Some businesses can make an impression on investors amidst the constantly changing stock market environment. MRF Limited is one such business that has been in the news lately. The share price of the tire manufacturer has been steadily rising, raising questions among investors and market analysts about the reasons behind this increase. We will examine each of the factors influencing the skyrocketing Why MRF Share Price is So High in this article.
Brief Description of MRF Share Price
Madras Rubber Factory Limited, also known as MRF, holds the largest market share of approximately 29% in India for the production of tires. However, the company’s other business segments include sports, paints and coats, and children’s toys in addition to tires. The price of MRF’s shares has risen by 29.55% in January 2023 over the previous five years. Curiously, what keeps the performance of the MRF share price stable and at such a high level? Among investors, it is the most frequently asked question. One of the priciest stocks on the Indian stock exchange is MRF Limited shares.
An investor would have profited by approximately 860% if they had invested ₹10,000 in MRF 12 years ago. ₹86,000 would be the current investment value. This typically indicates that MRF Limited is growing steadily and that the company’s increasing share price hasn’t scared away its investors. Given the unusual nature of this stock, it makes sense that some may be curious as to why the share price of MRF is so high.
Why is MRF not splitting stocks?
- Strong Fundamental: MRF Limited shares have performed exceptionally well due to solid fundamentals. Even though the share is pricey, investors are still drawn to it, and those who have already invested could make money. As a result, the business is expanding consistently at the same rate. The company has benefited from its investors’ growth since going public.
- Limited Public Shareholding: Limited shares were distributed by the company to individual investors, and the shares were listed at a premium. Only a small number of market investors are granted voting rights by the company. Since they own the majority of the company’s shares, the promoters are ultimately responsible for making the most important decisions.
- Stay Away from Speculators: Stock splits increase volatility by reducing the company’s shareholding and drawing in more speculators. However, MRF does not divide the shares in a way that keeps speculators away from the claims. It strengthens the claims and makes them accessible to sincere investors.
- No Financial benefits: Finally, the company receives no financial gain from the stock split. Thus, there is no need for the company to divide the shares.
Why MRF Share Price is So High in India?
Consistent Rise In Revenues: Think for a moment: what does a company’s steady revenue growth represent? It stands for the business’s prosperity and smooth operation. The most important factor that determines a company’s value is its revenue and profits. A company that consistently grows its revenue is making more money from its operations. Additionally, investors see this as a sign of strength. They firmly believe that the business will expand and turn a profit.
As you can see, over the previous seven years, MRF’s revenue has consistently increased. The narrative hasn’t changed from prior years either! Ever since its IPO, MRF’s finances have experienced a purple patch. You can’t dispute that despite a few setbacks, its revenue and year-over-year growth were genuinely remarkable. Returning to the topic of our conversation, the causes of the high prices of MRF shares. Investors have come to trust MRF because of its attractive revenue growth. As a result, it contributed to its share prices rising.
Appealing Returns: Over the past ten years, MRF product sales have doubled. It had a 6.5% compound annual growth rate. Furthermore, it was quite noteworthy that EPS (Earnings per share) increased steadily by 30% over the previous ten years. Additionally, the business kept a healthy operating margin. These elements all guarantee investors will receive enticing returns.
What is the most enticing return on investment from MRF Limited? Payout! Over the years, MRF has consistently provided investors with sizable dividend payments. Investors are always drawn to MRF because of this outstanding feature. What was the most recent dividend that it paid? Each share is worth Rs. 169! It is true, indeed. As a result, it rose to the top among Indian companies that pay dividends.
Brand Value & Dominant Position In Market: You are aware by now that MRF Limited controls the majority of the Indian tire market. Are you aware that India also uses MRF’s products in the defense industry? Let’s examine MRF’s market share in the next two segments:
|Market Share (%)
The company’s brand value increased due to its dominance in market shares. But how did MRF come to hold this role? All thanks to its robust distribution network, which enabled it to make a significant impact on the Indian tire market. Of MRF’s total revenue, 73% came from the sales of tires.
Reason 1: The first factor contributing to the high price is that MRF is a well-known and well-established business in India. Given its longevity—it has been in operation for more than 50 years—people assume that it will never go out of business there. People are aware that this business will outperform all others in terms of both product quality and customer support. In India, MRF is a well-known brand that is trusted by consumers who are aware of the high caliber of its products, eliminating the need for them to verify the product’s quality before making a purchase. MRF serves as an example of how many small-scale businesses can grow through dedication, hard work, integrity, and creativity.
Reason 2: The second reason for the high price is that whenever the government changes policy, there’s a possibility that all stocks could be impacted. This is because there’s a chance that the government could take actions that negatively impact the share market, which could result in a large loss of share market cost and capital. The capacity of the business to produce profits and cash flow, as well as its intentions to use this cash flow to raise shareholder value, hold the key to the solution.
With one of India’s most effective business models, the company consistently produces high free cash flow (FCF) margins. Additionally, the business has a massive net cash position. By generating value for shareholders, it can swiftly raise shareholder value.
Financial Fundamentals of MRF Share Price
The low-cost operating model of MRF Limited contributes to its reliable production of high returns on capital employed (ROCE). Its ROCE has been above 30% for several years and is probably going to stay that way for a while longer. Its FCF margins are strong as a result. The FCF margin of MRF has continuously exceeded 20%.
The discounted value of the dividends that investors can anticipate receiving from owning the stock determines its price. Future dividend payments will increase with the size of the company. Additionally, a company’s market share increases with size. Its cost is increased by both factors. Compared to other Indian companies, MRF’s operations are so large that expanding revenue is as simple as opening more stores. The highest price-earnings ratio (PE ratio) for stocks listed on Indian stock exchanges belongs to MRF.
Its sustained long-term high growth rate, together with steadily high net profit margins and ROE ratios, are the main causes. This indicates that investors have been prepared to shell out more money to be a part of this growth story. Among the most lucrative and promising stocks in India is MRF. It began as a tiny trading company that dealt with rubber and leather goods, but it has since expanded to become one of the most well-known and significant tire manufacturers in India.
Several factors, including MRF Limited’s market dominance, operational excellence, global expansion strategies, and adherence to industry trends, have contributed to the company’s share price surge. Although important in contemporary financial analysis, the goal of this article is to analyze MRF’s success. Gaining insight into the nuances of stock market dynamics and the fundamentals underlying MRF’s high share price is crucial for investors as they keep an eye on the continually shifting financial landscape.