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MOSL: MRF (Neutral)-Operating de-leverage impacts performance

MRF: Operating de-leverage impacts performance

(MRF IN, Mkt Cap USD4.6b, CMP INR80014, TP INR83730, 5% Upside, Neutral)

 

Price increases to pass on cost inflation happening gradually

• MRF's 1QFY22 operating performance was impacted by operating deleverage and RM cost inflation. The industry is taking gradual price increases to dilute the impact of severe cost inflation.
• We cut our FY22E/FY23E EPS by ~11%/3%, factoring in the RM cost inflation. Maintain Neutral.

 Revenue decline in-line v/s peers; price hike dilutes cost impact

• Revenue/EBITDA/PAT declined 13%/35%/49% QoQ to INR41.3b/INR4.9b/INR1.6b.
• 1QFY22 revenue was down 13% QoQ (+70% YoY) to INR41.3b. The decline was largely in line with peers [CEAT: 17% QoQ and APTY (S/A): 11% QoQ].
• The decline in gross margin was restricted to 60bps QoQ (205bps YoY) at 37.9%. The decline of just 60bps QoQ is largely on account of a sharp change in finished goods inventory. The gross margin decline was higher in peers (CEAT: -310bps QoQ and Apollo S/A: -440bps QoQ) due to 10-12% commodity cost inflation during the quarter.
• EBITDA was down 35% QoQ (+47% YoY) to INR4.9b. The EBITDA margin declined 390bps QoQ (180bps YoY) to 11.8%. This margin decline was better than that in APTY (S/A) (-500bps QoQ / -40bps YoY), but worse than that in CEAT (-270bps QoQ / -40bps YoY).
• High other income and lower interest cost restricted PAT decline to 49% QoQ (+846% YoY) at INR1.6b.