Buy MRF; target of Rs 60000: Anand Rathi

Dominant in all segments as well as a leader in the replacement market, MRF is the only company commanding a premium in all categories. Due to the significant impact on Chinese imports, postdemonetisation, and the company’s leading position in replacements, we expect it to pull ahead of the industry.

OutlookPostponement of purchases in the replacement market due to the demonetisation led to MRF’s Q3 FY17 revenue coming negative 1% yoy. Further, higher rubber prices cut into its 18% margin, down 550bps yoy. We expect pricing to mitigate the rise in rubber prices and other crude-based components. Also, we expect volumes to be higher in Q4 FY17 on the strong revival in M&H CV sales (due to the change in emission norms), benefits of the impact on Chinese TBR imports, and farm-tyre sales. We retain our Buy recommendation.