MRF lags far behind peers on many fronts in the race for recovery

Analysts at Kotak Institutional Equities said in a report, “MRF has been underperforming CEAT and Apollo Tires in terms of revenue growth over the past few quarters, which is a matter of concern.

Another disappointment came from the company’s operating performance. Its gross margin declined 240 basis points sequentially to 35.5%, driven by sharp increases in key input costs such as rubber. The problem of cost inflation is not unique to MRF, the entire tire sector is grappling with it. Still, the competitors have managed to get a better hold here.

“The industry is under margin pressure due to sharp rise in input cost. We expect margin pressure to continue in 3Q, as the commodity basket has moved beyond 2Q levels. Analysts at IIFL Securities said, MRF has disappointed much more than peers, as compared to peers, along with structural decline in margins in 2-wheeler segment (where MRF is leading) and lower share of MRF in TBR segment. Its margin lead has shrunk. Ltd.

But not only that, the company is losing market share in the TBR and PCR segments, according to analysts. “Aggressive competition in the recent past has stripped MRF of the top spot in the PCR and T&B segments, and has resulted in loss of overall market share. This, coupled with the impact of capex made in the last three years, has significantly reduced its improved return ratio,” said analysts at Motilal Oswal Securities Ltd.

All these concerns are well reflected in the sluggish performance of the stock. MRF stock has gained a modest 3% so far this calendar year, while rivals CEAT and Apollo Tires have given returns of 15% and 30%, respectively.