BSE: 500290 | NSE: MRF | ISIN: INE883A01011 
Market Cap: [Rs.Cr.] 15,736.74 | Face Value: [Rs.] 10
Industry: Tyres

Management Discussions

The core business of MRF is manufacturing, distribution and sale of tyres for variouskinds of vehicles. The management discussion and analysis given below discusses the keyissues for various sectors of the business.

Tyre Industry Structure and Development

The turnover of the Indian tyre Industry is estimated to be around Rs. 44,000 crore forthe period 2012-2013. During this period, exports accounted for Rs.4,800 crore. 1245 lakhtyres were manufactured by the tyre companies. Ten top tyre Companies' productionconstitute over 90% of the total tyre production. Around 65% of the total tyre industrytonnage is sold in the replacement market and OE market comprises about 24% of thetonnage, the balance being exports.

Commercial tyres (which include FHCV, LCV & SCV) contribute to around 65% of thetotal tyre industry tonnage wherein 78% of the production tonnage is sold in thereplacement market and OE market comprises about 14% of the tonnage and exports 8%. Forthe passenger car group, around 47% of tyres manufactured are sold to OEMs and around 49%caters to the replacement segment.

In the truck tyre sector, the commercial segments continue to be primarily dominated bycross-ply due to very poor road conditions, loading patterns and high initial cost ofradials. The radialisation pattern of various product groups is as follows: passenger -98% , light commercial vehicle - 22% and heavy commercial vehicle - 25%. Radialisation incommercial vehicles segment is expected to grow by 3% to 4% during 2013-14.

During 2012-13, in the vehicle manufacturing sector, there has been a dip of 30% in theproduction of heavy commercial vehicles and a 11% increase in light commercial vehicles.There was a 5% decline in the small commercial vehicle segment. The passenger car groupproduction also saw a decrease of 4%. Whereas in the utility group, there has been anincrease of 21 % over the last year. In two wheelers, scooters witnessed a 11% increasewhilst in motorcycle segment, the production remained flat. In the farm segment, there wasan 8% increase in production over 2011-12.

The tyre industry provides direct and indirect employment to one million peoplecomprising of dealers, retreaders and truck operators. The truck operations are controlledby nearly 2.6 million small operators.

There are around 5000 tyre dealers spread throughout the country, mostly sellingmultibrand across their counters.

Opportunities and Threats

The worldwide recession continues throughout the rest of the world mainly in USA andEurope. Economic situation in India, though volatile, is far better and conducive torobust growth. With growth all around, foreign investors will prefer to invest in India,over China, since they cater mainly to the export markets.

Multinational tyre companies will enter the Indian market with more investments andthis development will intensify competition and could also cause a glut in the Indianmarket.

Despite several representations to the government, the inverted tax issue is yet to beresolved. Duty concessions should be extended to the imports of raw materials by the tyremanufacturers.

The performance of tyre manufacturers is affected by raw material costs ike naturalrubber and petroleum derivatives. The volatility in rubber prices will be a strain on themargins of tyre companies. A permanent reduction in rubber import duties would ease thepressures of the Indian tyre industry. There is a Iimitation to which cost escalations canbe passed on to the end users and also it is challenging to increase the prices of tyresto OEMs.

Segment wise and Product wise Performance

During the period 2012-13, MRF achieved a sales turnover of Rs. 13445 crore. This is anincrease of around 3% over the previous year. There was an increase of 4% in total tyreproduction in almost all segments. In the heavy commercial vehicle group, the largestsegment, the increase was 5% over the last year and in light commercial vehicle group, theincrease was 5%. In the motorcycle and scooter segments there was no visible increase overthe previous year. The passenger car group registered an increase of 6%.


It was a very challenging year for MRF with the global markets showing very clear signsof a slowdown resulting in over supply and prices going on a downward spiral. MRF hadoverall supply issues more in terms of strategically servicing the continuing domesticafter-market demand and deciding to maintain the export volumes in line with the previousyear. In spite of these factors, export revenues posted a nominal growth of 1% over theprevious year.

MRF was awarded the "Highest Export Award [Auto Tyre Sector]" by the AllIndia Rubber Industries Association yet another time during the period under review.


The automobile industry is going through a recession and it is unlikely to turnfavourable in the immediate future. This would have a bearing on tyre demand. Theafter-market demand continues to prop up the tyre industry demand. The capacity additionsin the tyre industry would further fuel competition and this could put pressure on marginsespecially in the truck radial segment.

Performance of the Company

The sales turnover of the Company during the year increased by around 3% from Rs. 13054crore in 2011-12 to Rs. 13445 crore in 2012-13. Earnings before depreciation and interest(EBIDTA) amounted to Rs. 1796 crore against Rs. 1293 crore in the previous year. Afterproviding for depreciation and interest, the profit before tax for the year ended 30thSeptember, 2013 was Rs. 1227 crore as compared to Rs. 833 crore in the previous year.After making provision for income-tax, the net profit for the year stood at Rs. 802 croreas compared to Rs. 572 crore in the previous year.

Internal Control Systems and their Adequacy

The Company has adequate internal control systems in place and also has reasonableassurance on authorizing, recording and reporting transactions of its operations in allmaterial respects and in providing protection and safeguard against misuse or loss ofassets of the Company. The Company has in place, well documented procedures coveringfinancial and operational functions commensurate with the size and complexities of theorganization.

Some of the salient features of the internal control system in place are:-

i. Following the statutory and applicable Accounting Standards and Policies.

ii. A robust ERP system connecting all plants, sales offices and head office enablingseamless data and information flow. This is constantly reviewed to enhance the internalcontrol check points.

iii. Preparation of annual budget for operation and service functions and monitoringthe same with actual performance at regular intervals.

iv. All assets are properly recorded and procedures have been put in place to safeguardagainst any loss or unauthorized use or disposal.

v. Internal audit department carries out periodic audit at all locations and functions.

vi. The observations arising out of internal audit are periodically reviewed at theAudit Committee meetings along with follow up action.

vii. Periodic presentations are made to the Audit Committee on various operational andfinancial risks faced by the Company and action plan of the Company to mitigate the same

Discussion on Financial Performance with respect to Operational Performance

(Rs. Crore)
2012-13 2011-12
Sales 13445 13054
Other Income 37 40
Total Income 13482 13094
Profit before taxation 1227 833
Provision for taxation 425 261
Profit after taxation 802 572

The price of Natural Rubber, Synthetic Rubber and Carbon Black were stable during theyear and contributed to the margins. The operations of the Company predominantly relate tomanufacture of rubber products such as tyres, tubes, flaps, tread rubber and conveyor beltand this constitutes the major business segment. Other business operations of the Companyare dealing in sports goods and other products, which do not contribute significantly tothe total revenue of the Company.

Risks and Concerns

The industrial production was affected by the continuous increase in wholesale priceindex during the year. India's GDP growth in 2012-13 was 5.0% when compared to 6.9% in2011-12. The growth in index of industrial production was nominal during the year. TheIndian Tyre industry in particular was affected by decreased demand from the OEMs andreplacement market. This, coupled with the depreciation in rupee, affected the automobileindustry, particularly vehicle manufacturers. Being dependent on the automobile sector,our growth was severely hindered.

The Audit Committee and Board of Directors have been apprised about the major businessrisks identified by the Company and the steps proposed to mitigate them.

Human Resources

Strong business growth and expansions across MRF plants were taking place rapidly tomeet the demand leading to continuous recruitment. For the bright and talented youngworkforce, MRF was the right place to join and develop a career. Recruitments wereregularly done through using scientific tools and with the help of assessment centers.Induction and orientation programs continued to be more customized and designed to makethe new entrants feel at home. Operatives were recruited and trained by NTTF. Syllabus wasupdated and customized to suit current requirements that helped operatives settle intotheir jobs effortlessly. The practice of training first line supervisors from variousplants of MRF, on technical, managerial and leadership skills, that ran for more than afew months, continued. This proved to be a successful method. MRF also sustained its focuson leadership training for union leaders, opinion makers and also for staff & managersthis year. Intensive programs were continued in many phases, covering many from ourfactories. Experts were also invited to share their experience with specific targets groupfor building relationship. Senior Leadership Programs (SLP) progressed as per design,providing a comprehensive training for senior leaders in the organization.

Simultaneously, MRF also continued to focus on Management Development Programmes andExecutive Development Programmes for preparing managers to take up the growing managerialneeds due to expansion. Other training activities at corporate level were as in the past,focused on management and leadership development. Unit specific training programs werefollowed up with productivity linked projects. The programs were facilitated by externaland internal faculty members. The ongoing technical training program on products,processes and technology for operators and technical staff continued during the year.Industrial relations scenario across all our manufacturing plants during the year wassmooth and consistent except for a few issues at Kottayam unit. During the year, long-termagreements were signed in Arakonam and Kottayam units. The volatile and continuouslychanging economic condition had great impact on the demands during LTA discussions whichwere smoothly and peacefully negotiated resulting in mutually beneficial settlements. Itwas possible to achieve this due to the pro-active IR interventions to sustain ourrelationship with the employees. TPM (Total Productive Maintenance) was taken up seriouslyby all at MRF. This continued to be a way of life across all the units of MRF. To promotethe TPM culture, the employees were continuously encouraged and motivated to adopt 'Kaizenprinciples' which were duly rewarded and implemented at the work place.

New features in SAP were developed and implemented to encourage and leverage continuousimprovement. Customized interventions were designed for addressing specific processrelated problems. Continuous process improvements were made through SAP for increasingproductivity.

The total employee strength as on 30th September, 2013 was 15,343.

Corporate Social Responsibility

During the year 2012-13, the Company continued to invest time, effort and resources inpromoting social welfare and progress. Some of the initiatives undertaken during the yearare as follows :


MRF continued its focus on the education of youth and in the nurturing of skills,talents and values in children. The Company firmly believes that by investing ineducation, we would be ensuring a better quality of life for the next generation.

Some of the activities undertaken in this regard were awarding merit-based academicscholarships to children of local village government schools, providing infrastructure forgovernment schools, distribution of note books, emphasizing the importance of a clean andgreen environment through competitions in oratory, dramatics, drawing and poetry andsponsoring of local sports tournaments.

Driver Development:

The MRF Institute of Driver Development (MIDD), a pioneering institute providing drivertraining in light and heavy commercial vehicles, has a track record of over 26 years.Right from its inception, the institute epitomized a mission far nobler than merelytraining drivers. The objective was of moulding rural youngsters who were deprived ofopportunities, into competent and cultured professionals, contributing immensely to theroad transport industry and the society at large. The institute has turned out 265 driversduring the year 2012-13, which includes 123 drivers who have done a refresher course.Immediately after training, placement assistance is provided for all needy drivers, withreputed transporters and fleet operators.

Health and Rural Infrastructure:

During the year, the Company also conducted various general health camps, specialitymedical camps and health awareness programs in villages. Village infrastructuralrequirements like street lights, traffic islands, etc., and support to local villagefestivals was also provided.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Company'sobjectives, expectations or predictions may be forward boking within the meaning ofapplicable laws and regulations. Actual results may differ materially from those expressedin the statement. Important factors that could influence the Company's operations includeglobal and domestic supply and demand conditions affecting selling prices of finishedgoods, input availability and prices, changes in government regulations, tax laws,economic developments within the country and other factors such as litigation andindustrial relations.

Futures & Options Quote
Expiry Date :
23,669.60    [100.30] ([0.42]%)
Instrument: FUTSTK
Expiry Date: 31-Jul-2014
Open Price: 23,833.85
Average Price: 23,670.81
No. of Contracts Traded: 33
Open Interest: 33,500
Underlying: MRF
Market Lot: 125
Previous Close: 23,669.60
Day's High | Low: 23,900 | 23,545.30
Turnover (Cr.): 9.76
Open Int. Change: 0,500 ([1.47]% )
Key Information

Key Executives:

K M Mammen , Chairman & Managing Director

Arun Mammen , Managing Director

K M Philip , Whole-time Director

Rahul Mammen Mappillai , Whole-time Director

Company Head Office / Quarters:

New No 114,
Greams Road,
Tamil Nadu-600006
Phone : Tamil Nadu-91-44-28292777 / Tamil Nadu-
Fax : Tamil Nadu-91-44-28295087 / Tamil Nadu-
E-mail :
Web :


New No. 114,Old No. 124,Greams Road,Chennai - 600 006

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