InvestorQ : What explains the impressive growth in profits of MRF, the tyre company, in the Sep-20 quarter?
Aditi Sharma made post

What explains the impressive growth in profits of MRF, the tyre company, in the Sep-20 quarter?

Answer
image
Mahima Roy answered.
2 weeks ago
Follow

For the Sep-20 quarter, the South India based MRF reported 5.9% rise in the sales revenues at Rs.4245 crore. That is a sharp bounce in the Sep-20 quarter after the tyre business across the country took a hit in the Jun-20 quarter because the OEM and the replacement demand from commercial vehicles turned tepid in the midst of the lockdown.

There was good news on the operating front as operating profits surged by 83% at Rs.582 crore, essentially helped by lower raw material costs and miscellaneous expenses. Higher sales also absorbed fixed costs better as the OPM expanded from 7.95% to 13.71% in the quarter on better operating metrics.

Even the bottom line was 80% higher at Rs.411 crore as the operating cost advantage got carried forward to the bottom line without too many leakages. Although the tax payout was higher, the net margins of the company expanded from 5.71% to 9.68% in Q2.

Low debt has been a consistent positive feature of MRF. With a debt / equity ratio of just 0.10, the debt service coverage of MRF stands at a healthy 4.02 times while the interest service coverage is even more comfortable at 11.28 times.

There was also a doubling of the net cash generated from core operations in the first half of the current fiscal year ended Sep-20. The figure actually doubled on a yoy basis to Rs.2416 crore. This was attributed to efficient management of working capital which helped to unlock funds locked up in current assets.

0 Views