We all have heard about Berkshire Hathaway, an American multinational conglomerate headed by Mr. Warren Buffet. But do you know the share price of the stock? It’s $5,27,760 that is more than ₹3 crore🤯. Yes, some expensive stuff!
In India too we have expensive stocks such as Page Industries, Honeywell Automation Ltd. with the share price of around ₹40,000, Shree Cement Ltd with the share price of around ₹20,000 and so many more.
Today, we are going to discuss about one such expensive stock called MRF. This is the most expensive Indian stock and we will see what makes the stock so expensive. So, let’s get started.
MRF: Company Overview
We all know that MRF is a major tyre manufacturing company. But they ventured into different businesses such as sports, toy manufacturing & paints. Their products include
Paints & Coats
The company was incorporated in the year 1946 in Tamil Nadu and is the largest manufacturer of tyres in India. To understand the company better, take a look at the history of MRF below.
The 5-year CAGR return of MRF ltd. is 1.8%. The company is virtually debt-free and is managing cash real well. On the flip side, the company has shown a poor profit & revenue growth.
History of MRF
How MRF came into existence is no less than a dramatic movie. The company was started in 1946 by KM Mammen Mappillai as a toy balloon unit..
It was only in the year 1952 when MRF ventured into the manufacturing of tread rubber and just in a few years of time they became the market leaders with 50% market share. But they commercially entered into the tyre making business in the year 1961 when they collaborated with Mansfield Tire & Rubber company based in the USA and within a few years, the company set up its overseas office in Beirut and with this MRF became the first company in India to export tyres. And by this time the company opened its various plants in different parts of India.
By 1970’s MRF became the first company to manufacture and market Nylon passenger car tyres. Moving forward, the company launched tyres for two-wheeler vehicles. 1980’s were marked as the years of sports for MRF where they set up MRF pace foundation. In the same decade, MRF collaborated with Hasbro International USA which is a toymaker company they did so to venture into toy-making business and this collaboration gave birth to Funskool India.
We all know the passion MRF has for sports and in the year 1989 the company sponsored the MRF world series cricket tournament for the Jawaharlal Nehru Trophy. And just next year to this MRF brought the 6th world cup Boxing Championship to Mumbai. And in the late 90’s MRF ventured into F3 cars for the very first time. In the same decade, the first T&S store in the country was inaugurated. Fast forward to the year 2007 MRF made a turnover of 1 Billion Dollars. And in the year 2015 MRF breaks into Forbes India’s Super 50 list of the best companies in India. Well, there is a lot more and the list is ever ending.
Moving forward, take a look at the business model of MRF.
MRF: SWOT Analysis
Let’s take a look at the SWOT analysis of MRF Ltd.
MRF tyres are known for its durability and top-notch quality and performance. That has created a good reputation for the brand.
The marketing strategy of MRF is unique. For the longest of time a lot of people were under the impression that MRF manufactures only cricket bat and spots items and its a sports company altogether. That’s the kind of impact they created with the aggressive sports marketing they have been doing. The marketing strategy of MRF is unique and it stands out.
As discussed above the company has shown poor performance and the profit and revenue growth has also remained poor.
Lack of innovation:
The company is struggling to innovate in terms of its products and services as well as its marketing.
The auto industry is taking major twists and turns and innovation is on full swing. Thus, as far as the industry in which MRF operates is concerned. It comes with a great growth potential.
The peer companies which we have discussed below give a tough competition to MRF.
Inflation and poor product availability:
The key raw material for tyres is rubber. And if that is not available or is available at an inflated price then it can impact the margins of the company.
The major competitors of MRF are Apollo tyres, CEAT, JK Tyres, Goodyear India, Balkrishna Industries and more. The stock price of each one of them ranges between ₹200 - ₹2500.
So, why is the stock price of MRF so expensive?
What makes MRF stock so expensive?
Do you see the growth chart below? As far as the share price is concerned it has shown nothing but growth in the long run. It is even said that the listing price of MRF was ₹11. And as depicted in the chart the share price was trading at ₹1900 in the year 1999 and the lifetime high of MRF has been ₹98,599.
So, how is it that the stock was able to reach this height and is it that if the stock price is very high then it's a good stock?
Well, the answer to the second question is… No, one can not judge the good or bad fundaments of a stock solely based on its price.
Let’s understand it this way, some companies divide itself into various shares. On the other hand, some companies do not break themselves into a number of shares rather than this they break themselves into few shares of higher value. MRF is one of those companies that did not break itself into various parts.
To understand that, first, you have to understand what Corporate Actions are. A corporate action is an event carried out by public companies that brings material changes to the company.
There are various kinds of corporate actions such as dividends, rights issues, mergers & acquisitions, bonuses, stock splits and more.
In corporate actions such as stock split, a company’s value is broken down, even more, to make them easily available at a lower price and to increase the liquidity in the market.
These kinds of corporate actions are taken by companies. MRF is one such company that does not perform any kind of corporate actions such as stock split that will dilute the company's shares. This is the number one reason MRF shareprice is trading at a value this high.
So, that was the story of MRF. We hope that you understood the concept that we tried to explain today. Also, Is there any topic you want a blog on or do you have any queries related to this blog?
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