For the First Time in Indian Stock Market History, MRF (Madras Rubber Factory Ltd) share has crosses Rs 1,00,000 mark on June 13, 2023. It is the most priced stock of all times in Indian Stock Market. With this affordability became difficult for retail investors to invest in this stock. This specific case study highlights the reasons behind MRF’s leading position in Indian Share Market.
- Very Few Bonus and Split Issues: Since MRF went for IPO (Initial Public Offering), MRF has issued bonus shares in 1970 (1:2); and in 1975 (3:10); since then the MRF share has neither split nor bonus is issued. This made the outstanding shares of the company constant, resulting into the higher share price and valuation for the firm. Another thing is, MRF has never split its share to lower its value. That means, in nearly 50 years, no bonus and split issues from MRF.
- Reduction in Raw Material Cost: As on June, 2023, there were only 12 stocks in India whose price is greater than Rs 10,000; MRF being the leading crossed Rs 100,000 and next highest is the Page Industries with market Price of Rs 41,372. In June 2023, the 3rd contender Honeywell stock also crossed Rs 41,000 mark. Reduction In raw material costs is another reason for MRF’s FY2023-Q4 increased EBITDA (Earnings Before Income Tax and Depreciation); resulting into better operating leverage. As on May 2023, MRF has Market Capitalization of Rs 41,500 crore; public shareholders own 72% and promoters own 28% of the equity.
- Famous Endorsements: Another reason that helped MRF stock to zoom up is the endorsements from famous cricketers such as Sachin Tendulkar (Who retired in 2013); and later Virat Kohli. Both Sachin and Virat endorsed MRF brand for more than a decade.
- Return on Equity (RoE): is the another reason for MRF stock leading price; that is RoE can be calculated as (Net Profit/Shareholders Equity). As the number of shares are limited RoE is much higher in case of MRF stock. In May 2023, Return on Equity (RoE) of MRF stock yielded 5.2%. That is, Every Rs 1 investment of shareholders is yielding a profit of Rs 0.05. Also as MRF is paying dividends continuously for more than a decade, its future expected return on equity (RoE) is 11%. The company’s earnings growth rate is also expected to see the huge improvement.
- Decreased Vulnerability to Manipulation: Because MRF stock is having high denomination valuation, there is less vulnerability for manipulation.
- Industry Growth Rate: And, also another encouraging factor is the increasing industry growth rate. Between 2023-28, Indian Tyre Industry is expected to grow at a Compound Annual Growth Rate (CAGR) of 6.68%. In 2022, the industry has grown by 3%.
- International Comparison: The Indian highest share price of Rs 1,00,000 (nearly $1250) is however at a far away distance from the US most valued share Berkshire Hathway, which has one share price more than $500,000. As on August 24, 2023, The regular Apple ($181) and Microsoft shares ($327), Google ($131) were even affordable to compare with Indian MRF share ($1,250) for retail investors. Other high valued US shares having more than $2,000 price each include NVR, Seaboard, Booking Holidays, and Autozone.
Challenges: DespiteMRF being the leading stock in Indian stock market, the challenges such as Market Capitalization, P/E Ratio (Price-to-Earnings ratio), P/B Value (Price-to-Book value), growth prospectus and regular profits are the major competitive factors specific to most valued stocks in Indian stock market.
During last decade (2013-2023), MRF stock has returned more than 600%. In 2013, it started with Rs 12,880; by 2023, it could reach Rs 1,08,810. Let us see, as the economy is growing, lot of innovations in material science such as in making Tyres, in making batteries, in making different auto components, coupled with digital technologies the Indian auto component, automobile industry will see the bright future, because people are looking at more comfort and luxury with respect to transport and day to day commute.
Hope this is Useful….. Thank You.
Best Regards,
Dr.Goparaju Purna Sudhakar
References:
- ACI (2023), “MRF Stock Valuation Breaches The One Lakh Mark; Know Why”, Auto Components India, May 09, 2023.
- Agarwal, N. (2023), “MRF Share Price@1 Lakh: Why 6-digit record does not make it the Most Expensive Stock”, The Economic Times, June 13, 2023.
- Hariharan, S. (2023), “In a First for an Indian Stock, MRF Crosses Rs 1 Lakh Mark; Up 600% in 10 Years”, The Times of India, June 14, 2023.
- Jethmalani, H. (2023), “MRF Stock Hits New High on Solid Q1, but there is Caution Ahead”, Mint, August 04, 2023.
- Parakh, R. (2023), “The Rs 1 Lakh Question: Is MRF Truly an Expensive Stock”, Forbes India, June 14, 2023.
- SIR (2023), “MRF nears 52-week High on Healthy Q4 results; Stock rallies 8% in 2 days”, Business Standard, May 04, 2023.
- SWS (2023), “MRF Limited’s (NSE: MRF) Stock is Rallying But Financials Look Ambiguous: Will the Momentum Continue?”, Simply Wall Street, May 23, 2023.
- https://ticker.finology.in/company/MRF