Average Collection Period (days) 42.24 50.08 52.71 51.83  

Asset Turnover Ratio = Net Sales/ Total Assets

Year 2022 2021 2020 2019  

18989.5 15921.3 15991.1
Net Sales 1 5 4 15837  
16699.9 15087.9 14136.7
Total Assets 8 8 3 12764.9
 
Asset Turnover (In Times) 1.14 1.06 1.13 1.24  
           
Working Capital Turnover Ratio = Net Sales/ Working Capital

Year 2022 2021 2020 2019 2018

18989.5 15921.3 15991.1
Net Sales 1 5 4 15837  
4642.5
Current Assets 7434.52 5421.61 6444.16 5550.11 7
4167.1
Current Liabilities 5600.12 6793.1 4589.55 4623.58 5
-
Working Capital 1,834.40 1,371.49 1,854.61 926.53  
 
Working Capital Turnover (times) 10.35 -11.61 8.62 17.09  
Inventory Turnover Ratio = Net Sales/ Average Inventory

Year 2022 2021 2020 2019 2018

18989.5 15921.3 15991.1
Net Sales 1 5 4 15837  
2,561.5
Average Inventory 3,471.03 2,866.51 2,309.33 0  
 
ITR (Times) 5.47 5.55 6.92 6.18  

Inventory Holding Period = 365/ ITR

Year 2022 2021 2020 2019 2018

ITR 5.47 5.55 6.92 6.18  
 
Average Collection Period (days) 66.72 65.72 52.71 59.04  

Technical Analysis
. Moving Average Convergence Divergence (MACD)
• The moving average convergence divergence (MACD) is found by taking the difference
between the exponential moving average (EMA) over 26 periods and the EMA over 12
periods.
• The MACD sends out technical signals whenever it crosses either above (to buy) or below
(to sell) its signal line.
• The frequency with which crossovers happen can also be used to figure out if a market is
overbought OR oversold. The MACD helps investors figure out if the market is going up or
down. Prices may go up or down.

Interpretation- The exponential moving average (EMA) represented by the green line has 26
periods, while the EMA represented by the red line has just 12 periods. At the close of
business on September 30th, the green line of the EMA was situated in a position that was
above the red line, which indicated that the MACD had a value that was in the negative.
The MACD line (shown in blue in the chart below) has fallen below the Signal Line (shown
in orange), which indicates that investors should consider selling their holdings and shows
that the downward trend of the market is gaining momentum. It is a sign that the momentum
to go in the opposite direction is picking up.

Doji
When the opening and closing values of an asset are extremely near to one another over the
time period in question, this results in the construction of a doji candlestick, which frequently
serves as an indicator to technical analysts of an imminent trend reversal.