Why MRF Share Price is so High? Rubber Industry Royalty

MRF – Naam to Suna Hoga! Of course, you have! Because when it comes to Indian cricket, MRF isn’t just a brand; it’s the heartbeat of the game we love. Picture this: the iconic Sachin Tendulkar smashing boundaries with an MRF bat, creating memories etched in our hearts. The emotional connection deepened as the nation watched Virat Kohli, the new-age maestro, conquer records and hearts, with the MRF logo accompanying him on every boundary and milestone. Over the time, MRF has become that buddy who shows up in all the cool sponsorship programs, making us feel like part of the action. The prominence of MRF transcends beyond its renowned presence in the manufacturing sector; it is the company with the highest share price in the Indian stock market. This phenomenon beckons the question: Why MRF share price is so high?

On August 4, 2023, the share price of MRF Ltd reached a staggering 1,11,997.00 INR, setting a new record. This is a significant milestone in the realm of Indian shares, as no other stock has come close to the 50,000 INR mark as of the present day. As of January 9, 2024, while writing this column, the current share price stands at ₹1,32,850. The 52-week high of ₹1,33,599.95 was recorded on January 8, 2024. Now, the burning question: Why is MRF’s share price so high? Let’s delve into the discussion.

About The Company MRF

K. M. Mammen Mappillai founded MRF in 1946 in Chennai, India. The company initially made rubber balloons, latex cast squeak toys, and industrial gloves. In 1952, MRF expanded into tread rubber production. On November 05, 1960, it became a Public Limited company, starting the manufacturing of automotive tyres and tubes. MRF, with a 30% market share, established its first tyre plant in 1961 in Chennai. It produces a variety of tyres for bicycles, motorcycles, cars, trucks, and off-road vehicles. MRF operates nine manufacturing facilities across India, located in Tamil Nadu, Kerala, Andhra Pradesh, Gujarat, Goa, Puducherry, and Telangana.

As on 31 March 2020, the company has two Indian and two overseas subsidiary companies namely, i) MRF Corp Limited, ii) MRF International Limited, iii) MRF Lanka (P) Ltd, iv) MRF SG PTE. LTD. Over the years, MRF continued to expand its production capacity and diversify its product range. 

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Why MRF share price is so high?

On April 27, 1993, the company’s share closed at Rs 11 compared to the current price of Rs ₹ 1,32,850. With a face value of Rs 10 per share, the approximate percentage return is about 1,207,627.27%. This is surreal. Over the years, investors have received multiple returns on their investment in MRF shares. Similar to MRF in India, Berkshire Hathaway boasts the highest share price globally. These two companies share several commonalities, with one of the most prominent being their limited share supply.

Limited Share Supply

MRF, with its restrained float, limits the number of shares available for trading, creating scarcity and potentially boosting share prices. Berkshire Hathaway, under the stewardship of Warren Buffett, has maintained a policy of not splitting its Class A shares, contributing to a scarcity of shares.

The controlled availability of shares creates a perception of exclusivity and premium quality among investors. The higher share price is often associated with the prestige of owning a stake in a company with such a market standing. Higher share values may be linked to status, impacting the attitude of investors. The high share price is complemented by other strategic decisions, financial strength, and the market perception cultivated by the company over its distinguished history.

Long-Term Investment Philosophy

MRF is not in it for the short run; they’re playing the long game. Their strategy is like planting a tree and watching it grow over the years. It’s about sticking around and making solid moves that pay off in the future.

Financial Strength and Stability

Consistent revenue growth, profitability, and sound financial management contribute to MRF’s high share price. MRF knows how to handle its money. Think of it like having a friend who’s really good at saving and spending wisely. This helps them stay strong and steady, making investors feel confident about putting their money in MRF.

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Exploring Differences: Limited Share Supply vs. Stock Splits – A Comparison with Infosys

A stock split is a corporate action where a company divides its existing shares into multiple shares, effectively increasing the number of outstanding shares while reducing the price per share. This does not impact the overall market capitalization of the company. Stock splits are often undertaken to make shares more affordable for a broader range of investors. After a split, the price per share decreases, potentially attracting more retail investors who may find the lower share price more accessible.

Let us understand this taking a Historical Example of stock splits. So far, MRF has never split their shares. The face value of ₹10.0 of 1 MRF share is the same as it was on the day of listing. On the other hand, the major tech giant Infosys has split its share 6 times, which has reduced their face value to ₹5.00 as against ₹10.0 on the day of listing. The per-share price would have been adjusted each time a split occurred. While the total market value remains the same, the individual share price is proportionally reduced. The most recent stock split occurred on September 12th, 2018. One INFY share bought prior to February 15th, 2000 would equal to 64 INFY shares today.

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Infosys Stock split History

This highlights why Infosys, with a Market Cap of ₹6,42,780 Cr., which is approximately 11.42 times larger than MRF’s Market Cap of ₹56,328 Cr., has more accessible shares for retail investors. If MRF had split their shares, it might not have reached such a high price today. Let’s have a look at MRF and Infosys share supply history

MRF and Infosys share supply history

Thus we can see that MRF has low float, that is, the number of shares available for trading than Infosys. Limited availability of shares can result in higher price volatility. Changes in demand can have a more pronounced impact on the stock’s price due to a lower supply. Stocks with low floats might experience wider bid-ask spreads, making it costlier to buy or sell shares. This can also lead to less liquidity in the market. In contrast, companies with a higher float, like Infosys, generally have a larger number of shares available for trading. More liquidity, closer bid-ask spreads, and maybe lower price volatility might result from this.

So if Infosys has low share price and MRF has such a high price, does this make MRF better than Infosys? The answer is NO. Let’s have a quick comparison:

MRF VS Infosys Fundamentals and Historical Performances

Analyzing the fundamentals and financials, along with growth metrics and past performance, can provide valuable insights about the companies.

Both the companies have solid fundamentals, so it is clear that share price alone does not necessarily determine whether one company is better than another. Comparing MRF and Infosys based solely on their share prices wouldn’t provide a comprehensive assessment of their overall performance or value. Both companies operate in different industries -MRF in the tyre industry, Infosys in the IT sector, and their financials, growth prospects, and business models are distinct.

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Why MRF do not prefer stock splits? 

According to market analysts, it is suggested that the promoters of MRF may prefer to keep their circle of shareholders relatively small, potentially focusing on attracting serious and committed investors. This inclination could be attributed to the high price of MRF shares, which might deter retail traders with limited investments from entering the market. The expectation is that investors with significant financial resources and a long-term investment horizon would be the ones more likely to show interest in MRF shares. Such a strategy also ensures that decision-making power remains concentrated among a select few board members.

Read more about Why companies do not prefer stock splits?

Future Prospects of MRF

MRF is continuously expanding its business by launching new products and services. During the year 2022-23, the Company introduced new sizes MRF Perfinza, series of tyres for Audi, BMW, Jaguar, Mercedes-Benz and Volvo cars, introduced new sizes for the brand MRF Markus for the premium SUV’s of Audi, BMW, Mercedes-Benz, Volvo, Jeep, Hyundai and VW. In the Two Wheeler Tyres, Block pattern rear tube-type tyre was developed for Royal Enfield Classic 350; Tubeless rear tyre for Yamaha Fascino125 BS6 scooter; Tubeless tyre developed for Electric Scooters. In the Commercial Vehicle Tyre, it launched MRF Super Miler 99 Plus, MRF Super Lug Fifty Plus R brand, MRF Savari Extra.

Revenue skyrocketed from ₹16,062 crore in March 2019 to ₹24,144 in the Trailing Twelve Months (TTM), showcasing a continuous growth of around 50.36%. This upward trend persists. Annual revenue climbed impressively by 18.48% in the past year, reaching ₹23,261.17 Crores. Simultaneously, annual net profit surged by a solid 14%, hitting Rs 768.95 Crores. The stock price made a significant leap, rising by 42.47% in the last year, albeit trailing its sector by 16.84%. On a quarterly basis, revenue saw a 6.71% Year-over-Year (YoY) uptick, reaching Rs 6,287.82 Crores. Quarterly net profit witnessed a remarkable YoY surge of 351.76%, totaling Rs 586.66 Crores. The Price to Earning Ratio stands at 33.28, lower than its sector PE ratio of 38.39.

The inventions, innovations, strong fundamentals, adaptability to new technologies, expansions and the brand popularity suggests a proactive and forward-thinking approach, which is generally beneficial for sustained performance. But, it’s crucial to remember that long-term success is also shaped by factors such as skillful strategy execution, management choices, prevailing market conditions, and external influences.

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Let’s sum up Why MRF share price is so high?

Now Summing up, We are clear that what has caused MRF share price to be so high? Which is because of limited share supply, Long-Term Investment Philosophy, and financial strength and stability. Also, the branding and advertising of MRF is solid making it a household name. We learned about limited share supply and stock splits by using examples and comparing with Infosys. Later in the blog we compared the fundamentals and historical performances of MRF with Infosys and also learnt Why MRF do not prefer stock splits. MRF is continuously expanding its business by launching new products and services. During the year 2022-23, the Company introduced new sizes MRF Perfinza, series of tyres for luxury cars like Audi, BMW and etc. With its forward-thinking approach, the company could reach higher milestones in the coming years.

That’s all for today’s post. Hope you get some valuable insights from here.

Happy reading!

Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.