MRF Management Discussions

(Within the limits set by Companys competitive position)

MRF maintained its leadership in the Indian market in the year gone by. Brand Finance rated MRF as the second strongest tyre brand in the world, besides rating MRF the most valued Indian tyre brand. The world was largely free of the impact of Covid in 2022-23. The war in Ukraine dragged on with progressive reduction in the impact on commodities during the course of the year. Supply chain disruptions are receding while impact on food and energy markets have reduced. War on inflation continued with Central Banks around the world raising interest rates and tightening monetary conditions. Inflation appears to have peaked and seem to be slowly receding. However, tight labour markets in advanced economies ensured demand did not slacken even with multiple interest rate hikes which leaves us with prospects of more rate increases to rein in inflation. US Federal Reserve raised interest rates by a cumulative 3.5% in the past one year ending March 2023. The terminal rate that was initially thought to be around 4.6% is now seen crossing 5%, which shows that inflation is entrenched. The consistent rate increases have led to stress in some parts of the Banking system. Tighter financial conditions lead to forecasts of recession for parts of the western world. World Bank warned in a paper in September, 2022 that the world wide slow down and tightening financial conditions will give rise to significant financial stress and trigger a global recession in 2023. World economy performed better in the second half than what was forecasted in the earlier part of the year. International Monetary Fund ("IMF") has estimated that world economy grew by 3.4% in calendar year 2022. As per IMF forecasts, growth will reduce to 2.8% in 2023 and improve modestly to 3% in 2024. Growth would depend on the trajectory of Inflation and the extent to which Central Banks would hike interest rates to combat inflation. The challenge before the world is to sustain growth in a situation where inflation is still not under control despite consistent rate hikes by Central Banks.

Market & Industry Overview

India retained the tag of the fastest growing major economy in the year gone by. During the year, India became the 5th largest economy in the world, overtaking Britain. RBI in its March, 2023 projection estimated Indias Gross Domestic Product ("GDP") to grow at 7% in financial year 2023. Growth was led by the construction and infrastructure sectors while weakness in consumption impacted growth in manufacturing.

Global slow down acted as a drag on exports. Indias merchandise exports grew by 6% while overall exports including both Goods and Services grew by 13.8%. Service exports was a bright spot with a growth of 27%. Electronics exports picked up showing the effectiveness of the make in India program and Production Linked ("PLI") scheme.

The year saw RBI continuously increasing interest rates, with a cumulative increase of 2.5% in financial year 2023. Inflation peaked in the 1st quarter and thereafter we saw a declining trend, reflecting the pass through in commodity prices. Government took several measures in the first quarter to rein in prices and improve availability of key products. The budget was presented against a backdrop of a challenging global environment. The budget aims to give a bold push to growth with a 33% increase in the Capital expenditure budget to Rs10 lacs crore. The high Capex should further strengthen the private sector recovery. As in the past, this budget too aligned indirect tax rates to encourage domestic manufacturing. Import duty exemption on capital goods and machineries used for manufacture of lithium ion cells for batteries will give a further fillip to sales of Electric Vehicles. budget also nearly doubled allocation to subsidies under the FAME 2 scheme. RBI has projected financial year 2024 growth for India at 6.5% while IMF has projected growth at 5.9%. The moderating inflation prompted RBI to pause interest rate hike in April, 2023. Monsoon is forecasted to be a little less than normal but spatial distribution is key. The Economic Survey noted a rebound in private consumption which together with strong public spending by Government is leading to private investments. Union budgets focus on infrastructure spending coupled with moderating inflation should be a positive for growth. Export performance being linked to global economy is unlikely to be a growth driver. RBI in its monthly state-of-the-economy report (March, 2023 RBI Bulletin) said that India will likely maintain its growth trajectory. It said "The Indian economy is intrinsically better positioned than many parts of the world to head into a challenging year ahead, mainly because of its demonstrated resilience and its reliance on domestic drivers". Global auto industry which was recovering from the effects of the Covid pandemic had further supply chain shocks arising from the war in Ukraine, with consequent adverse impact on input costs. Second half of calendar year 2022 showed improvement in supply chain issues with commodity prices moderating. Growth of Electric Vehicles ("EV") was robust in an otherwise challenging market. Along with managing the supply chain, Auto industry has to also manage the transition to Electric Vehicles and handle the regulatory push to meet the deadlines on phasing out the internal combustion engines. Improvement in component supplies, consumer demand and new launches helped the Indian auto industry to improve volumes in financial year 2023. Industry had a good festive season with 2 million vehicles retailed in October, 2022, a nearly 50% growth over previous year. The industry reflected the overall trend in the economy where demand for the higher end of the product range is stronger than mass selling categories. Auto Industry was impacted by muted demand in its biggest export markets for 2 wheelers and 3 wheelers due to economic crisis in these markets.

The overall Medium and Heavy Commercial Vehicle (M&HCV) production increased by about 35% over 2021-22. Haulage and tippers segment saw robust growth during the year. The bus segment grew by almost three times with public transport recovering post Covid. Many state transport undertakings (STU) added Electric buses into their fleet for mainly city operations. 2023-24 should be a good year for the category with all segments expected to grow. Increased commercial activities is expected to positively impact the tipper and haulage segment. The push towards higher axle load vehicles is likely to continue. The bus segment should also get the benefit of the vehicle scrappage policy that is to be implemented during the year. The industry will continue to work on initiatives to meet the various regulatory requirements expected to be implemented during the year. The passenger vehicle production has seen a growth of 25% in the year ended March, 2023 and the domestic car sales also recorded the highest ever sale in a financial year. The segment continued to witness preference for Sports Utility Vehicles (SUVs) and this is now the largest selling segment with a share of 52%. Despite price increases, a mix of improved chip supply, higher incomes and pent-up demand, especially for SUVs supported this sales. Though the supply bottlenecks have eased, there are still some challenges on components like semiconductor chips that are expected to continue for some more time. The waiting period for many car models have come down, with improvement in supply and inventory. From April 2023, the Phase 2 of the BS6 regulation and RDE (Real Drive Emission) requirements will come into effect which may impact the price of new vehicle. The shift to electric vehicle has intensified in 2022-23 with demand for EV coming from both big and small towns and also from rural areas. Two wheeler production has seen a revival in the current year with a growth of close to 12% after 3 consecutive years of decline. In motorcycles, the growth has been fueled by domestic sales. Exports have declined because of various internal issues in some of the key markets. Scooter continues to be more of a domestic phenomenon with negligible exports. Electric vehicles business especially in the scooter segment made significant gains during the year. The subsidies under the FAME 2 scheme of the Government continues to ensure that these vehicles are price competitive. Companies also seem to be investing in developing the charging infrastructure. We continue to be a preferred choice of fitment of Original Equipment Manufacturer ("OEMs") in most of the new launches. During the year, we have also further strengthened our after market portfolio with new products both in the motorcycle and scooter segment. Tractor production in financial year 2023 has shown a substantial increase of 11% and touched one million tractors for the first time. Various Government schemes and a better monsoon helped the tractor industry to register a robust growth during financial year 2023. Even though the IMD predicts a hotter climate during 2023-24, a healthy water reservoir level should ensure enough water for agriculture and good start to financial year 2024.

Growth in the automobile industry and replacement demand enabled Tyre industry to show a healthy growth in financial year 2023. However, export performance was muted considering the slowdown in the world markets. Higher volumes and price hikes taken by the Industry helped to maintain margins for the industry in financial year 2023.

Product wise Performance

During fiscal 2022-23, your company achieved a total income of Rs22826 crores. There was an overall increase of 8% in tyre production in financial year 2023, with all product groups showing growth. In the Heavy Commercial Vehicle product group, there was an increase of 7% over the previous year while Light Commercial Vehicle Tyres increased by around 2%. Small Commercial Vehicle tyres increased by 14%. Passenger & SUV showed a growth of 13%. The Farm product group grew by 9%. The Motorcycle and Scooter product group increased by 2% and 16% respectively. The Off the Road ("OTR") product group grew by 11%.


Exports business for the year 2022-23 was muted due to unexpected headwinds seen in Indonesia & Bangladesh and a few countries of Africa. Although exports revenue grew by only 5% in 2022-23, there were substantial growth in a few strong markets. Export turnover for the year 2022-23 was Rs1866 crores as against Rs1779 crores in the previous year.

Our key markets of Bangladesh and Indonesia saw unforseen headwinds which impacted the total revenue for the year. The unprecedented forex crisis in Bangladesh since August 2022 led to a serious drop in the Letter of credit availability thus impacting exports and total revenue. Although the forex crisis has receded a bit we are yet to see the robust levels of early 2022.

Business from Indonesia was impacted due to the sudden suspension of quotas being released by the Ministry of Trade & Industry since September 2022. The Philippines in the far east & the middle eastern region showed substantial growth and continue to maintain the momentum for brand MRF. Categories of Truck Radial, Light truck & passenger car tyres showed good growth in these markets and consumer preferences continue to be high.

Going forward we see immense opportunities in our existing strong markets of Middle East, Africa, Far East, Bangladesh and emerging markets of Europe, South America & USA.

Discussion on Financial Performance with respect to Operational Performance and Key financial Ratios

(Rs Crores)

2022 - 2023 2021 - 2022
Revenue from operations 22578 18989
Other Income 248 315
Total Income 22826 19304
Profit before tax 1119 879
Provision for tax 303 232
Profit after tax 816 647

The revenue from operations of the Company for the 2022-2023 stood at Rs22578 Crores against Rs18989 Crores for the previous year ended 31st March, 2022. During the year ended 31st March, 2023, the earnings before interest and depreciation (EBIDTA) stood at Rs2666 Crores as against Rs2328 Crores in the previous year ended 31st March, 2022. After providing for depreciation and interest, the profit before tax for the year ended 31st March, 2023 is Rs1119 Crores as compared to Rs879 Crores in the previous year ended 31st March 2022. After making provision for income tax, the net profit for the year ended 31st March, 2023 is Rs816 Crores as against Rs647 Crores in the previous year ended 31st March, 2022.

There is no significant change (i.e. 25% or more) in key financial ratios viz. debtors turnover, inventory turnover, current ratio, debt equity ratio and Interest coverage ratio, net profit margin (%), operating profit margin and return on net worth.

The return on net worth increased from 4.80% in 2021-2022 to 5.77% in 2022-2023. This is due to the increase in current years profit.

Opportunities and Threats

Macro indicators point to continued growth of the Indian economy. Infrastructure spending and continued emphasis to manufacture in India will provide impetus for growth. Private sector Capex is also picking up steam. Inflation continues to be near the upper end of the RBIs tolerance band and is forecast for a gradual reduction. High Bank interest rates are likely to sustain. Monsoon forecast is a little to the lower side of normal and El Nino has been predicted. Any shortfall in the monsoon can impact rural demand. Extreme weather events can impact agriculture and other activities.


Pent up demand in passenger vehicles will cool in financial year 2024 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 utilization and is a pointer to higher levels of production in the future. With new BS VI phase-2 transition effective 1st April, 2023, vehicle costs will go up. However, the reduction in input costs will be a positive for the auto industry. Impact on the tyre industry would also be similar as outlined above.

Internal Control Systems and their Adequacy

Your Company has established internal control systems commensurate with the size and nature of business. It has put in place systems and controls across the Company covering various financial and operational functions. Company through its own Internal Audit Department carries out periodical audits at various locations and functions based on the audit plan as approved by the Audit Committee. Some of the salient features of the Internal control systems are:-(i) An integrated ERP system connecting all plants, sales offices, head office, etc.

(ii) Systems and procedures are periodically reviewed to keep pace with the growing size and complexity of companys operations.

(iii) Assets are recorded and system put in place to safeguard against any losses or unauthorized disposal.

(iv) Periodic physical verification of fixed assets and Inventories.

(v) Key observations arising out of the Internal Audit are reviewed at the Audit Committee meeting and follow up action taken.

Risks and Concerns

World economy continues to face uncertainties due to geopolitical tensions, forecasts of recession / slow down in growth in certain major economies of the world, impact of climate change and macro economic structural challenges. The overall scenario has triggered a spate of downsizing exercises across several organisations setting off a nervousness which could impact demand, both domestic and export. If the prediction of a lower than average monsoon in India materialises, it could adversely impact off-take from rural markets. While raw material prices are currently favourably positioned, any reversal in this trend could once again put pressure on profits. Uncertainty remains with regard to the price of crude oil which impacts the cost of several raw materials used by tyre industry. Availability of natural rubber towards the end of March 2023 was a concern and if this trend continues, prices would increase in the near future.

Human Resources

MRF is a value driven organization and the company has a rich organizational culture rooted in its core values of respect for people and belief in empowerment. The core value underlying our corporate philosophy is "trusteeship" and "proprietary interest". In dealing with each other, the values which are at the core of our HR Philosophy - trust, teamwork, mutuality and collaboration, objectivity, self-respect and human dignity are upheld. The management is committed to the development and growth of its people and the core focus is on human resources for its continued success. We owe our success and dominance in the market to the dedication and hard work of our employees who have overcome all challenges to meet the daunting challenges of the market and the ever increasing quality expectations, customer taste and preferences of the customers across the length and breadth of the country as well as in overseas market. The COVID-19 pandemic has arguably been the largest global shock to human capital, we together combated and efforts have been taken for building agile, resilient and adaptive Human Capital System.

We have focused on hiring the best resources available in tune with our growth needs, retaining and developing our existing talent pool to strengthen our human capital for meeting the future challenges. We leverage human capital for competitiveness by nurturing knowledge, entrepreneurship and creativity. Our human resource development is focussed on our companys mission to have competitive edge in technology and excellence in manufacturing. All our training programs are designed and tailor made to meet our specific requirements. We continued imparting teambuilding and collaboration training to our workmen to enhance the team cohesiveness. Leadership training for union leaders and opinion makers also continued through the year, keeping with our commitment of shaping the future of our plants.

The total employee strength as on 31st March 2023 was 19,050.

We maintained cordial and harmonious Industrial relations in all our manufacturing units through our various employee engagement initiatives and focus on improving the work culture, enhancing productivity and enriching the quality of life of the workforce and maintaining our supremacy in the market.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, expectations or forecast may be forward looking within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include global and domestic supply and demand conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

On behalf of the Board of Directors
Chennai Chairman & Managing Director
3rd May, 2023 DIN: 00020202