Valuation. On the strong volume growth, we expect revenue over FY18-20 to clock a 14% CAGR to INR 192bn and earnings to come at INR 20bn in FY20. We maintain a Buy on the stock, at a price target of INR 76,794 (16x FY20e EPS). Risks. Higher RM costs and lower volume growth.
Valuation: MRF is well poised to play the growth of the Tyre industry in India. With balance sheet getting stronger, we believe that PER can be sustained / expand. We rollover valuation to FY20 E EPS. We reiterate our Accumulate recommendation with a target price of ` 87,285.
Outlook & Valuation: We expect MRF’s earnings to improve significantly in the remaining quarters of FY2018 as compared to the H1FY18. Restrictions on imported tyres, improved domestic automobile sales, continued correction in the domestic prices of natural rubber and expansion plans are expected to help MRF to post better performance in the second half of FY2018 and also in FY2019. Thus, for these reasons, we express our firm conviction in MRF and suggest a BUY on the stock with a target price of Rs.100,000 with two to three years investment perspective. We expect MRF to improve substantially its revenues and earnings in the next 3 to 4 years due to substantial expansions it has proposed. We expect its revenues to cross Rs.200 billion and EPS to go up to around Rs.5,800/ by FY2020. We firmly believe that MRF, being a leader, could also see a re-rating of its valuation multiple in the next 3 years on such a larger revenues (which are mostly derived by MRF brand). We expect the stock to breach our target price of Rs.100,000/ somewhere in 2019, on our expectation of 17.2x FY2020E EPS of Rs.5,800/. However, if MRF decides to improve the liquidity of the stocks and enables small investors also participate in this stock by reducing the price point by rewarding the bonus shares or splitting of the face value, then our long-term price can be possibly achieved within 2 years itself. We have revised our earnings estimated downwards for FY2018 and FY2019, considering severe impact of GST in Q1FY2018 and 40% jump in oil prices from 2017-bottom. Tyre industry uses synthetic rubber, which is a derivate of crude oil and hence, the rise in oil price is likely to firm up synthetic rubber prices.