InvestorQ : How come MRF managed to double its profits in the Dec-20 quarter?
Priyanka N made post

How come MRF managed to double its profits in the Dec-20 quarter?

Neelam Naik answered.
11 months ago

One of India’s most profitable and also one of the highest priced tyre companies in India, MRF Ltd, reported a set of solid numbers for the Dec-20 quarter. MRF doubled its net profits for the December 2020 quarter to Rs.521 crore. This was an outcome of conscious as cost cuts Implemented by the company as well as working capital efficiency dividends.

In terms of top line, MRF reported 13.88% growth in gross revenues for the Dec-20 quarter at Rs.4,642 crore. Despite a dip during the COVID period, the top line of MRF is not well above the pre-COVID levels. MRF has been a preferred original equipment manufacturer or OEM supplier to auto companies across India.

Needless to say, MRF Ltd has substantially benefited in the Dec-20 quarter from the sharp turnaround in auto demand. After a long lull that lasted much beyond the onset of COVICD pandemic, the December 2020 quarter was a good period for MRF in terms of festive sales. The pent-up demand post-COVID combined with attractive discounts offered by the auto companies to give a big push to sales of autos in the Dec-20 quarter.

This had a huge top line effect on tyre companies too since their demand is substantially correlated with the business cycles of the auto industry. Operating profit margins or OPM for the Dec-20 quarter expanded sharply for MRF from 9.15% to 14.93%, a substantial jump on a yoy basis.

Even the net profits margins or the NPM of MRF nearly doubled from 5.92% in the Dec-19 quarter to 11.21% in the Dec-20 quarter. The conscious cost controls and the working capital efficiencies introduced by the company played a big part and reduced funds locked up in the working cycle.