Tyre maker MRF has presented a positive outlook for growth, both in the domestic and export markets, amid some challenges.
Pent-up demand in passenger vehicles will cool in FY24, but secular economic growth should provide steady growth to the auto industry. Higher capital expenditure by the auto industry points to high levels of capacity utilisation and higherproduction in the future, says the company’s latest annual report.
With the new BS-VI phase-2 transition effective April 1, 2023, while vehicle costs will go up, the reduction in input costs will be positive for the auto industry. The impact on the tyre industry would be similar, it added.
Positive trends
“In FY23, we recorded an all-time high consolidated total income of Rs 23,261 crore, an increase of Rs 3,627 crore over the previous year. One of the resounding successes of last year was the launch of our Scooter tyre Zapper C1. It has received an excellent response from the customers and has helped in increasing our two-wheeler tyre sales,” K M Mammen, Chairman & Managing Director of MRF, said in the report.
Also read: MRF Q4 net nearly trebles, pays ₹169 a share
The semi-conductor shortage has more or less disappeared and the production level of automobile industries reflects this. Electric vehicles are being launched in each of the categories, and it will take some time before we see how this trend plays out, he said.
While growth in the automobile industry and replacement demand have enabled the tyre industry to show healthy growth in FY23, the export performance was muted, considering the slowdown in the world markets.
Export growth muted
MRF’s exports business in FY23 was muted due to unexpected headwinds in key markets such as Bangladesh and Indonesia, and a few countries in Africa. Although export revenue grew by only 5 per cent at Rs 1,866 crore in FY23, there was substantial growth in a few strong markets.
The unprecedented forex crisis in Bangladesh since August 2022 led to a big drop in letter of credit availability, thus impacting exports and total revenue. Although the forex crisis has eased, the company is yet to see the robust levels of early 2022.
Business from Indonesia was impacted by the sudden suspension of quotas released by the Ministry of Trade & Industry since September 2022. The Philippines in the Far East and the West Asian region showed substantial growth and continue to maintain momentum for the brand. Going forward, the company sees opportunities in its existing strong markets of West Asia, Africa, the Far East, Bangladesh and emerging markets of Europe, South America and the US.
The company has four subsidiaries -- MRF Corp Ltd, MRF International Ltd, MRF Lanka (P) Ltd. and MRF SG PTE. Ltd. The aggregate turnover of all the four subsidiaries was Rs 2,326 crore in FY23, and the aggregate loss for the year was Rs 48 crore. This is due to MRF SG PTE. LTD, paying a sum of Rs 82 crore, being the price adjustment under the Bilateral Advance Pricing Arrangement payable to MRF Ltd for the period between FY16 to FY24.