MRF Q2 Net Profit Contracts By 19%

Tyre manufacturer MRF announced its results for quarter ended 31st March 2014. The results were unsatisfactory and the stock has plunged by more than 7% during today's trading session. The period under review was its second quarter as it follows 30th September as financial year end.

MRF posted a contraction of 19 % in its net profit during March'14 quarter on yearly basis despite of the company posting a 13.51% growth in its total income on yearly basis during the same period. The company posted revenue of Rs 3299 crore in Q2FY14 against Rs 2906 crore in Q2FY13.

MRF being a tyre manufacture has major expenses of raw material which contributes almost 65% of total income. The cost of raw material grew by 18.76% on yearly basis impacting its bottomline. The EBITDA during this quarter was down by 7.16% to Rs 2886 crore against Rs 2462 crore in Q2FY13. Other major part of its expenses such as employee benefits and other expenses too, grew by 19.87 and 17.23% respectively on yearly basis during the period under review. This caused a growth of 17.23% in total operating expenses on yearly basis during Q2FY14.

MRF's EBITDA margin showed a considerable contraction of 278 basis points to 12.50% in Q2FY14 against 15.29% in Q2FY13. On further negative side, the company's finance cost increased by a considerable 26.91% in the said quarter against the same period last year. The higher interest charges caused further contraction in its net profit. MRF's net profit was down by 18.87% to Rs 171 crore in Q2FY14 against Rs 211 crore in Q2FY13. The net margin of the company too showed contraction of 207 basis points to 5.18% during the said quarter against 7.25% in Q2FY13.

Looking at quarter results, MRF seems to be caught up in problem of inability, to pass of the rising raw material prices to its customers. This very fact is eating up the company's profitability and spreading the negative sentiments over its stock price. Hence, we recommend our readers to exit their position in this stock and stay away from fresh exposure in this stock for couple of quarters.