On March 27, Chennai-based tyre-maker MRF’s stock price crossed Rs60,000 ($924).
It was the first time that an Indian company’s stock had commanded that kind of money. To put it in perspective, India’s second-most expensive stock, New Delhi-based Eicher Motors, which makes the legendary Royal Enfield motorbikes, is worth a third of MRF. The 70-year-old company’s stocks are even more expensive than those of tech giants Amazon ($856), Google ($840), Apple ($143), and global tyre makers such as Goodyear ($36).
MRF is India’s largest tyre maker, with its business interests also extending to paints, sports goods, rally sports, and toys. As of March 30, the company has a market capitalisation of over Rs25,000 crore ($3.8 billion). Since the turn of the millennium, its shares have surged 50 times from Rs1,218 in January 2001. Between January 2016 and March 2017 alone, the stock surged nearly 48% from Rs40,546 to Rs60,000.
Much of that surge has to do with the limited availability of the MRF shares. A little over three million of them are available for trading. Compare this to the over 1.96 billion of Tata Consultancy Services shares, India’s most valuable company by market capitalisation. That’s also the reason why MRF’s market capitalisation has remained low, despite the surging stock price.
The stock has performed well thanks to the great strides the company has made, particularly in the past few years when annual revenues rose to over $3.1 billion in fiscal 2016 from $1.4 billion five years ago. It has also cemented its position as the market leader, largely through dominance in the motorcycle and car segment, controlling 24% of the Indian tyre industry. More so at a time when cheaper Chinese tyres have flooded the Indian market.
“They have been leaders in the industry for sometime,” Mayur Milak, a research analyst at Anand Rathi, a Mumbai based brokerage, said. “They are the only Indian tyre company to post double digit growth for a long time, and they have kept their focus on building a good dealer network and keeping prices under check. That’s why the stock has been gaining strength. Also, the company hasn’t split its stock, and that helps it maintain such a high price.” A split stock allows companies to issue more shares to existing shareholders, and bring down the share price, to make them more affordable.
However, long before it turned into India’s largest tyre maker, Madras Rubber Factory (MRF) was only a toy and contraceptive maker, operating from the backyard of a house in Chennai, earlier called Madras.
Toy balloon and contraceptive maker
MRF literally set forth from promoter KM Mammen Mappilai’s residence in Thiruvottiyur, Chennai, in 1946.
The young Mappilai graduated from the prestigious Madras Christian College and soon, along with his chemist wife, began to manufacture toy balloons in his backyard in Chennai. He had received funding of Rs14,000 from his family and he went around the city’s busy Narayana Mudali Street selling balloons. Soon, he diversified into making contraceptives, toys, and gloves, and MRF opened an office.
By 1952, MRF was manufacturing tread rubber, which could extend the life of a used tyre if it was still in shape. As the tyre-making industry was still nascent in India, MRF became a market leader in selling tread rubber.
The company listed publicly in 1961 and established a partnership with the US-based Mansfield Tire & Rubber Company to make tyres. It began exporting in 1964 and within three years was sending tyres to the US.
MRF had pioneered the manufacturing of Nylon tyres in India, the most common variety in use before radial tyres became popular in the early 1970s. When India’s first new-generation automobile, the Maruti Suzuki 800, was launched in 1983, it rode on MRF tyres.
Today, the company has eight manufacturing facilities across India and exports to over 65 countries. In the 2016 fiscal, the company posted revenues of Rs20,243 crore.
And there seems no stopping MRF.
Last year, India overtook Germany as the world’s fourth-largest automobile market; the country will thus need more tyres than ever before. Between 65% and 70% of the volumes in the tyre industry come from the replacement market—tyres that need to be replaced. ”Improved demand from rural areas, the revival of the mining sector and greater demand for farm tyres augurs well for the industry,” Anand Rathi said in a February 2017 report (pdf). “Dominant in all segments as well as a leader in the replacement market, MRF is the only company commanding a premium in all categories.”
The report also said that with last November’s demonetisation of high-value currency notes making it difficult for companies to pay for imports, MRF was likely to ”pull ahead of the industry.” “We expect 12% (earlier 9%) volume growth during FY17-19,” the report said about the firm.
Even as its stock soars high, the company is set to invest around Rs4,500 crore in a manufacturing unit in the western Indian state of Gujarat.
Rally sport, kids toys and Cricket
Even as it remained focused on becoming India’s largest tyre-making company, MRF also set its sights on other fields.
In 1989 it began a partnership with US-based toy and board game company Hasbro International to set up Funskool India. MRF holds a 60% stake in the venture that makes and distributes toys licensed from some of the world’s top brands, including Monopoly board games and Lego.
That’s not all. MRF found exceptional success in brand building through its association with cricket, India’s most popular sport, and rally racing. In 1987, it set up the MRF Pace Foundation in Chennai, a coaching centre for fast bowlers that is now widely acclaimed as one of the world’s best. Australian cricketers Glen McGrath and Brett Lee, Sri Lanka’s Chaminda Vaas, and a legion of Indian players have trained there. MRF had also sponsored some of the world’s greatest batsmen, including Sachin Tendulkar, Brian Lara, Steve Waugh, and Virat Kohli.
Besides, it operates its own rally teams that compete in international events.
From balloons to a global brand, MRF tyres are constantly getting retreaded.