This is one of the 3 stocks for investment portfolio recommended by Rajen Shah, Angel stock broking. MRF is an exclusive supplier of small tyres for Volkswagen, Tata Nano.
Here are excerpts of his discussion on one of the business news channels.
A number of auto badgers are coming to India, Volkswagen has recently started, Nano is commencing operations in the next one-month from the Sanand plant and MRF is an exclusive supplier of small tyres. I am looking at very good times ahead for tyre industry and it is going to be there. So I don’t think I am worried about that Rs 150 per kg of RSS IV grade rubber which is used in the manufacturing of tyre. MRF should report easily Rs 900 kind of earnings and it is at 8 P/E multiple.
I remember the times when it was said that cement is a commodity. Yes cement is a commodity and it deserves nothing more than 6-7 kind of P/E multiple. But when the scenario changes, when the demand is robust, when the profitability starts improving, all these factors like power cost, fuel cost, transportation cost, freight cost—everything gets absorbed.
We are extremely bullish even at the current prices of tyre stocks. Whether it is Apollo or MRF or Ceat or JK—we are extremely bullish on that. People are raising concern on rubber prices and crude moving up but I think the demand is so robust and there is a shortage of tyre. I have been interacting with many of the dealers of MRF. I have been interacting with people who have been in the retrading business and the indications I am getting from them and these are very reliable sources that the severe shortage of tyre and the kind of demand they are foreseeing is very robust.
I am seeing that times ahead for tyre industry, everything is going to get absorbed. There is no reason to worry about all these rubber prices and all that. The demand is very robust and that is going to see bottomline moving up. So even if they don’t make upon the margins, this 14% kind of margins which many of the companies reported are not at all sustainable but the fact is that volumes will make up.
So Rs 900 earnings for MRF—easily the stock can go up to Rs 10,000 and interestingly this is a highly under-owned stock. If you see frontline companies, FIIs holding 24%—in MRF FIIs hold not more than 1% stake.
So I think what is going to be underowned can be overowned. So the potential of the movement in companies like this will be immense. So Apollo, JK Tyres, even Ceat and MRF but our prime pick is MRF and Ceat.
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