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MOSL: MRF (Neutral)-Below est; Higher RM, other cost impact margins

MRF: Below est; Higher RM, other cost impact margins

(MRF IN, Mkt Cap USD4.5b, CMP INR78520, TP INR73700, 6% Downside, Neutral)

 

• MRF's 2QFY22 performance was impacted by RM cost inflation and higher other cost. MRF lagged peers in revenue growth due to weaker performance of TBB and farm segment. The industry is taking gradual price increases to dilute impact of severe cost inflation.
• We cut our FY22E/FY23E EPS by ~29%/14% to factor in for RM cost inflation and higher other expenses. Maintain Neutral.

 

Lowest revenue growth and steeper margin decline than peers

• 2QFY22 revenue/EBITDA/PAT grew 15%/-40%/-55% YoY. For 1HFY22 revenues grew 35% YoY whereas EBITDA/PAT declined 16%/18% YoY.
• The revenue growth at 15% was lower than peers [CEAT 24% YoY and APTY (S/A) grew by 25% YoY] as TBB and farm segment (strong segments of MRF) grew weakest during the quarter.
• Gross margins declined 8.8pp YoY (240bps QoQ) at 35.5% (est. 38.5%). The gross margin decline of its peers was steeper on a QoQ basis (CEAT: -200bps QoQ and APTY S/A -160bps QoQ) due to commodity cost inflation.
• EBIDTA declined by 40% YoY (+5% QoQ) to INR5.1b. EBIDTA margin declined 980bps YoY (120bps QoQ) to 10.6% (v/s est. 14.9%), further impacted by higher other expenses. This margin decline was higher than CEAT (-5.8pp YoY/+30bps QoQ). And APTY (S/A) (-8.6pp YoY/-10bps QoQ)
• PAT declined 54.5% YoY (+14% QoQ) at INR1.83b (v/s est.INR3.2b).