What if I tell you that had you invested INR 1 lakh in a particular stock in 2000, your current value would be roughly 1.4 crores. MRF share. Madras Rubber Factory. Everybody knows MRF share is the one that gave such crazy returns.
Sounds unreal right?
Yes, who would expect absolute returns of 13900 percent in 18 years?
But the fact is this has actually happened. Though there were few hiccups to be dealt with during the investment period, a disciplined investor would have made such money.
We all know that there are few companies in India which have ruled the bourses since the time they have been listed in the exchanges. These companies more so to say have not looked back and have been a connoisseur of growth and constant performance.
MRF Share Price
As of writing this, the MRF share price is ₹67,036 (28th December, 2018).
Earlier this year, this stock touched its all-time high of over ₹80,000 per share.
MRF share price in 1990
A certain person called a news channel saying his grandfather had bought MRF shares in 1990. The video of that is posted later in this article. This prompted many people to ask what the price of the MRF stock was in 1990.
The data is hard to come by. In fact, MRF listed on the stock exchanges in 1996. So we cannot be sure of the MRF share price in 1990.
The earliest data we could find was from early 2000 around which the stock was trading around Rs 2000.
MRF share price in 2000: ~Rs 2000
MRF share: the man who made Rs 130 crores
But before I begin, let me highlight the story of Mr. Ravi. He, on a fine morning, called up Zee Business to get his query resolved about the physical certificates of MRF share that he held.
Apparently, Mr. Ravi’s grandfather had bought 20,000 shares of MRF Ltd. in the year 1990. We all know during those days shares were held in physical format.
Now Mr. Ravi did not know what to do about those certificates and hence wanted assistance. His query was resolved and it came to light that the total investment worth as on today for those shares totaled a mammoth Rs 130 crores.
Also, Mr. Ravi had the option to sell out the physical MRF share after dematerializing them. This story simply explains the kind of wealth MRF Ltd. has provided the investors.
This episode also reflects one of the core principles of investing and that is holding on the investments for long periods of time to gain the maximum returns. There were times during the early 2000s when MRF Ltd. had tanked more than 75 percent (from 2200 to approximately less than 500).
A naïve investor would have sold the MRF share feeling the bearish nature of the stock. During these times, it is only the disciplined investors who stick to the investments and thereby gain the maximum when the stock gets going.
— Zee Business (@ZeeBusiness) September 11, 2017
MRF share price movement and why it is so expensive
MRF Ltd. embarked on its journey and got listed in the stock exchanges on September 18, 1996.
Since then we have seen the meteoric rise in the share price of the Company.
Today, it is the most expensive stock on the bourses.
Simply put, the stock was trading below INR 500 per share on August 2001 and has clocked to the highest level of INR 81,425 per share in April 2018 giving a return of more than 16000 percent in absolute terms and more than 35 percent in CAGR (Compounded Annual Growth Rate) terms. (Current share price is INR 67,319 as on 26/12/2018).
Therefore, given the price, we can say that this share is not within the reach of many small token retail investors.
Also, the company has not made any share issue, rights issue or stock splits over any years (Note: The last bonus issue was done by the Company in 1975)
One interesting thing that keeps coming up is why doesn’t the company split its stock thereby giving small retail investors the opportunity to have a share of the classic business. The reasons for this could be many as mentioned below:-
- MRF Ltd. is already performing really well in the industry and hence does not feel the need to split its share. The performance is reflected in its annual numbers over the last few years (Note: In the last 10 years, reserves have increased from roughly 1100 crores to 9600 crs; sales from 5700 crs to highs of 22000 crs; net worth from 1120 crs to 9600 crs etc.) . MRF share price has also taken a giant leap over the years;
- The share capital for the Company has remained constant at 4.24 crores. Low public shareholding means that it would not be possible for small retail investors to buy this stock. On one hand, there is a disadvantage of low liquidity (and low trading volume) but at the same time given the low share price, it is not bait for traders and speculators and hence the stock does not see much volatility;
- The Company might also not want to dilute its shareholding and hence no more share split or issue;
- Lastly, there is also an element of status symbol. Imagine if you are holding some stocks of MRF Ltd., it will surely give you a narcissistic feeling of owning something grand (Note: Similar is the case with owning shares of Berkshire Hathaway which costs roughly INR 2 crore per share currently)
One of the other areas where people get confused is why does MRF Ltd. command such a high price relative to its peers like Apollo Tyres, Ceat Tyres, Balkrishna Industries etc.
Though the Equity Value for each company might be different the major difference lies in the number of outstanding shares which is very small for MRF Ltd. whereas quite large for other peers in the market.
Note: Equity value is the value of a company available to owners or the shareholders of the Company.
|Company Name||MRF Ltd.||Apollo Tyres||Ceat Tyres||Balkrishna Industries|
|Outstanding Shares (In Crores)||4.24||57.21||40.45||38.66|
(Note: Outstanding shares as on 31/3/2018)
The Indian tyre industry is expected to be approximately INR 60,000 crores in FY 2018 and the top companies command a majority share.
Given the growth in the per capita income, young population and favorable government initiatives in the form of duty on imports from China, investing for extensive manufacturing of natural rubber in India are some of the key drivers that will provide a fillip to the industry.
Combining the moats that MRF Ltd. possesses with the positive factors discussed above, we can easily conclude that MRF Ltd. still hasn’t reached its limits.
So readers go out there and just like Ravi’s grandfather hunt for the next MRF Ltd. in the markets.
MRF Ltd: history
MRF was started by Mr. K.M. Mammen Mappillai in 1946 in Tiruvottiyur (in Madras) as a small toy balloon unit. MRF Ltd. today is the largest tyre manufacturer in India and 14th largest in the world.
Though Mr. Mappillai’s father was very rich, the happiness did not last long as the princely state of Travancore had sent him to jail.
It was a tough situation for the family and due to desperate measures; Mr. KM had to sleep on the floors of his college. Soon after completion of his graduation, Mr. Mappillai along with his wife, who was a chemist, had opened a small toy balloon manufacturing unit and used to sell the toys in the market himself.
It was during this time that he inculcated the greatest quality of selling which went on to be one of his treasures.
Thereafter Mr. Mappillai came up with a business plan. His cousin owned a chain of tyre retreading plants for which tread rubber was supplied by foreign companies.
Mr. Mappillai saw a huge opportunity in this segment and wanted to capitalize on it. He started with this venture of manufacturing tread rubber in 1952. In no time MRF Ltd. became one of the largest producer and seller of this product.
MRF Ltd. commanded a market share of more than 50 percent by 1956.
Though MRF Ltd. started with the manufacture of tread rubber in 1952 but it was only in 1961 that the Company ventured into manufacturing of tyres by entering into a technical agreement with Mansfield Tire & Rubber Company USA.
This agreement occurred was due to the smartness shown by Mr. Mappillai at a critical point in time.
The Indian automobile industry back then was heavily dominated by three large global players: Goodyear, Dunlop and Firestone.
The government had the belief that in case of any exigency situation in the country it would be very difficult to meet the domestic or army needs of tyres. Therefore, the Tariff Commission was set up and Indian companies were invited to join the rubber industry.
During this time, the government of India had shortlisted four companies namely MRF, Incheck, Premier and National to take the giant leap. Though the rest of the companies were multinational giants; MRF Ltd. still decided to take the big jump. Mr. Mappillai understood the gravity of the situation that the industry was a capital-intensive one. He understood that huge requirements in terms of technology would be needed. And hence, unlike the rest, it ventured into collaboration with Mansfield Tire & Rubber Company USA.
Soon after the foundation of Rubber Research Centre in 1963 that was commemorated by Late Jawaharlal Nehru, the Company set up an overseas office at Beirut in 1964 to tap the export market.
In the tyre manufacturing space, all players had a fair share in the market. To improve and expand, MRF Ltd. started investing in brand marketing. The man that was appointed for this job was none other than Mr. Alyque Padamsee, popularly known as the Father of Indian Advertising. Understanding in depth the thought process and needs of the customers, Mr. Padamsee went to the root of the matter and met several truck drivers. He came to the conclusion that tyre should replicate the symbol of strength and power given the use and different conditions of roads in different parts of India.r
And hence one of the most popular advertisements to be portrayed in the Indian television during those times “Muscleman” was born. The image of “Muscleman” symbolized strength and robustness and was something that everyone could relate to.
The story of MRF Ltd. took a great shape when in 1967 it became the first Company to export tyres to USA which was the very birthplace of tyre technology. Post which in 1970; it established its second plant.
In the years that followed MRF Ltd. ventured into new segments and also entered into a series of technical collaborations.
The Company forayed into sports in the year 1988 by setting up the MRF Pace Foundation in association with Dennis Lillee, the lethal Australian fast bowler at that point in time and a year later it sponsored the MRF World Series Cricket Tournament for the Jawaharlal Nehru Trophy. (Note: In the years to come, famous cricketers such as Sachin Tendulkar, Brain Lara, Gautam Gambhir, AB De Villiers Virat Kohli etc. have been the brand icons).
The exceptional growth that MRF Ltd. delivered since its inception was mainly due to the foresight and vision of its founder Mr. K.M. Mammen Mappillai. He had steadied the ship for MRF Ltd. during volatile times. It was because of the dedicated efforts that he became the first South Indian industrialist to be awarded the Padmashri in the year 1993.
After opening up various plants during the late 1990s, the growth for MRF since 2000 has been no short of brilliance.
Since 2000, MRF Ltd. has won many coveted awards and started clocking billions in revenue and has set up nine manufacturing plants. It was also during these periods that MRF garnered a spot in the list of Super 30 Companies in India and also made to the list of Top 15 Global Tire Companies.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.