MRF’s Record Surge to a New All-Time High
The all-time high of Madras Rubber Factory can be a result of many factors. Its previous all-time high, before correction, was made on 15 December 2023 at ₹ 1,21,193.35. It took 14 days to create a new all-time high at ₹ 1,30,399.35 on 29 December 2023. In between, it made a low of ₹ 1,15,500.05 on 21 December 2023, implying a correction of over 4%. It may signal a shift in the investors’ sentiment due to the company’s financial upturn or may represent overvaluation. Let’s examine the key drivers for its all-time high.
Factors Contributing to a Stock’s All-Time High
Positive Earnings Reports
- Since 2016, its revenue has consistently increased, except in 2020, when the COVID pandemic began. In FY23, it generated a revenue of ₹ 22991 crores.
- In the last three quarters, its net income has shown triple-digit growth year-on-year. In Q2 FY24, its net income increased by 351.76% and reached ₹ 587 crores.
- On observing the dividend data since 2016, the company has either kept its dividend the same or else increased its dividend compared to the previous year. Its payout ratio has consistently increased, and in 2022, it reached 9.65%.
Favourable Industry Trends
- As people’s disposable income increases, the demand for vehicles also increases. A surge in the automobile market will indirectly increase the demand for tires. MRF can have exclusive deals with car manufacturers to provide its tires with the new cars that are being manufactured to capture a more significant portion of indirect sales.
- Due to the weight dynamics of electric vehicles, regular tires cannot be used with them, which has given rise to a new segment of tyres and a level playing field for all the major tyre manufacturers to start. MRF can capitalise on the trend by making its products available in more places.
- As the world economy is getting more conscious about the effect of its businesses on the environment, more importance is being given to sustainability and eco-friendly tires. MRF can innovate in this segment to make its products desired not only in India but all over the world.
Analyst Ratings
Motilal Oswal Financial Services, in its November financial report, has given a “sell” rating to MRF shares with a target price of ₹ 97000. The revenue of the company was below estimate, but due to low raw material costs, it was able to beat the EBITDA margin. MRF’s competitive position has weakened over the past few years. It reflects the dilution of pricing power in the PCR and TBR segments. It is expected that MRF’s return ratio will be relatively lower than its peers in the coming two years.
Potential Scenarios Following an All-Time High
(Based on the chart of 1-month timeframe)
Converting numbers and candles into information can provide us with the market’s stance on the stock, which may help us make correct investment decisions. Since the listing of Madras Rubber Factory in January 2003, it has converted an investment of ₹ 914.8 into ₹ 130399.35, which means it gave 142x returns in almost 21 years. In April 2023, it started its bull rally with higher highs and higher lows every month, except in November 2023. We can expect the trends to continue so the investors may enter the stock at the price of their liking but keep the stop loss at the low made in the previous month.
