Chennai: Tyre maker MRF Ltd posted a 57% increase in third quarter profit from a year earlier, exceeding expectations, as it continued to reap the benefit of low rubber prices.
Net profit rose to Rs 227 crore in the three months ended 30 June from Rs. 144.5 crore a year ago, ahead of the estimate of Rs 169 crore based on a Bloomberg poll of analysts.
Net sales at the Chennai-based company rose 1.4% to Rs.3,048 crore from Rs. 3,006 crore, above the estimate of Rs. 2,935.40 crore.
“These are very good numbers. They have managed the inventory of raw material well to continue to get the benefit of low rubber prices even though prices have shown an increase post-January,” said Siddhartha Khemka, an analyst at Centrum Wealth Management.
The operating margin for the quarter widened to 15.8% from 10.8% a year ago. According to Khemka, MRF should be able to maintain a good margin in the next quarter too because rubber prices are not expected to go higher than the current levels of about Rs.190-195 per kg.
Domestic rubber prices began falling in January 2012 when they were at Rs.190 per kg, and hit a low of Rs.160 in January 2013, after which they have been rising. Domestic natural rubber prices have risen 8.5% to Rs.195 per kg from a year ago because of low supply of rubber, said Khemka.
The prices are still considered low, leaving tyre makers the room to maintain a healthy profit margin.
MRF has been able to achieve marginal revenue growth even in the face of the automobile sales slowdown because 75% of its sales come from the replacement market where its brand enjoys a premium, said Khemka.
In general, revenue growth for tyre makers has remained weak because of the slowdown in auto sales resulting in lower off-take by vehicle makers. A shift in product mix towards more passenger vehicle tyres, given a sharper slowdown in the sales of high-value commercial vehicle tyres, implies only moderate growth in price realizations.
Medium and heavy commercial vehicle sales dropped 23% to 2.6 million units in fiscal 2013, the steepest fall after 2008-09, when the drop was 37%, according to the Society of Indian Automobile Manufacturers.
Shares of MRF closed up 0.44% to Rs.13,876.55 on BSE on Thursday, while the benchmark Sensex fell 1.42% to 19,804.76 points.
Source: Reuters
