FUNDAMENTAL ANALYSIS

MRF LIMITED

Submitted By
Athira Unnikrishnan 2028329
Mary Femina K S 2028336
Shivam Gupta 2028340
 ECONOMY ANALYSIS
Global Economic Review
In the year 2020-2021, MRF maintained its market leadership in India, despite the Covid-
19 pandemic, which made the year difficult. MRF is still one of the top 20 tyre
manufacturers in the world. Economic recovery differs by country and industry, owing to
differences in pandemic-related disruptions and the level of state support. The future
depends not only on the success of the virus-vaccine struggle but also on how well
economic measures implemented in the face of significant uncertainty can limit the long-
term consequences of this unprecedented disaster. In 2021, global growth is expected to
reach 6%, before slowing to 4.4 percent in 2022. The forecasts for 2021 and 2022 are
more optimistic than those from the October 2020 WEO. The increased revision
incorporates more state subsidies in a few major economies, a vaccine-driven recovery
expected in the second half of 2021, and sustained economic activity adaption to low
mobility. In comparison to pre-pandemic forecasts, the varied recovery trajectories are
likely to create a divide in the standard of living between developing and developed
countries. In emerging markets and developing countries (excluding China), cumulative
per capita income losses over 2020–22 are predicted to be equivalent to 20% of 2019
per capita GDP, whereas losses in developed economies are expected to be
comparatively small, at 11%. As a result, advances in poverty reduction have been
reversed, with an additional 95 million people anticipated to join the ranks of the
extremely poor by 2020, and 80 million more people undernourished than previously.

Gross Domestic Product

Before the outbreak of the COVID-19 pandemic, India's economy had started to slow
down after years of rapid growth. Between FY17 and FY20, GDP slowed from 8.3
percent to 4.0 percent, owing to banking sector vulnerabilities compounded by a drop in
private consumption growth. Overall, real GDP is expected to have shrunk by 8.5 percent
in FY21, but it is expected to rebound in the second half of the year. Poverty reduction is
likely to revert to pre-pandemic levels once growth restarts. India is also a major auto
exporter, with strong export growth forecasts for the near future. By 2022, India will be
the world's largest two-wheeler and four-wheeler market. According to market size,
domestic automotive manufacturing climbed at a 2.36 percent CAGR from FY16 to FY20,
with 26.36 million vehicles produced in FY20. According to the NSO's (National Statistical
Office) second advance estimates, India's real GDP (gross domestic product) increased by
0.4 percent in the third quarter of FY21. This increase reflects a V-shaped recovery that
began in the second quarter of FY21. India's real GDP growth for FY22 is expected to be
11%, according to the Economic Survey 2020-21. The January 2021 WEO report
predicted a gain of 11.5 percent in FY22 and 6.8 percent in FY23. India is also anticipated
to become the fastest-growing economy in the next two years, according to the IMF.
IMPORTS
India's tyre imports (T&B, PV, and 2W) have increased at a CAGR of
5% over the previous decade, reaching Rs19.55 billion in FY20. In
terms of volume, tyre imports have increased at a CAGR of 7% to 9.5
million units in FY20. The majority of these tyre imports are radials,
with the majority of them coming from China, Thailand, and Vietnam,
among other places. These imports have posed a challenge to the
local tyre business since foreign radials are much cheaper and are
offered at the same price as bias tyres made in the United States.
The quality of these imported radials is not considerably different
from that of locally made tyres (new truck tyre life of 85-90k km vs.
1L km for domestically manufactured tyres), which also pushed
increased radialisation in the replacement sector. However, higher
customs tax on tyres, levy of extra dumping charge on tyres, and
adoption of GST have decreased the price difference between
imported and locally made tyres during the previous three years. To
boost domestic production, the government placed import
restrictions on certain new pneumatic tyres used in automobiles,
buses, lorries, and motorbikes in June 20. The majority of tyre
categories have been converted from free to limited imports, which
implies that an importer must now get a DGFT licence in order to
import tyres. Import restrictions have added to the strain on the
replacement market, which was already in short supply following the
unlock due to pent-up demand, increased demand from OEMs, and a
slow ramp-up in production by tyre makers. As a result, we
anticipate that import limitations will operate as a tailwind for
domestic tyre producers, with the danger of cheaper imports
remaining minimal in the medium run.

EXPORTS
The primary export markets are the United States, Germany, and the
Middle East. The primary export sectors are agricultural and
construction tyres. Because of improved acceptability and
favourable demand in export markets, FY18 and FY19 saw
substantial growth. Demand fell in FY20 as a result of the global
economic downturn caused by trade wars. In FY20, tyre export
volume increased by 0.2 percent. Tyre shipments fell by 0.8 percent
in value terms in FY20. According to ICRA, a poor automotive
demand outlook, as well as limitations at ports and export
destinations, would have a major impact on tyre demand in FY21.
 CAUSE & EFFECT OF COVID'19 OUTBREAK

1. Decrease in Sales
According to Equirus Equity Research, during the previous four years, tyre firms have undertaken large
capital expenditures (CAPEX) with the anticipation of expansion, however owing to a drop in OEM
volumes as well as weaker GDP growth, industry volume growth has been sluggish. Furthermore, as a
result of the COVID-19 impact this year, FY21 sales are anticipated to be lower than FY18, and no
further expenditure may be required at the present rate of sales growth until FY24 or FY25. The Indian
tyre industry can expect sales growth to revive from FY22. With FY21 industry sales likely to be lower
than FY18, CAPEX intensity is set to drop significantly from FY22. Hence, free cash flows and return
matrix will improve.

2. Export & Import

Data shows that

over the 10-year
period (FY11-
FY20), there has
been substantial
export growth
which is over 170
percent. Imports
have remained
stable over the
period.
3. Shrinkage of middle class

India’s middle-class population shrunk by at the workforce in these industries is informal in

least 32 million with 75 million people driven nature with little job security. At least 10
below the poverty line in 2020. India million migrant workers, the majority belonging
contributed 60 percent to the worldwide drop to the lower-middle-class, were forced to go
in the middle-class population. This will surely back to farming. Remittances, major support
impact India’s already slowing economy. Since for Indians, fell sharply by 9 percent in 2020
1990, the 20-fold rise in the middle group has owing to the overseas job losses. In the Global
set the tone of Indian economic growth. The Hunger Index 2020, India’s rank fell from
middle-class makes up 28 percent of the total 102from 94 in 2019. Rising petrol prices and 9
population and 79 percent of the total percent-plus food inflation has forced the
taxpayer base. It also contributes 70 percent middle-class (and the poor) to dip deeper into
to total consumer spending. It actively their savings. Indebtedness among Indians has
participates in the real estate and equity increased and what’s more 81 percent of them
markets and promotes innovation. This rely on informal lenders. An increase in the
shrinkage causes an increase in the unemployment rate will lead to unskilled
unemployment rate. 81 percent of the laborers to the Industries.

4. Inflation

Prices are rising as the economy faces challenges

from the second COVID-19 wave. Inflation is
rising, as demonstrated by the 10.4 percent
increase in the Wholesale Price Index (WPI) in
April 2021, the highest in 11 years. This increase is
attributed to increasing oil and commodity prices,
which were previously low during the same period
last year. Higher end-consumer prices are the
result of a combination of increased oil and
commodities prices. One hopes that this is only a
blip on the radar and that the RBI will maintain a
low-interest rate environment to help the
economy recover.

Oil prices are expected to rise 30% in 2021 from their low base in 2020, in part due to supply
restrictions imposed by OPEC+ (Organization of the Petroleum Exporting Countries, which includes
Russia and other non-OPEC oil producers). In order to generate energy, India is relying on renewable
sources.
 GROWTH DRIVERS OF ECONOMY

1.Rise in Youth Population

India’s 1.3 billion people make it the second-most populous
country in the world, but with an average age of 29, it has one of
the youngest populations globally. As this vast resource of young
citizens enters the workforce, it could create a ‘demographic
dividend. A demographic dividend is defined by the United
Nations Population Fund as economic growth resulting from a
shift in a population’s age structure, mainly when the working-age
population is larger than the number of dependents. India is home
to a fifth of the world’s youth demographic and this population
advantage could play a critical role in achieving the nation’s
ambitious target to become a US$ 5 trillion economy.
“India’s Young Population is a Valuable Asset to Economic
Growth”

2.Remittances Inflow
India received over USD 83 billion in remittances in 2020, a drop
of just 0.2 percent from the previous year, despite a pandemic
that devastated the world economy, according to a World Bank
report. The relatively strong performance of remittance flows
during the COVID-19 crisis has also highlighted the importance of
the timely availability of data. Given its growing significance as a
source of external financing for low- and middle-income countries
3.Policy Reforms
The PLI scheme was launched by the government in March 2020 to provide incentives on
specified products manufactured in India, boost domestic manufacturing, and cut down on import
bills. The scheme aims to encourage domestic companies to set up or expand existing
manufacturing units. With an outlay of INR 57,042 crore, the scheme is expected to spur
manufacturing and growth of the sector and enhance its global presence. The automotive sector is
an extensive contributor to the Indian economy. India is expected to be the world's third-largest
automotive market in terms of volume by 2026. The country also holds a strong position in the
international heavy vehicle arena being the largest tractor manufacturer, second-largest bus
manufacturer, and third-largest heavy trucks manufacturer in the world. With a 7.1% share in
India's GDP, 40% share in global research and development, and 4.3% in export, the sector holds
significant importance in building a self-reliant India (Atmanirbhar Bharat).
In a bid to make the sector more competitive and enhance its global reach, the Government of
India, in its Production Linked Incentive (PLI) scheme, allocated the biggest chunk of INR 57,042
crore to the 'automobiles and auto components sector.

The PLI scheme was launched by the government in March 2020 to provide incentives on
specified products manufactured in India, boost domestic manufacturing, and cut down on import
bills. The scheme aims to encourage domestic companies to set up or expand existing
manufacturing units. Through the scheme, the government aims to bolster growth in capital-
intensive sectors (such as auto, pharma, electronics, food processing) as they generate
employment and add to the revenues.
 INDUSTRY ANALYSIS

Auto Ancilliary Industry

Over the last few years, the Indian auto-components business has seen
steady expansion. From FY16 to FY20, the auto-components sector
grew at a CAGR of 6%, reaching US$ 49.3 billion in FY20. By FY26, the
industry is estimated to be worth $200 billion. The auto component
business is predicted to grow by double digits in FY22, thanks to strong
growth prospects in all segments of the vehicle industry. The auto-
components sector contributes 2.3 percent to India's GDP and employs
1.5 million people directly and indirectly. A stable government
framework, greater purchasing power, a big domestic market, and
ongoing infrastructural development have made India a desirable
investment location. The industry can be divided into two categories:
organized and unorganized. The organized sector caters to original
equipment manufacturers (OEMs) and consists of high-value precision
instruments, whereas the unorganized sector consists of low-value
items and mostly serves the aftermarket. The revenue of the
automotive component business was US$ 49.3 billion in FY20, up from
US$ 39.05 billion in FY16, and it is predicted to reach US$ 200 billion
by FY26. During the same period, auto component exports expanded at
a CAGR of 7.6%, reaching Rs. 102,623 crore (US$ 14.5 billion).
Automobile component exports from India are estimated to reach US$
80 billion by 2026, according to the Automobile Component
Manufacturers Association (ACMA). By 2026, the Indian auto
components sector is estimated to generate revenue of US$ 200 billion.
The Indian tyre industry is an important part of the auto sector,
accounting for 3% of India's manufacturing GDP and 0.5 percent of the
country's total GDP. So, let's have a look at the dynamics of the Indian
tyre industry. The Indian tyre sector has nearly doubled in size from Rs
30,000 crores in 2010-11 to Rs 59,500 crores in 2017-18, with
domestic markets accounting for 90-95 percent of sales. In terms of
sales, the top three businesses — MRF, Apollo Tyres, and JK Tyres –
control 60 percent of the market. Tyres can be classified in two ways in
terms of segmentation: by end market and by-product.
COMPETITION
The top ten tyre manufacturers control 90-95 percent of
the market. Furthermore, the top 3-4 players control 70-80
percent of the market share in each segment (Trucks &
Buses, Passenger Cars, and Two Wheelers). However,
because each manufacturer's individual market share in
each area is fairly close, no tyre company has a dominant
position or pricing power. As a result, the general level of
competition is moderate.

The degree of competition varies depending on the market share of enterprises in each segment. In
comparison to PCR and MHCVs, where the market is somewhat competitive, the competitive
intensity analysis shows that 2Ws/3Ws have relatively low competition. In 2Ws, there are just 5-6
major participants, with the top three tyre manufacturers holding a combined market share of over
90%, compared to over a dozen in the PV segment. The competitive landscape of the market with
some of the key players are MRF Limited, CEAT Limited, JK Tyre & Industries Ltd., Apollo Tyres Ltd.,
etc

NON FINANCIAL RATIOS

1.Realizations per ton - Net operational sales/ tons sold
Comparing realization per ton can help us figure out which firm can sell its tyres at a higher price than
the competition. Looking at the realization per ton over time might also help us understand the
companies' pricing trends.
2.Cost per ton - COGS/tons sold
The cost per ton could reveal which company is making the most efficient use of its raw materials.
3.EBITDA per ton - EBITDA/tons sold
EBITDA per ton could assist us to figure out which company has been the most efficient in terms of
operations (higher the better)

PORTER FIVE FORCE MODEL

Porter's Five Forces is a strategy for determining an industry's vulnerabilities and strengths by
identifying and analyzing five competitive forces that define every business. Porter's model can be used
to understand the amount of competition within an industry and improve a company's long-term
profitability in any sector of the economy. The five forces are, Competitive rivalry, the threat of
substitute products, bargaining power of buyers, bargaining power of suppliers, and potential of new
entrants into the industry.
The competitive rivalry of the industry: Industry rivalry is high.Because foreign firms are gradually
expanding their horizons in the Indian tire sector, and because every participant is going toward
automated technology, such as ERP and SCM. Apart from the aforementioned reason, the industry
is currently experiencing a high competitive environment due to a variety of factors such as rising
input costs, low realizations from a growing OEM segment where vehicle manufacturers are
unwilling to share the burden of tyre companies, and the retreading sector slowly but steadily
increasing its share of the replacement pie. And that's in the high-revenue market of Bus-Truck
tyres, not to mention the unorganized sector, which is always causing headaches for established
firms like CEAT, JK, Apollo, and MRF, among others.
The threat of substitute products: It is modest or low, as the industry is up against retreading all
around the world. This cheaper replacement, which costs roughly 20-25 percent less than the
original tyre, has been available in industrialized countries for over a decade. And this is also leading
to a good position in India.
Bargaining power of suppliers: Rubber - There are two reasons for this low cost. The first is that
most tyre companies receive a 150-day credit when purchasing rubber from the foreign market,
which is not the case when purchasing rubber from domestic rubber producers. The second reason
is that this credit is available at LIBOR, or London Interbank Offered Rate. It is the interest rate at
which banks borrow money from other banks. Other Petrochemical-based Materials(carbon black,
Nylon tyre cord) - In this area, suppliers have a lot of clouts because India is lagging behind in terms
of petrochemical raw materials like carbon black and chemicals, which are low in quantity but high
in cost. NTC's price is also affected by the price of Caprolactam, its primary raw ingredient. The tyre
business has no control over the prices of these materials.
Bargaining power of buyers: When it comes to buyer bargaining power, OEMs are always in a
strong position. The reason for this is that the majority of them have a contract with their
respective tyre manufacturer under which the tyre pricing for this OEM remains consistent
regardless of market rates. They get the benefits because they buy in quantity, and the relationship
offers the tyre companies something called a brand association. The situation is completely
different in the replacement segment, where bargaining strength is low due to the fact that
replacement customers are not as powerful as OEMs. Because of India's poor road conditions,
demand for buses and trucks is usually high, and purchases are made in small quantities.

Potential of new entrants into the industry: Because the business is highly capital intensive and the
level of technological competence required is also highly particular, the threat of new entrants is
moderate to low. However, from the standpoint of the domestic (Indian) business, this better can be
classified as high. The reason for this is because the global tyre sector is already undergoing
restructuring through mergers and acquisitions. And, for the time being, India and China will be the
epicenter of activity in the tyre sector, owing to cheap production costs and other significant
advantages. As a result, any of the global big shot Indian companies will be a suitable choice.
MARKET STRUCTURE
The way different industries are divided and distinguished depending on the degree and kind of rivalry
for products and services is referred to as market structure. It's based on the features that influence
the behavior and outcomes of businesses in a certain market. The market structure of the tyre industry
and auto components industry belongs to an oligopoly. An oligopoly is a market structure in which a
small number of enterprises have significant influence over a particular sector or market. While the
group as a whole has a lot of market power, no single company within it has enough clout to
undermine or steal market share from the others. As a result of this, prices in this sector are reasonable
due to the presence of some competition.

SWOT ANALYSIS
STRENGTHS
Brand names that are well-known (key in the replacement market)
Networks of distribution that are extensive
Top-tier companies are taking good R&D initiatives.
WEAKNESS
Cost Pressures - Because essential raw materials such as rubber and crude oil account for more
than 70% of overall expenses, the profitability of the sector is highly correlated with their pricing.
Pricing Pressures- The high cost of raw materials has put pressure on realizations, and as a
response, the participants have been pledging to raise prices, despite the fact that.
They have not been able to pass on the complete increase to the client due to competitive
pressures.
Highly capital intensive - a radial tyre plant with a capacity of 1.5 million tyres costs roughly Rs 4
billion, while a cross-ply tyre plant with a 1.5 million tyre capacity costs around Rs 1.5-2 billion.
OPPORTUNITIES
The automobile industry is growing in tandem with the economy.
Increased OEM demand leads to increased replacement demand.
The Central continues to place a strong emphasis on this.
The Indian economy and the automobile sector/tyre business are positioned for spectacular
expansion, thanks to the government's focus on infrastructure development, particularly highways,
agriculture, and manufacturing. The development of road infrastructure has provided, and will
continue to give, a huge boost to road transportation in the future years. The tyre sector would
play a significant part in the changing dynamics of road transportation.
Because of economies of scale, we have access to worldwide raw material sources at competitive
pricing
Radial Tyres for MHCV and LCV have been steadily increasing.
THREATS
Natural rubber prices have been steadily rising, accounting for approximately a third of overall raw
material expenses.
Imports of cheaper tyres, particularly from China, have posed a difficulty. The landed price is
almost 25% less than that of similar Indian Truck/ LCV tyres.
China's imports presently account for about 5% of the total market share.
PESTEL ANALYSIS
POLITICAL FACTORS
Political factors favored the Indian tire industry, as the Indian government decreased tariffs on raw
materials in order to boost the industry. Tariffs and tariffs on the import and export of tires were
reduced to allow for the import of lower-cost tires and materials while exporting high-quality tires.
India's tires were mostly shipped to rising markets such as Latin America, Southeast Asia, the Middle
East, and Africa. Imports of tires from other nations, on the other hand, demonstrate a favorable
political climate. Learn about the political variables that have an impact on Ryanair.
ECONOMIC FACTORS
The economy was growing, and overall car manufacturing more than doubled between 1994 and
2004, thus the industry had a lot of potentials. Basically, the first tire was manufactured by the British
business Dunlop in 1926, and three international companies followed Dunlop: the Americans
Firestone, Good Year, and Italian Ceat, but Indian corporations eventually took over these foreign
companies. India now has around 40 businesses generating 70 million tires. The main competitors are
MRF, APOLLO, JK TIRES, and CEAT, which are four major companies. However, MRF is the market
leader with a 21 percent market share, followed by APOLLO in second place with a 20.5 percent
share, JK TIRES in third place with 20.3 percent, and CEAT in fourth place with 14 percent. The Indian
tire industry is expanding, with a growth rate of 5% in the tire industry and 3% in commercial tires in
2005, and this is expected to continue in the future.
SOCIAL FACTORS
Changes in trends influence whether a product is in high or low demand. In India, the majority of the
population is young, and in recent years, as people's income levels rise, they begin to purchase two-
wheeler motorcycles. As the population grows and people begin to expand geographically,
transportation demand rises, and people begin to spend on the vehicle sector. People in India prefer to
buy low-cost tires such as cross-ply tires since they are less expensive and handier on India's bumpy
roads. However, as the economy improves and road quality improves, more individuals are opting for
radial tires.
TECHNOLOGICAL FACTORS
There are two advances in tires in India, which are Cross-handle and Radial tires. IN cross-handle
innovation, the material and metal strings are twisted slanting, while in spiral tires, material and steel
ropes have meshed at 90 degrees. Cross-handle is more fruitful in India because of its similarity with
the streets of India, its long life when contrasted with spiral, and because of cost. There is also a value
battle among organizations, and each organization attempts to decrease its expense by getting minimal
expense input or bringing some innovation.It takes on different new advancements to decrease costs
and work on the cycle to keep up with this. It also ought to see further end innovations like advanced
mechanics, IoT, and ML to deliver tires productively and successfully. Likewise, the organization should
focus on innovative work to plan cutting-edge tires that work on proficiency and protect them to avoid
mishaps happening with helpless rubbing. The organization likewise focuses on the tire planning
measure and suggests new modern insurgency strategies. Similarly, the organization ought to take on
the adaptable advancements in the worldwide inventory chains and work on its coordination.
ENVIRONMENTAL FACTORS
MRF is a producer organization that utilizes a large portion of the non-inexhaustible sources. It
expands the carbon impression, which impacts environmental change. The organization likewise has
found some critical ways to decrease the carbon impression. The organization similarly guarantees to
the worldwide variety where it gets elastic assets from the ranches. It needs to take numerous
authorizations and ensure not to cut the plantations and help for natural assurance. The organization
ought to likewise make hazard the board strides for the assets' smooth tasks and production network.
LEGAL FACTORS
MRF has its assembling plants in many states. The laws to set up a plant are not the same from one
state to another state. The organization ought to likewise guarantee to keep the standards and
guidelines to make the products. The organization ought to follow every one of the protected
measures for the security of the representatives. The organization ought to likewise adhere to the
environmental laws in utilizing the rubber. The organization ought to similarly guarantee it sticks to all
the required regulations in exchange with different nations. Likewise, it ought to ensure its plan cycle
and exclude any patent issues with other producers.

Herfindahl-Hirschman Index (HHI)

The Herfindahl-Hirschman Index (HHI) is a popular measure of market concentration that's frequently
used to assess market competitiveness before and after mergers and acquisitions. A market with an
HHI of less than 1,500 is regarded as a competitive market, a market with an HHI of 1,500 to 2,500 is
considered a moderately concentrated market, and a market with an HHI of 2,500 or more is
considered a highly concentrated market. The auto component industry and the tyre industry are
characterized by a less competitive market in which the value is less than 1500.

CURRENT TRENDS & DEVELOPMENT

'Tyre industry to see 13-15% growth in FY22'
According to ICRA, the Indian tyre business is
predicted to rise 13-15 percent in unit terms
and 7-9 percent in tonnes this fiscal year, after
two years of recession. A significant recovery in
original equipment manufacturer (OEM) tyre
demand, a reduced base effect in FY21, a faster
rate of immunization, a persistent preference
for personal mobility, and healthy rural cash
flows will all help drive growth. Tyre demand
has been somewhat more resilient because
replacement demand insulates it to a significant
extent from cyclicality, says the report.
2.Demand Outlook Of Indian Tyre Industry Remains
Favourable ICRA
According to rating agency ICRA, the Indian tyre industry's
demand is expected to expand by 13-15 percent in the OEM
segment and 13-15 percent in the replacement market
segment this fiscal after two years of decline. ICRA added
that based on predicted demand growth, capital investment
of over Rs 20,000 crore in the tyre sector between FY2022
and FY2025, which will be largely debt-funded, has resumed
in the recent few months after a hiatus, with improving
domestic and international demand. The tyre industry's
demand outlook remains positive, with growth in the current
fiscal aided by a sharp recovery in OEM tyre demand, a lower
base effect of FY2021, continued preference for personal
mobility, and healthy rural cash flows amid a normal monsoon
forecast, according to the rating agency. Tyre demand has
been more resilient than other vehicle components because
the tyre industry's replacement need insulates it from
cyclicality to a great extent. Tyre demand fell drastically in Q1
FY21, in accordance with the whole auto sector, due to the
statewide lockdown, but it recovered stronger and faster in
Q2 FY21, when tyre volumes returned to pre-COVID levels,
and then grew steadily in the next two quarters. After a small
contraction in FY20, exports increased by 10% in value and
8% in volume in FY21.
3.Indian tyre manufacturers expected to see growth
According to a survey by Motilal Oswal, the Indian tyre sector
is likely to revive and grow in double digits after five years of
contraction. The Indian tyre sector is predicted to rebound
from a five-year slump and grow at a linear rate (12 CAGR
from FY21 to FY25E), aided by timely capacity expansion
across companies. Improved demand, constant competition
intensity, and peak CAPEX (Rs 116 billion in FY22-24E versus
Rs 135.5 billion in FY19-21) bode well for profitability,
according to the research. "Over FY21-25E, we expect 2W/
PCR/ T&B tyre volumes to grow at an 8/ 11/ 13 CAGR.
According to the report, this, along with a tolerable price
environment and operating leverage, will allow for a return to
profitability and capital efficiency.
4.Tyre industry welcomes rollout of norms, seeks feasible
timelines for compliance
According to a draft notification provided by the Ministry of
Road Transport & Highways, the tyre sector has accepted
draft regulations comprising additional requirements for
rolling resistance, wet grip, and rolling sound emission
(MoRTH). According to the Automotive Tyre Manufacturers
Association (ATMA), the new standards are a step in the right
direction, as they will aid in enhancing road safety and making
vehicles more fuel-efficient. “A sharp focus on technical and
environmental aspects underpins the tyre industry's success.
The new draft regulations will bring Indian standards closer to
those in use around the world. The Indian tyre sector, as a
significant segment of Indian manufacturing that has proven
its credentials globally, will be eager to embrace these
regulations as soon as possible," said Rajiv Budhraja, Director-
General, ATMA. The revised standards will be included in the
Automotive Industry Standard (AIS 142). He went on to say
that the tyre sector worked closely with the government in
developing AIS 142, which establishes tyre standards.

The transportation business is seeing new opportunities as the globe becomes more globalized,
particularly as it transitions to electric, electronic, and hybrid cars, which are considered more
efficient, safe, and reliable modes of transportation. This will create new verticals and opportunities
for car component manufacturers over the next decade, who will need to respond to change through
methodical R&D. According to the ACMA, India's vehicle component exports are estimated to reach
US$ 80 billion by 2026. The Indian global automotive component trade is expected to grow at a rate
of 4-5 percent by 2026, owing to changes in global supply chains. Power PSU JV EESL announced
plans to deploy 500 electric vehicles (EV) charging stations across the country in fiscal 2020-21 in
December 2020. By 2025, India's auto-components sector is expected to be the world's third-
largest. Export potential for Indian auto-component manufacturers might expand by up to US$ 30
billion by 2021E, indicating that the sector is well-positioned to benefit from globalization. For the
auto components sector, 100% FDI is permitted using the automatic route. The government planned
to announce the PLI scheme for vehicle components in June 2021. FAME II, a specific policy, was
developed to encourage the use of electric vehicles and promote production. Exports of auto
components are predicted to expand at a rate of 23.9 percent per year until they reach US $ 80
billion in 2026.
 COMPANY ANALYSIS

COMPANY OVERVIEW

MRF Limited is an India-based organization occupied

with assembling, dissemination, and offers of tires for
different sorts of vehicles. The Company is primarily
engaged in the manufacture of rubber products, such
as tyres, tubes, flaps, tread rubber, and conveyor belt.
The Company has different business intrigues which
likewise incorporate pretreads, paint and covers, and
toys. The Company fabricates tires for traveler
vehicles, bikes, trucks and administrations, cylinders,
and folds. The Company's new item dispatches
incorporate MRF Wanderer-Sport and MRF S3P4.
MRF Wanderer-Sport is a lopsided track design SUV
tire for delicate roaders. MRF S3P4 is a mileage spiral
for drive hub fitment. The Company's subsidiary
organizations incorporate MRF Lanka Pvt. Ltd. MRF
International Ltd., and MRF Corp Limited. MRF Corp
Limited fabricates forte coatings for a scope of
utilization.
MRF's root follows back to the modest shack in
Madras that housed its first stopgap toy swell
assembling unit set up by KM Mammen Mappillai in
1946. It was not until 1952 when it changed course
and went to step elastic assembling. In this manner
started its great reign as the undisputed pioneer in the
tire-making industry.MRF is perceived for its drive
towards consistent quality improvement and consumer
loyalty. It has won the JD Power grant not once but
rather multiple times to date. It has additionally won
the TNS and CAPEXIL grants for being cast a ballot as
the most believed tire organization in India. The
products offered by the company include tyres, sports
goods,funskool, paints & coats, and pretreads. The
services offered by the company include T&S, Tiretok,
MIDD, Muscle zone, MRF Fasst, tyredrome.
COMPANY SWOT ANALYSIS

FIVE DRIVERS OF VALUATION

REVENUE DRIVERS

The company mainly focuses on selling its goods to automobile sectors which include different
car manufacturers and tire traders. The company earned a total revenue of 16129 crores and
the net profit after tax amounted to 1249 crores. The Company has four subsidiaries viz. MRF
Corp Limited, MRF International Limited, MRF Lanka (P) Ltd, and MRF SG PTE. LTD. The
aggregate turnover of all four subsidiaries in equivalent Indian Rupees during the financial year
ended 31st March 2021 was 1424.33 crores and the other income amounted to 207 crores.

The Company derives revenues primarily from the sale of goods consisting of Automobile
Tyres, Tubes, Flaps, and Tread rubbers. Revenue from contracts with customers is recognized
upon transfer of control of promised products or services to customers. Revenue from the
sale of goods is recognized at the point in time when control is transferred to the customer.
Revenue is measured based on the transaction price, which is the consideration, adjusted for
turnover/product/prompt payment discounts to customers as specified in the contract with
the customers. When the level of discount varies with an increase in levels of revenue
transactions, the Company recognizes the liability based on its estimate of the customer’s
future purchases. Revenue also excludes taxes collected from customers.
Revenue in excess of invoicing is classified as contract assets while invoicing in excess of revenues is
classified as contract liabilities. The transaction price could be either a fixed amount of consideration or
variable consideration with elements such as turnover/product/ prompt payment discounts. Any
consideration payable to the customer is adjusted to the transaction price unless it is a payment for a
distinct product or service from the customer. Other income includes the dividend Income when it is
accounted for the right to receive the same when it is established, which is generally when
shareholders approve the dividend. Interest Income on financial assets is also measured at amortized
cost and is recognized on a time-proportion basis using the effective interest method.

CAPEX DRIVERS
The company has its own policy regarding the dividend distribution
in which from time to time, the retained earnings will be utilized to
meet the Company’s long term financial requirements (including
capital expenditure, debt service obligations, other liabilities, etc.),
improve financial ratios, declaration of dividend, issue of bonus
shares, buy-back of shares and any other purpose permitted by the
Companies Act 2013. Tyre businesses have undertaken massive
capital expenditures (CAPEX) in the expectation of growth over
the last four years, but industry volume growth has been modest
due to a fall in OEM volumes as well as weaker GDP growth.
Furthermore, due to the impact of COVID-19 this year, FY21
revenues are projected to be lower than FY18, and no additional
CAPEX is probable until FY24 or FY25 at the current rate of sales
growth. From FY22 onwards, the Indian tyre business may expect
sales growth to pick up. With industry sales expected to be lower
in FY21 than in FY18, CAPEX intensity is expected to fall
significantly in FY22. Hence, free cash flows and return matrix will
improve.

WORKING CAPITAL DRIVERS

For the purpose of current and non-current asset and liability
categorization, the company has defined its operating cycle to be
twelve months based on the nature of goods and the time
between the acquisition of assets for processing and their
realization in cash and cash equivalents.The Cash Conversion
Cycle (CCC) is a metric that examines how quickly a corporation
can turn cash on hand into more cash on hand. This metric
considers the time it takes to sell inventory, collect receivables,
and pay invoices without penalty. The CCC of MRF limited is 57.83
for FY 2021.
DEBT DRIVERS
Debtors Turnover and Debt Equity Ratio increased from 10.62% to 14.06% . a) Current
Borrowings
Loans repayable on demand from banks are secured by hypothecation of Inventories and book
debts, equivalent to the outstanding amount and carries interest rates at the rate of 6.60% to
8.85% (Previous year - 7.40% to 8.45%)
b) Non-Current Borrowings
i) The principal amount of Debentures, interest, remuneration to Debenture Trustees and all
other costs, charges and expenses payable by the company in respect of Debentures are
secured by way of a legal mortgage of Company’s land at Taluka Kadi, District Mehsana,
Gujarat and hypothecation by way of a first charge on Plant and Machinery at the company’s
plants at Perambalur, near Trichy, Tamil Nadu, equivalent to the outstanding amount. 1800
(Previous year 3400), 10.09% Non-convertible Debentures of ` 10,00,000 each are to be
redeemed at par in three installments.

COST DRIVERS
The Primary costs include raw materials followed by replacement of steam curing media to reduce the
energy consumption, installation of air consumption measuring instruments at individual sections for
better monitoring and optimization, and implementation of VFD for blowers and pumps.
The company's bare borrowing cost includes interest, commitment charges, brokerage, underwriting
costs, discounts/premiums, financing charges, exchange differences to the extent they are regarded as
interest costs, and all ancillary/incidental costs incurred in connection with the arrangement of
borrowing. It is directly attributable to the acquisition/ construction of qualifying assets that
necessarily take a substantial period of time to get ready for their intended use and are capitalized as a
part of the cost pertaining to those assets. All other borrowing costs are recognized as expenses in the
period in which they are incurred. The capitalization on borrowing costs commences when the
Company incurs expenditure for the asset, incurs borrowing cost, and undertakes activities that are
necessary to prepare the asset for its intended use or sale. The capitalization of borrowing costs is
suspended during extended periods in which the active development of a qualifying asset is
suspended. The capitalization of borrowing costs ceases when substantially all the activities necessary
to prepare the qualifying asset for its intended use or sale are complete. MRF has nine plants which
makes the MRF one of the best tire manufacturers. The latest plant of MRF is the Gujarat plant with
the investment of 4000 crores and production capacity of one million tire which would increase its
turnover to 20,000-22,000 crores.
 REFERENCES
1. Department for Promotion of industry and internal trade. (n.d.). Retrieved July 31, 2021, from Gov.in website: https://dipp.gov.in/
2. Investment Promotion and Facilitation Agency. (n.d.). Retrieved July 31, 2021, from Gov.in website: https://www.investindia.gov.in/
3. Business Opportunities in India: Investment Ideas, Industry Research, reports. (n.d.). Retrieved July 31, 2021, from Ibef.org website: https://www.ibef.org/.
4. Make In India. (n.d.). Retrieved July 31, 2021, from Makeinindia.com website: https://www.makeinindia.com/.
5. (N.d.). Retrieved July 31, 2021, from Gov.in website: http://www.niti.gov.in/.
6. Pravasi Bharatiya Divas Convention: 2021. (n.d.). Retrieved July 31, 2021, from Gov.in website: https://mea.gov.in/press-releases.htm?
dtl/33373/Pravasi_Bharatiya_Divas_Convention_2021.
7. author. (n.d.). Reserve Bank of India. Retrieved July 31, 2021, from Org.in website: https://www.rbi.org.in/.
8. (N.d.-b). Retrieved July 31, 2021, from Unctad.org website: https://unctad.org/en/PublicationsLibrary/wir2020_en.pdf.
9. Home. (n.d.). Retrieved July 31, 2021, from Unctad.org website: https://unctad.org/.
10. Welcome to the department of commerce, Government of India. (2020, February 13). Home - mcommerce. Retrieved July 31, 2021, from Gov.in website: https://commerce.gov.in/.
11. Online, O. (n.d.). Observer Research Foundation. Retrieved July 31, 2021, from Orfonline.org website: https://www.orfonline.org/
12. CII. (n.d.). Retrieved July 31, 2021, from Cii.in website: https://www.cii.in/.
13. Ministry of Electronics and information technology, government of India. (n.d.). Retrieved July 31, 2021, from Gov.in website: https://www.meity.gov.in/.
14. Citation
15. (Tyre Industry Welcomes Rollout of Norms, Seeks Feasible Timelines for Compliance, n.d.)
16. (Indian Tyre Manufacturers Expected to See Growth, n.d.)
17. (Demand Outlook Of Indian Tyre Industry Remains Favourable ICRA, n.d.)
18. (“Tyre Industry to See 13-15% Growth in FY22,” n.d.)
19. (MRF – Financial Results, n.d.)
20. (Report, 2019)
21. (Porters Five Forces Model - Automobile Industry, & Analyse Investment | Business Essays | EssaySauce.Com Free Essay Examples for Students, n.d.)
22. (5 Force Analysis of Tyre Industry - PDFCOFFEE.COM, n.d.)
23. (India Tyre Market Size, Share, Opportunities and Forecast 2021-2026, n.d.)
24. (Tyre Market Size, Share, Growth Analysis, Forecast 2021-2026, n.d.)
25. (Swot Analysis Of Tire Industry - 1517 Words | Internet Public Library, n.d.)
26. (Pestel Analysis Of The Auto Ancillary Industry Economics Essay, n.d.)
27. (Pest Analysis of Indian Tyre Industry - PHDessay.Com, n.d.)
28. (MRF PESTLE Analysis | PESTEL Analysis of MRF | MBA Skool, n.d.)
29. (CHAPTER IV AUTO COMPONENT INDUSTRY IN INDIA-A PROFILE Auto Component Industry In India-A Profile, n.d.)
30. (Market Environment And Structure Of Auto Mobile Industry Marketing Essay, n.d.)
31. (Rolim et al., n.d.)
32. (Automobile Components, Auto Components Industry in India, Auto Parts, Market Size, n.d.)
33. (Car Tyres | Bike Tyres by Official Website of MRF Tyres, n.d.)References
34. 5 Force Analysis of Tyre Industry - PDFCOFFEE.COM. (n.d.). Retrieved August 13, 2021, from https://pdfcoffee.com/5-force-analysis-of-tyre-industry-pdf-free.html
35. Automobile Components, Auto Components Industry in India, Auto Parts, Market Size. (n.d.). Retrieved August 13, 2021, from https://www.ibef.org/industry/autocomponents-india.aspx
36. Car Tyres | Bike Tyres by official website of MRF Tyres. (n.d.). Retrieved August 14, 2021, from https://www.mrftyres.com/
37. CHAPTER IV AUTO COMPONENT INDUSTRY IN INDIA-A PROFILE Auto Component Industry In India-A Profile. (n.d.).
38. Demand Outlook Of Indian Tyre Industry Remains Favourable ICRA. (n.d.). Retrieved August 13, 2021, from https://www.emis.com/php/search/doc?
pc=IN&doc_dtyp=1&lang=en&dcid=724064297&range=365&indu_local_class=naicsbyid&topicsgf[]=11&topicsgf[]=23&topicsgf[]=48&topicsgf[]=49&topicsgf[]=50&topicsgf[]=51&topics
gf[]=52&topicsgf[]=53&topicsgf[]=99&similar=hide&show_translated_articles=1&coverage=all&title=0&rpp=25&sort_by=relevance&change_selected_countries=1&query_entry=advance
d&ref=lp&check_res=1&display=1&search_selected_tab=all&search_log_id=ca86a36f-5b79-4598-8e20-8a4737f19750&search_log_event_id=1af6f714-c34a-41bc-b8dd-
f8ce71f80f54&get_translated_articles=1&isSerp=true&profile_type=0&keyword=Tyre+industry&numresult=10
39. India Tyre Market Size, Share, Opportunities and Forecast 2021-2026. (n.d.). Retrieved August 13, 2021, from https://www.imarcgroup.com/india-tyre-market
40. Indian tyre manufacturers expected to see growth. (n.d.). Retrieved August 13, 2021, from https://www.emis.com/php/search/doc?
pc=IN&doc_dtyp=1&lang=en&dcid=725399811&range=365&indu_local_class=naicsbyid&topicsgf[]=11&topicsgf[]=23&topicsgf[]=48&topicsgf[]=49&topicsgf[]=50&topicsgf[]=51&topics
gf[]=52&topicsgf[]=53&topicsgf[]=99&similar=hide&show_translated_articles=1&coverage=all&title=0&rpp=25&sort_by=relevance&change_selected_countries=1&query_entry=advance
d&ref=lp&check_res=1&display=1&search_selected_tab=all&search_log_id=ca86a36f-5b79-4598-8e20-
8a4737f19750&get_translated_articles=1&isSerp=true&profile_type=0&keyword=Tyre+industry&numresult=11
41. Market Environment And Structure Of Auto Mobile Industry Marketing Essay. (n.d.). Retrieved August 13, 2021, from https://www.ukessays.com/essays/marketing/market-environment-
and-structure-of-auto-mobile-industry-marketing-essay.php
42. MRF – Financial Results. (n.d.). Retrieved August 13, 2021, from https://www.mrftyres.com/financial-results
43. MRF PESTLE Analysis | PESTEL Analysis of MRF | MBA Skool. (n.d.). Retrieved August 13, 2021, from https://www.mbaskool.com/pestle-analysis/companies/18170-mrf.html
44. Pest Analysis of Indian Tyre Industry - PHDessay.com. (n.d.). Retrieved August 13, 2021, from https://phdessay.com/pest-analysis-of-indian-tyre-industry/
45. Pestel Analysis Of The Auto Ancillary Industry Economics Essay. (n.d.). Retrieved August 13, 2021, from https://www.ukessays.com/essays/economics/pestel-analysis-of-the-auto-
ancillary-industry-economics-essay.php
46. Porter's five forces model - Automobile Industry, & analyze investment | Business essays | EssaySauce.com Free Essay Examples for Students. (n.d.). Retrieved August 13, 2021, from
https://www.essaysauce.com/business-essays/porters-five-forces-model-automobile-industry-analyse-investment/
47. The report, A. (2019). THE MASTERS India’s Largest Tyre Manufacturer.
48. Rolim, Z. E. L., De Oliveira, R. R., & De Oliveira, H. M. (n.d.). Industrial Concentration of the Brazilian Automobile Market and Positioning in the World Market. Retrieved August 13, 2021,
from http://www.anfavea.com.br/estatísticas.HTML.
49. Swot Analysis Of Tire Industry - 1517 Words | Internet Public Library. (n.d.). Retrieved August 13, 2021, from https://www.ipl.org/essay/Swot-Analysis-Of-Tire-Industry-F3LHD9NFC486
50. “Tyre industry to see 13-15% growth in FY22.” (n.d.). Retrieved August 13, 2021, from https://www.emis.com/php/search/doc?
pc=IN&doc_dtyp=1&lang=en&dcid=724139108&range=365&indu_local_class=naicsbyid&topicsgf[]=11&topicsgf[]=23&topicsgf[]=48&topicsgf[]=49&topicsgf[]=50&topicsgf[]=51&topics
gf[]=52&topicsgf[]=53&topicsgf[]=99&similar=hide&show_translated_articles=1&coverage=all&title=0&rpp=25&sort_by=relevance&change_selected_countries=1&query_entry=advance
d&ref=lp&check_res=1&display=1&search_selected_tab=all&search_log_id=ca86a36f-5b79-4598-8e20-8a4737f19750&search_log_event_id=1af6f714-c34a-41bc-b8dd-
f8ce71f80f54&get_translated_articles=1&isSerp=true&profile_type=0&keyword=Tyre+industry&numresult=7
51. Tyre industry welcomes rollout of norms, seeks feasible timelines for compliance. (n.d.). Retrieved August 13, 2021, from https://www.emis.com/php/search/doc?
pc=IN&doc_dtyp=1&lang=en&dcid=719724399&range=365&indu_local_class=naicsbyid&topicsgf[]=11&topicsgf[]=23&topicsgf[]=48&topicsgf[]=49&topicsgf[]=50&topicsgf[]=51&topics
gf[]=52&topicsgf[]=53&topicsgf[]=99&similar=hide&show_translated_articles=1&coverage=all&title=0&rpp=25&sort_by=relevance&change_selected_countries=1&query_entry=advance
d&ref=lp&check_res=1&display=1&search_selected_tab=all&search_log_id=ca86a36f-5b79-4598-8e20-
8a4737f19750&get_translated_articles=1&isSerp=true&profile_type=0&keyword=Tyre+industry&numresult=5
52. Tyre Market Size, Share, Growth Analysis, Forecast 2021-2026. (n.d.). Retrieved August 13, 2021, from https://www.expertmarketresearch.com/reports/tire-market

Economy Analysis: Mary Femina; Industry Analysis: Athira Unnikrishnan; Company Analysis: Shivam Gupta