Dividend Paying Tyre Stock: India's Costliest Share MRF Hits New Record High, Up 36% YTD - A Technical View

One of the oldest and leading tyre makers, MRF is been favoured by bulls since the start of December month. On Tuesday, MRF shares extended its 7-consecutive days winning streak and touched a new lifetime high. MRF share crossed over Rs 1.2 lakh mark, continuing to be the costliest share of India. However, MRF shares are highly overbought, and technical views suggest a pullback is likely to take place.

MRF Share Price Winning Streak:

On December 12th, MRF shares ended at Rs 1,19,572.35 apiece, up by Rs 439.95 or 0.37% with a market cap of Rs 50,712.34 crore. In the trading hours, the stock rallied to hit its new record high of Rs 120,388 apiece.

Notably, MRF shares have been in green for seven consecutive days now. From December 4th to 12th, MRF shares have zoomed by 7-8%.

On November 30th, MRF entered into a captive power purchase agreement with First Energy 5 for the purchase of wind power under the captive power policy of the Government and in this connection will be acquiring up to 11.95% of the paid-up equity of the Company. The transaction is for a consideration of Rs 11.35 crore and is expected to be completed by December 31, 2023.

YTD, MRF shares have zoomed by nearly 36% on BSE. The stock was near Rs 88,000 levels at the start of January month.

MRF Dividend:

Last month, MRF paid an interim dividend of Rs 3 per share or 30% for the financial year ending 31st March 2024. For this dividend, MRF shares turned ex-dividend on November 17th and had declared payout date on or after November 30th.

In FY23, MRF paid a total dividend of 1750% amounting to Rs 175 per share.

MRF is among dividend king stocks. The company has declared up to 72 dividends since August 2000.

MRF Shares Are Overvalued!

The tyre stock is the costliest on the Indian market. Analysts expect a retraction in the stock from its overvalued levels. Nevertheless, its EPS is expected to grow handsomely by the end of FY24. Not to forget, its revenue growth has been robust in the past quarters.

As per Trendlyne data, the consensus recommendation from 8 analysts for MRF is STRONG SELL. However, the company's EPS is expected to grow by 188.8% in FY24. Also, MRF's revenue has been higher than the average estimate 2 times in past 3 years.

That being said, the analyst price target is Rs 98,281 per share for MRF, a revenue growth forecast of 9.6%, and a profit growth estimate of 160.2% for FY24, based on the top 8 analyst calls.

The Trendlyne report also pointed out that MRF is trading above 8 out of 8 SMAs, while it's also above 7 out of 9 Oscillators in the bullish zone. The stock's RSI comes to around 82.9, which is considered strongly overbought. This implies that the stock may show a pullback. Its MFI is in mid-range at 68.6. Generally, an MFI below 30 is considered oversold and above 70 is overbought.

Last month, Motilal Oswal also recommended Selling on MRF for a target price of Rs 97,000. It said, "MRF's competitive positioning in the sector has weakened over the past few years, which reflects the dilution of pricing power in the PCR and TBR segments. This, coupled with the impact of the planned capex, should limit the expansion in return ratios. We expect MRF's return ratios to see a relatively lower uptick vs. peers over the next two years as its RoE is expected to reach 12.4% by FY25 (vs. APTY/CEAT estimated at 13.5%/17.2%)."

Motilal has forecasted ~8% revenue CAGR over
FY23-25 is led by stable OE demand and an expected recovery in the replacement segment, while a CAGR of 39% is estimated in EBITDA over FY23-25 and a ~670bp expansion in margin to 17.1% (vs. 18.5% in 2QFY24). Also, PAT is expected to report a ~70% CAGR over FY23-25.

In Q2FY24, MRF reported a consolidated net profit of Rs 585.43 crore, attributable to the owners, rising by 302.74% or 4.03 times from PAT of Rs 145.36 crore in Q2 of FY23. Consolidated revenue from operations stood at Rs 6,217.10 crore, also up from Rs 5,826.30 crore in Q2FY23 but down from Rs 6,440.29 crore in Q1FY24.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.