MRF Ltd:Annual Report 2023-24 Analysis

MRF Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Madras Rubber Factory (MRF) Limited was established in 1946 as a toy balloon manufacturer by K. M. Mammen Mappillai in Chennai, India. It ventured into tread rubber manufacturing in 1952, and then into tyre production in 1961.

Headquarters Location and Global Presence:

The company’s headquarters are located in Chennai, India. While primarily focused on the Indian market, MRF has a presence in several international markets, including the Middle East, Africa, Asia, and Australia.

Company Vision and Mission:

• Vision: To be a leading global tyre company providing innovative solutions to customers.
• Mission: Continuously strive to provide superior products and services to customers while maintaining the highest standards of quality, safety, and environmental responsibility.

Key Milestones in Their Growth Journey:

• 1946: Established as a toy balloon manufacturer.
• 1952: Started manufacturing tread rubber.
• 1961: Ventured into tyre production.
• 1964: Technical collaboration with Mansfield Tire & Rubber Company, USA.
• 1967: Became the first Indian company to export tyres to the USA.
• 1989: Collaboration with Pirelli for radial tyre technology.
• 1993: Partnership with Hasbro International USA for Funskool India Ltd.
• Present: Leading tyre manufacturer in India.

Stock Exchange Listing Details and Market Capitalization:

MRF Ltd. is listed on the Bombay Stock Exchange (BSE: 500290) and the National Stock Exchange (NSE: MRF). Market capitalization fluctuates based on market conditions.

Recent Financial Performance Highlights:

Check latest sources for the latest financial performance highlights, including annual revenue, net profit, profit margins, and key financial ratios.

Management Team and Leadership Structure:

• Chairman & Managing Director: K.M. Mammen
• The company has a board of directors comprising executive and independent directors.

Any Notable Awards or Recognitions:

MRF has received various awards and recognitions for its quality, performance, and contribution to the industry. Examples include:

• Awards from CAPEXIL for export performance.
• TPM Excellence Award.
• “India’s Most Trusted Tyre Brand.”

Their Products #

Complete Product Portfolio with Categories:

MRF manufactures a wide range of tyres for various vehicle types, including:

• Passenger Car Tyres: Radial and Tubeless tyres for cars and SUVs.
• Truck & Bus Tyres: Radial and Bias ply tyres for commercial vehicles.
• Two-Wheeler Tyres: Tyres for motorcycles and scooters.
• Tractor Tyres: Tyres for agricultural tractors.
• Off-the-Road (OTR) Tyres: Tyres for construction and mining equipment.
• Tyre Retreads: Retreading solutions for extending tyre life.
• Conveyor Belting: Industrial conveyor belts.
• Paints: MRF Vapocure Industrial Paints.
• Pretreads: Rubber products for tyre retreading.

Flagship or Signature Product Lines:

• MRF ZLX: Popular passenger car tyre known for comfort and durability.
• MRF Nylogrip: A well-known two-wheeler tyre.
• MRF Muscle Master: A heavy duty truck tyre.

Key Technological Innovations or Patents:

MRF continuously invests in R&D and has incorporated several technological innovations in its tyres, including:

• Advanced tread compounds for enhanced grip and mileage.
• Optimized tyre designs for improved handling and stability.
• Low rolling resistance technology for fuel efficiency.

Manufacturing Facilities and Production Capacity:

MRF has multiple manufacturing facilities located across India. Detailed production capacity figures can be found on their website.

Quality Certifications and Standards:

MRF’s manufacturing facilities are certified to meet international quality standards, including:

• ISO 9001 (Quality Management System)
• ISO 14001 (Environmental Management System)
• IATF 16949 (Automotive Quality Management System)

Any Unique Selling Propositions or Technological Advantages:

• Wide range of tyre products for diverse vehicle segments.
• Strong brand reputation for quality and durability.
• Extensive distribution network across India.

Recent Product Launches or R&D Initiatives:

Check latest sources for product launch information.

Primary Customers #

Target Industries and Sectors:

• Automotive (OEM and aftermarket)
• Transportation
• Agriculture
• Construction and Mining

Geographic Markets (Domestic vs. International):

MRF’s primary market is India. It also exports to international markets in the Middle East, Africa, Asia, and Australia.

Major Client Segments (agricultural, industrial, residential, etc.):

• Individual vehicle owners (cars, motorcycles, scooters)
• Fleet operators (trucks, buses)
• Farmers (tractors)
• Construction and mining companies (OTR tyres)

Distribution Network and Sales Channels:

MRF has a wide distribution network comprising:

• Authorized dealerships
• Retail outlets
• Online sales channels

Major Competitors #

Direct Competitors in India and Globally:

• India: Apollo Tyres, CEAT Tyres, JK Tyre, TVS Srichakra
• Globally: Bridgestone, Michelin, Goodyear, Continental

Comparative Market Share Analysis:

Refer to recent industry reports for detailed market share analysis.

Competitive Advantages and Disadvantages:

• Advantages: Strong brand recognition, extensive distribution network in India, wide product range, and focus on quality.
• Disadvantages: Intense competition, vulnerability to raw material price fluctuations, and evolving technological advancements.

How They Differentiate From Competitors:

• Focus on the Indian market and conditions.
• Emphasis on durability and reliability.
• Strong brand recall due to decades of presence.
• Customer loyalty through service and product quality.

Industry Challenges and Opportunities:

• Challenges: Fluctuating raw material prices (natural rubber, synthetic rubber), increasing competition, and rising customer expectations.
• Opportunities: Growing automotive market in India, increasing demand for radial tyres, and rising focus on fuel efficiency.

Market Positioning Strategy:

MRF positions itself as a premium tyre manufacturer providing high-quality, durable, and reliable tyres for various vehicle segments.

Future Outlook #

Expansion Plans or Growth Strategy:

Check latest sources for expansion plans, strategic alliances, joint ventures, and capital expenditure details.

Upcoming Products or Innovations:

Check latest sources for product launch information.

Sustainability Initiatives or ESG Commitments:

MRF is increasing its focus on sustainability and has implemented initiatives such as:

• Reducing water consumption in manufacturing.
• Using energy-efficient technologies.
• Promoting responsible disposal of used tyres.

Industry Trends Affecting Their Business:

• Growing demand for electric vehicles and related tyre technologies.
• Increasing adoption of advanced driver-assistance systems (ADAS) and connected car technologies.
• Rising focus on sustainability and environmental regulations.

Long-term Vision and Strategic Goals:

MRF aims to maintain its leadership position in the Indian tyre market, expand its global presence, and develop innovative tyre solutions for the future.

3-Year Trend Analysis of Key Financial Metrics #

Revenue Growth #

Total income experienced a 9.5% growth in FY2024 (₹24,986 crores) compared to FY2023 (₹22,826 crores).

Profitability #

Profit before tax significantly increased to ₹2,739 crores in FY2024 from ₹1,119 crores in FY2023. Net profit also rose substantially to ₹2,041 crores in FY2024 from ₹816 crores in FY2023.

EPS #

Basic EPS before and after exceptional increased.

Gearing Ratio #

The gearing ratio decreased to 7.82% in FY2024 from 11.20% in FY2023, indicating a reduction in financial leverage.

Return on Equity #

The Return on Equity has increased from 5.77% to 13.19%, due to increase in current year Profit After Tax.

Net Profit Margin #

Net Profit Margin increased from 3.58% to 8.17% due to increase in Current year Profit after Tax.

Return on Capital Employed #

Return on Capital Employed increase from 6.54% to 14.55%, because of increase in EBIT in current year.

Business Segment Performance #

• All product groups, except for the farm segment, showed growth in production (9% overall increase) in FY2024.
• The growth is attributed primarily to the brand strength and product quality, as there were minimal price increases, and even a price decrease in a top-billing radial truck tire.
• The Entity wide disclosures shows the Automobile Tyres represent the largest part of sales.
• The majority of revenue comes from India.

Major Strategic Initiatives and Their Progress #

Research and Development #

Capital expenditure on R&D during FY2024 was ₹55.73 crores, a significant increase from ₹25.15 crores in FY2023. Focus on development on new and improved products.

Risk Landscape Changes #

Competition Risk #

A penalty of ₹622.09 crores was imposed by the Competition Commission of India (CCI) for alleged breaches of the Competition Act, 2002. The matter is under appeal.

Commodity Price Risk #

The company faces price volatility risk for commodities like natural rubber, synthetic rubber, and chemicals. Short to medium-term purchase contracts and foreign exchange forward contracts are used to mitigate this.

ESG Initiatives and Metrics #

Extended Producer Responsibility (EPR) #

A provision of ₹98.14 crores was made for FY2024 to comply with regulations on EPR for waste tires, to be fulfilled by purchasing certificates from registered recyclers.

Corporate Social Responsibility #

• Required CSR spend was 25.08 Cr. Actual Spend was 19.26 Cr.
• CSR Activities. Disaster Management including Relief, Promotion of Education, Environmental Sustainability, Livelihood enhancement, Vocational Skill development, Promoting Health care, Safe drinking water, Training for Sports, Sanitation and Hygiene, Rural Development projects.

Management Outlook #

The proposed final dividend for FY 2023-24 is ₹194 per share, totaling ₹82.28 crores, subject to shareholder approval. This will be recognized as a distribution to owners in FY 2024-25.

Detailed Analysis #

Financial Position: MRF Limited Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated) #

Note: The following analysis is based on available data for 2023 and 2024, as a full 3-year comparison is not possible.

All figures are in Crores.

Significant Changes in Major Line Items (>10% YoY) (Consolidated) #

• Non-Current Investments: Decreased by 33.65% YoY.
• Current Investments Increased by 10.59% YoY.
• Other Non-Current Assets: Increased by 39.71%
• Cash and Cash Equivalents: Increased by 78.06%.
• Other Equity: Increased by 19.48% YoY, primarily due to retained earnings from increased profit.
• Other Non-Current Financial Assets: increased by 11.58%

Working Capital Trends (Consolidated) #

Working capital has increased significantly, showcasing that the current assets increased more than the current liabilities.

Asset Quality Metrics (Consolidated) #

Property, Plant and Equipment comprise a significant percentage of the company total assets.

Debt Structure and Maturity Profile (Consolidated) #

• A significant portion of the debt is long-term, but a considerable amount is also due within one year (current maturities of long-term debt + short-term borrowings).

Off-Balance Sheet Items (Consolidated) #

• Guarantees given by Banks: 56.10 Crores (2024), 130.78 Crores (2023).
• Letters of Credit issued by Banks: 373.82 Crores (2024), 265.58 Crores (2023).
• Commitments relating to Lease arrangements: Not quantifiable from provided data.
• Commitment to Rubber Board: 294.01 Crores (net of payments) in 2024, 365.86 (net of payments) Crores in 2023.
• Derivative contract related commitments.
• Contingent Liabilities Claims not acknowledged as debts.

MRF Limited Financial Analysis: FY 2023-24 #

Revenue Breakdown #

Product Segment (FY 2023-24) #

• Automobile Tyres: ₹23,899 Crores
• Automobile Tubes: ₹599 Crores
• Others: ₹731 Crores

Total consolidated revenue increased from ₹23,063 crores to ₹25,289, Growth Rate: 9.6%

Geographical Segment (FY 2023-24) #

• India: ₹23,415 Crores
• Outside India: ₹1,874 Crores

Cost Structure Analysis #

• Cost of Materials Consumed: FY 2023-24: ₹14,577 Crores, FY 2022-23: ₹15,184 Crores
• Employee Benefits Expense: FY 2023-24: ₹2,018 Crores, FY 2022-23: ₹1,842 Crores
• Other Expenses: FY 2023-24: ₹5,304 Crores; FY 2022-23: ₹4,881 Crores
• Depreciation and Amortisation Expense: FY 2023-24: ₹948 crores; FY2022-23: ₹853 Crores
• Finance Costs: FY 2023-24: ₹168 crores; FY2022-23: ₹128 Crores

Margin Analysis #

• Profit before tax Margin: FY2023-24: ₹2,789 crores/₹25,289 crores = 11.0%, FY 2022-23: ₹1,154 Crores / ₹23,063 = 5.0%
• Net Profit Margin: FY 2023-24: ₹2,081 Crores / ₹25,289 Crores = 8.2%. FY 2022-23: ₹817/₹23,063=3.5%. Net profit margin increased significantly year-over-year.

Non-Recurring Items #

• FY 2022-2023: Exceptional Income of ₹80.33 crore arising out of Arm’s Length Pricing on Covered Transaction as per the Bilateral Advance Pricing Agreement.

EPS Analysis #

• Basic EPS (After Exceptional Item): FY 2023-24: ₹490.03, FY 2022-23: ₹192.45
• Basic EPS (Before Exceptional Item): FY 2023-24: ₹490.03, FY 2022-23: ₹173.35
• Diluted EPS (After Exceptional Item): FY 2023-24: ₹489.82, FY 2022-23: ₹192.36
• Diluted EPS (Before Exceptional Item): FY 2023-24: ₹489.82, FY 2022-23: ₹173.27

Basic and diluted EPS significantly increased from the prior year.

Cash Management: MRF Limited Financial Analysis #

Cash Flow Analysis #

Operating Cash Flow (OCF) #

• Increased to ₹4,648 crores in 2024 from ₹2,942 crores in 2023, primarily due to higher profit before tax and favorable changes in working capital, specifically reductions of trade and other receivables and inventory.
• Depreciation, finance costs, and interest/dividend income are significant adjustments to net profit before tax in arriving at OCF.

Investing Cash Flow (ICF) #

• Net cash used in investing activities decreased to ₹(1,835) crores in 2024, compared to ₹(2,657) crores in 2023.
• Major outflows include purchase of property, plant, and equipment. Inflows are driven by proceeds from the sale of investments and fixed deposit changes.

Financing Cash Flow (FCF) #

• Financing cash flow saw a reduced net inflow of 197 crores compared to 226 the prior year.
• Outflows include dividend payments, interest paid, repayments of term loans, and payment of lease liability.

Working Capital Management #

• Trade receivables turnover ratio is not directly calculable, The document provides gross trade receivables and an expected credit loss provision.
• Inventory turnover ratio is not directly calculable, but inventory levels (finished goods, raw materials) have decreased, and changes in inventories contribute positively to cash flow.

Dividend and Share Buyback Trends #

• Dividend payments totaled ₹86 crores in 2024. Two interim dividends of ₹3/- each per share were declared by the Board of Directors.
• There is no mention of share buybacks in the provided document.

Debt Service Coverage #

• Debt service coverage ratio (DSCR) increase is stated to be due to a rise in EBITDA, and a drop in loan repayments.

Liquidity Position #

• The company’s cash and cash equivalents increased from ₹819 crores at the beginning of 2024 to ₹1,825 crores at the end of the year.

Key Performance Indicators: MRF Limited Financial Analysis #

Profitability Ratios (3-Year Trend) #

• Return on Equity (ROE): Increased significantly in 2024 to 13.19% up from 5.77% and 7.49% in the previous two years, driven by increased Profit After Tax.
• Return on Invested Capital (ROIC): Increased to 14.55% in 2024 from 6.54%, indicating significantly improved profitability relative to invested capital.
• Net Profit Margin: Increased to 8.17% in 2024, up from 3.58% and 4.95% in the two prior years, driven by increased sales and profit.
• Profit Before Tax Margin: Increased to 10.96% of Total Revenue, up from 4.90%.

Liquidity Metrics #

• Current Ratio: Remained relatively stable from year to year.

Efficiency Ratios #

• Inventory Turnover Ratio: Remained Relatively stable.
• Trade Receivables Turnover Ratio: Remained relatively stable.
• Net Capital Turnover Ratio: Decreased due to decrease in working capital.

Leverage Metrics #

• Debt-to-Equity Ratio: Decreased to 0.09 in 2024 from 0.13 in the previous year, indicating a reduction in financial leverage.
• Interest Coverage Ratio: Debt Service Coverage Ratio increased due to higher EBITDA and lower loan repayment.

Segment-wise ROIC #

• Based on the provided data, the ROIC will be the same for Automobile Tyres, Tubes, Flaps, and Tread Rubber segment.

Working Capital Ratios #

• Net Capital Turnover ratio decreased.
• Trade Payable Turnover remained relatively stable.

Comparison with Industry Averages #

• The improvements in MRF’s profitability ratios (ROE, ROIC, Net Profit Margin) are notable. The reduction in the debt-to-equity ratio also suggests a stronger financial position compared to a potentially more leveraged industry.

MRF Limited Segment Performance Analysis (FY 2024) #

Revenue and Profitability #

• Total Income: ₹24,986 crores (9.5% growth compared to FY 2023: ₹22,826 crores)
• Profit Before Tax: ₹2,739 crores (significant increase from FY 2023: ₹1,119 crores)
• Net Profit: ₹2,041 crores (up from FY 2023: ₹816 crores)
• Consolidated Total Income: Increased from ₹23,165.75 crores to ₹25,168.92 crores
• Consolidated Profit Before Tax: Increased from ₹1,133.27 crores to ₹2,783.05 crores

Market Share and Competitive Position #

• India’s largest tyre manufacturer and among the top 20 globally.

Key Products/Services Performance #

• Automobile Tyres Revenue (Consolidated): ₹23,895.09 crores
• Automobile Tubes Revenue (Consolidated): ₹802.85 crores
• Others Revenue (Consolidated): ₹638.15 crores
• Overall production increased by 9% in FY 2023-24, with growth in all product groups except farm tyres.
• Growth is attributed to brand strength and product quality.

Geographic Distribution and Market Penetration #

• Exports: ₹1,874 crores (marginal increase from FY 2023: ₹1,866 crores)
• India Revenue (Consolidated): ₹23,891.65 crores
• Revenue Outside India (Consolidated): ₹1,939.98 crores

CAPEX and ROIC #

• Capital Work-in-Progress (CWIP) as of March 31, 2024: ₹1,393.47 crores
• Capital expenditure on R&D during the year ended March 31, 2024: ₹55.73 crores

Operational Efficiency #

• Profits increased due to higher sales, lower raw material costs, and improved efficiencies.

Growth Initiatives and Challenges #

• Emphasis on brand and the products.

Competition Commission of India (CCI) Matter #

• A penalty of ₹622.09 crores was imposed by the CCI, currently under appeal and remanded to CCI for review.

Extended Producer Responsibility (EPR) #

• Provision: ₹46.36 crores is made for 2022-23 obligation and ₹98.14 crores provision is taken for 2023-24

Risk Assessment #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Reliance on brand and products, diversification by placing limits on individual and total investments.
• Control Effectiveness: Partially Effective. Investment diversification is evident, but the core business remains highly concentrated.
• Potential Financial Impact: Significant. Profitability and cash flow are highly dependent on the tire market.

Operational Risks #

Raw Material Price Volatility #

• Severity: Medium to High
• Likelihood: High
• Trend: Fluctuating
• Mitigation Strategies: Short to medium term purchase contracts and forward foreign exchange contracts.
• Control Effectiveness: Partially Effective. Hedging activities are indicated, but the extent of coverage or historical effectiveness is not specified.
• Potential Financial Impact: Material.

Production Capacity #

• Severity: Medium
• Likelihood: Medium
• Trend: Improving
• Mitigation Strategies: Growth in output across most product groups.
• Control Effectiveness: Appears effective, based on reported production growth.
• Potential Financial Impact: Moderate.

Financial Risks #

Gearing Ratio #

• Severity: Medium
• Likelihood: Low to Medium
• Trend: Improving
• Mitigation Strategies: Maintaining adequate surplus, banking facilities, and reserve borrowing facilities.
• Control Effectiveness: Appears effective.
• Potential Financial Impact: Currently limited.

Foreign Exchange Risk #

• Severity: Medium
• Likelihood: High
• Trend: Variable
• Mitigation Strategies: Foreign currency forward contracts, some designated as cash flow hedges.
• Control Effectiveness: Partially effective. Unhedged exposures remain.
• Potential Financial Impact: +/- ‘0.95 Crores for a 0.74% change in USD/INR.

Interest Rate Risk #

• Severity: Low to Medium
• Likelihood: Low to Medium
• Trend: Stable
• Mitigation Strategies: Funding strategy and financial instruments.
• Control Effectiveness: Appears effective.
• Potential Financial Impact: A 1% interest rate change would impact profit by +/- ‘8.14 Crores.

Credit Risk #

• Severity: Low to Medium
• Likelihood: Low
• Trend: Stable, with slight improvement
• Mitigation Strategies: Credit checks, maximum payment periods, prompt payment discounts, and dealer deposits.
• Control Effectiveness: Appears effective.
• Potential Financial Impact: The expected credit loss allowance was ‘1.63 Crores.

Compliance/Regulatory Risks #

Legal Proceedings #

• Severity: High
• Likelihood: Medium to High
• Trend: Ongoing
• Mitigation Strategies: Engaged in legal proceedings, including appeals.
• Control Effectiveness: Uncertain.
• Potential Financial Impact: The CCI imposed a penalty of ‘622.09 Crores, which is currently under appeal. Contingent liabilities for disputed tax demands total over ‘1,300 Crores.

Extended Producer Responsibility (EPR) #

• Severity: Medium to High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies: Recognizes a liability with respect to EPR.
• Control Effectiveness: Evolving.
• Potential Financial Impact: The company recognized a provision of ‘98.14 Crores for 2023-24 and ‘46.36 crores from previous year.

MRF Limited Financial Analysis #

Long-Term Strategic Goals and Progress #

MRF’s income growth of 9.5% and a significant increase in net profit from ₹816 crores to ₹2041 crores year-over-year suggest progress toward increasing profitability. A 9% increase in production also indicates progress toward expanding the business.

Competitive Advantages and Market Positioning #

As India’s largest tyre manufacturer, MRF Limited benefits from strong brand recognition, contributing to its volume-driven growth.

Innovation Initiatives and R&D Effectiveness #

Capital expenditure on R&D increased significantly from ₹25.15 crores to ₹55.73 crores, demonstrating a focus on developing new and improved products. Revenue expenditure on R&D activities has increased by 10.58 crores.

M&A Strategy and Execution #

The company has 4 fully owned subsidiaries: MRF Corp Ltd, MRF International Ltd, MRF Lanka (Private) Ltd, MRF SG PTE. LTD.

Management’s Track Record in Execution #

MRF’s ability to achieve sales growth and profit increases was driven by higher sales, lower raw material costs, and improved efficiency.

Capital Allocation Strategy #

The company’s gearing ratio improved from 11.20% to 7.82%, attributed to increased shareholder’s equity and a reduction in long-term debt. The company has proposed a final dividend of ₹194 per share, indicating its commitment to returning profit to shareholders.

ESG Framework #

Environmental Metrics and Targets #

The company has Extended Producer Responsibility (EPR) obligations for waste tires, with a recognized provision of ₹98.14 Crores for 2023-24 and ₹46.36 crore for 2022-2023.

Social Responsibility Programs #

The company spent ₹19.26 Crores on Corporate Social Responsibility (CSR) activities for the year ended March 31, 2024, below the required 2% of average net profit (₹25.08 Crores).

A shortfall of CSR spend of 16.36 Crores was spent in the reported period which was a part of previous year’s shortfall.

CSR activities focused on disaster management, education, environmental sustainability, livelihood enhancement, health care, sports training, sanitation, and rural development.

There is a commitment with the rubber board towards the promotion of rubber plantations with a net amount of 294.01 Crores.

Governance Structure and Effectiveness #

The Board declared two interim dividends of ₹3/- each per share during the financial year.

Remuneration to directors was compliant with Section 197 and Schedule V of the Companies Act, 2013.

Sustainability Investments and ROI #

The company invested in Renewable Energy Saving Devices (Windmills), which are depreciated using reducing balance method.

Regulatory Compliance and Future Preparations #

The company is subject to the Competition Act, 2002, with a pending appeal regarding a penalty imposed by the Competition Commission of India (CCI).

The company is subject to regulations on Extended Producer Responsibility (EPR) for waste tires.

The financial statements comply with Indian Accounting Standards (Ind AS) as prescribed under Section 133 of the Companies Act, 2013.

The company is using an accounting software with an inbuilt audit trail feature, and for the reported period, tampering of the audit trail feature was not found.

Future Projections and Guidance #

Management Guidance and Assumptions #

• Management’s primary objective is to maximize shareholder value.
• Assumptions are that future taxable profits will be available, the company will continue as a going concern, that company will have access to short and long term funding, and the dealer deposits will secure outstanding receivables.
• MRF Limited is in line with the Schedule II useful life, but subsidiaries have used different measures.

Market Growth Forecasts #

• Overall production increased by 9% in the financial year 2023-24, with growth in all product groups except farm tires.

Planned Strategic Initiatives #

• The company intends to enter into short to medium term purchase contracts, and forward foreign exchange contracts.

Capital Expenditure Plans #

• Capital expenditure on Research and Development during the year was ₹55.73 Crores.
• Estimated amount of contracts remaining to be executed on Capital Account, net of advances and not provided for, is ₹1334.36 Crores.

Efficiency Improvement Targets #

• Profits for the year increased due to higher sales, lower raw material costs, and improved efficiencies.

Potential Challenges and Opportunities #

Challenges #

• Ongoing litigation with the Competition Commission of India (CCI) regarding an alleged breach of the Competition Act, 2002, with a potential penalty of ₹622.09 Crores.
• Sensitivity: unhedged exposure to US Dollar is 0.74%, increase or decrease would be +/(-) 0.95 Crores.
• Exposure to fluctuations in commodity prices (natural rubber, synthetic rubber, compound rubber, and other chemicals).

Opportunities #

• Potential for increased profitability due to continued higher sales.
• Additional Income of 80.33 Crores resulting from the Bilateral Advance Pricing Agreement.

Scenario Analysis and Sensitivity to Key Assumptions #

• The group is exposed to interest rate risk. A 1% change in interest rates would alter profit by 8.14 Crores.

Audit and Regulatory Analysis of MRF Limited #

Auditor’s Opinion and Qualifications #

• The auditors (M.M. Nissim & Co. LLP and Sastri & Shah) issued an unmodified opinion on both the standalone and consolidated financial statements, stating they give a true and fair view in conformity with Indian Accounting Standards (Ind AS).
• An emphasis of matter paragraph was included regarding the Competition Commission of India (CCI) penalty, but the opinion was not modified.

Key Accounting Policies and Changes #

• MRF uses historical cost basis except for the following: financial assets and liabilities and defined benefits obligation that has been measured at fair value.
• Property, Plant, and Equipment (PPE) depreciation is provided on a straight-line basis, aligned with Schedule II of the Companies Act, 2013, except for Renewable Energy Saving Devices depreciated on a reducing balance basis.
• Revenue recognition occurs upon the transfer of control of goods to customers, net of variable considerations (discounts, schemes).
• The Group follows the ‘simplified approach’ for recognition of impairment loss allowance based on lifetime Expected Credit Losses (ECLs) at each reporting date.

Internal Control Effectiveness #

• Auditors opined that MRF has adequate internal financial controls over financial reporting, and these controls were operating effectively as of March 31, 2024.
• The accounting software has an audit trail (edit log) feature, which operated throughout the year, and no tampering was found.

Regulatory Compliance Status #

• The financial statements comply with Ind AS.
• Remuneration to directors is within the limits of Section 197 and Schedule V of the Companies Act.
• No delays were found in transferring amounts to the Investor Education and Protection Fund.
• Compliance with Section 123 of the Companies Act, 2013 concerning dividends.
• Compliance with Extended Producer Responsibility (EPR) regulations.
• The Company provided full and accurate disclosure about funds advanced or received that might have an end-use of investment or benefiting a third party.
• There is agreement of current assets returns filed with the bank to the book of accounts.

Legal Proceedings and Their Potential Impact #

• A significant contingent liability exists related to a penalty imposed by the Competition Commission of India (CCI) of ₹622.09 Crores. The matter is under appeal, and the company believes no provision is necessary.
• Other disputed demands exist for Sales Tax, Excise/Customs Duty, Income Tax, and Goods and Service Tax, with amounts deposited against these demands.

Related Party Transactions #

• Transactions occurred with subsidiary companies (MRF Corp Ltd, MRF International Ltd, MRF Lanka (Private) Ltd., MRF SG PTE. LTD), Key Management Personnel (KMP), close family members of KMP, and entities where directors are interested.
• Transactions included sales, purchases, services, selling and distribution expenses, dividends, and professional charges.
• Outstanding balances at year-end were unsecured and interest-free.

Subsequent Events #

• A final dividend of ₹194 per share, amounting to ₹82.28 Crores, was proposed for FY 2023-24, to be recognized in FY 2024-25 upon shareholder approval.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The use of an unmodified audit opinion and adherence to Ind AS indicates sound accounting quality. Consistent application of accounting policies further supports this. However, the use of judgment in areas like useful lives of assets, impairment, and provisions introduces a degree of subjectivity.
• Regulatory Risk: The most material element is a penalty imposed by the Competition Commission of India. Other than that risk appears at a generally acceptable level with compliance confirmed and the only outstanding issue being normal disputed demands.