MRF Ltd Management Discussions.

(Within the limits set by Companys competitive position)

MRF retained its leadership in the Indian market in the year 2020-2021, a year made challenging by the Covid-19 pandemic. MRF continues to be ranked among the worlds top 20 Tyre manufacturers.

Global economy decelerated 3.3% in 2020, the pandemic ravaged year, against an estimated growth of 2.8% in 2019 (IMF World Economic Outlook, April 2021). The pandemic had a severe impact on lives and livelihoods. The contraction of business activity was unprecedented. Governments responded with strong fiscal and other measures to deal with the impact of the pandemic. Fiscal and monetary easing, policy support and initiatives by Governments and Central Banks ensured that business activity picked up at a faster pace in the second half of the year. IMF now estimates that the degrowth in 2020 was over 1% lower than the projection made in October, 2020. Economies rebounded as lockdowns eased and businesses adapted to new ways of working.

Global economy is now on much firmer ground but high uncertainty still persists. Much will depend upon how the spread of the virus is contained and how speedily vaccines are made available. IMF estimates that world economy will grow at 6% and 4.4% in 2021 and 2022 respectively.

Commodity prices have recovered globally from their record low levels a year ago, nudging inflation higher in many countries. IMF expects inflation pressures to remain contained going forward.

Market & Industry Overview

For India, the year 2020-2021 started with the worst business contraction caused by the Covid induced complete lockdown. The pandemic hit an economy that was already under a slowdown. GDP fell by 24% in first quarter and 7.3% in second quarter leading to a GDP contraction of 15.7% in the first half of 2020-2021. Wholesale demand for automobiles recorded a year on year decline of 75% in first quarter (SIAM data). Agriculture was the only sector to record growth in the first half of the year and continued the positive growth in the second half. Services sector, which includes contact based activities, took the worst hit.

The Government and Reserve Bank of India (RBI) responded with strong measures to help the common man and businesses tide over the unprecedented situation brought about by the pandemic, among which was the Rs. 20 lakh crore Atmanirbhar Bharat package.

RBI reduced the repo rate by 115 basis points from February, 2020 to 4% in May, 2020, which helped to lower the cost of funds for businesses. CRR ratio was cut by 1% leaving banks with more Funds to lend. The insolvency and bankruptcy code (IBC) was suspended for a period of 6 months to provide relief to businesses impacted by unfavourable cash flows.

Economy recovered sharply in the second half aided by such measures and phasing out of lockdowns, beating growth projections made after the first quarter GDP numbers were published. In October 2020, petrol and diesel consumption reached the same level as the previous year. Increase in Government expenditure in the second half of 2020-2021 aided the economic recovery. The recovery was sharp prompting upgrades to GDP growth by global rating agencies as well as by RBI.

Third Quarter of 2020-2021, GDP recorded a marginal growth of 0.4% over third quarter of 2019-2020, helping the economy out of a technical recession, after 2 consecutive quarters of degrowth. While agricultural sector maintained its growth, manufacturing and financial services returned to growth. Service sector was still in negative territory underlining the fact that contact-based sectors will need to wait for a longer period to return to normalcy.

The GDP growth for the fourth quarter of 2020-2021 was better than estimated at 1.6%, powered by Government spending. The crucial services sector finally turned positive with a 1.5% growth in fourth quarter of 2020-2021, though some segments like hotels and transport were still reflecting negative growth. The full year GDP contraction is at 7.3% (provisional), which is better than Governments earlier estimate of 8% contraction. RBI has now revised downwards the financial year 2022 GDP growth forecast to 9.5% from its earlier 10.5%, factoring lower growth in first quarter of 2021-2022.

At the end of financial year 2021, India emerged out of the first Covid wave better than was estimated in the beginning of the year, with growth topping earlier estimates. The financial system was resilient. Balance sheet of banks are in a better position to handle stress, having withstood the moratorium given for repayment of loans and the suspension of the IBC. India attracted record foreign fund inflows last year. Forex reserves improved by more than $ 100 Bn in financial year 2020-2021 while foreign direct investment was $ 81 Bn, 10% higher than the previous year. Indian economy revealed a resilient streak in the pandemic hit year.

Budget 2021 is of far reaching significance for the Indian economy. Infrastructure spending, majorly road infrastructure, has got a big boost. The fiscal deficit target for the year at 6.8% indicates that the Government will not shy away from spending. The higher Government spending should have a positive impact on demand and manufacturing. Other measures in the budget like setting up of the Asset Reconstruction Company for taking over stressed assets and privatizing two Public sector Banks and an Insurance Company are positive measures, besides signaling a deeper role for the private sector in the economy.

Production Linked Incentive Scheme (PLI) introduced in April, 2020 as part of Atmanirbhar Bharat is now extended to 12 sectors including automobiles and auto components. This is a big step to make Indian manufacturing competitive and become part of the global value chain.

Towards the end of 2020-2021, the country saw the start of the second Covid wave. All states have imposed lockdowns impacting business activity. The number of cases and the severity of the disease are much more than was experienced in the first wave. This will impact the first quarter GDP though the impact will be much lower than the last year. The current wave is being tackled with localized lockdowns and not with complete lockdown as was the case last year. Global growth is stronger now, which was not the case last year, which should help external facing segments of the economy. Businesses have adapted and have learnt to function better within the lockdown situations. On the other hand, the impact on rural India is more pronounced in this wave. The second lockdown is expected to have larger impact on demand than on Supply.

While the economy is facing headwinds from the second Covid wave, prices are going up. Inflation is increasing as evidenced by the Wholesale price index (WPI) in April, 2021 which increased by 10.4%, the highest in 11 years. The surge is due to higher oil price and commodity prices which were low during the corresponding period last year. The combination of high oil and commodity prices are resulting in higher end consumer prices. One hopes that this is a transitory phase and that RBI would keep interest rates benign so as to sustain economic recovery.

Global automobile production clocked a drop of 15.8% in calendar year 2020, coming on top of a decline in 2019. Double digit declines were seen in all geographies, reflecting the impact of Covid 19.

The automobile sector in India fared no better, clocking a decline of 13% in financial year 2020-2021. Double digit production declines was seen across vehicle segments except tractors which grew by 24%. Growth was already moderating in the previous year with slowing economic growth and the transition to BS V1, with its attendant higher costs of ownership. The industry is grappling with low capacity utilization and high input costs. The year also saw two major plants being shuttered. Commercial vehicles and shared mobility segments were hit the most in financial year 2020-2021 while preference for personal mobility helped passenger and two wheeler segments recover post the first quarter.

Exports also witnessed a decline in financial year 2020-2021 with steep declines in passenger vehicles, medium and heavy commercial vehicles (M&HCV) and light commercial vehicles (LCV). Two & Three wheelers saw a high single digit decline while Tractors posted a 17% growth in exports.

M&HCV which went through a turmoil in financial year 2020 saw a further decline in production by 19% in financial year 2021. M&HCV was the sector hardest hit by the pandemic. There was a significant recovery in the second half, in keeping with the revival in the economy, with third quarter volumes increasing year on year and fourth quarter production exceeding the third quarter. The bus segment in particular was very badly affected because of the Covid related restrictions and apprehensions on the use of public transport. Restart of infrastructure development projects should have a positive impact on the commercial vehicles business in 2021-2022.

The passenger vehicles segment which had seen a double digit decline in 2018-2019 due to, among others, transition to BS V1 and cost increases, saw further double digit decline of 11% in production in financial year 2020-2021. Post the sharp drop in first quarter of financial year 2020- 2021, there was good recovery due to pent up demand. The second half of 2020- 2021 saw high production and sales, aided by customer preference for personal mobility arising out of safety concerns. With 44% de-growth in first half of 2020-2021, production in passenger car segment recovered well to close the year with a 11% drop in production. Things were looking up at the end of financial year 2020-2021 with March,2021 seeing high production levels. But the Covid second wave will impact first quarter of 2021-2022.

The two wheeler industry recorded a decline of 13%, the second consecutive year decline. The decline in scooters this year was significantly higher than motorcycles. There was hardly any production in the month of April because of the Covid related lock downs in the country. Cost of ownership continues to be high arising from the transition to BS V1 and increase in insurance costs. Consumer sentiment has been weak impacting volumes. New launches have been subdued and your Company continues to be the preferred choice of fitment in most of the new launches. The excitement in the electric vehicle space continues with more players entering the same.

In spite of the pandemic and the lockdown, tractor production increased by 24% in financial year 2020-2021. Good monsoon and Governments measures to support rural incomes enabled the Industry to perform well in financial year 2020-2021. This years monsoon is also predicted to be normal. This together with strong agricultural commodity prices should help rural sector, which will result in another good year for tractors. Tyre production recorded a 4% degrowth on top of the 8% decline in financial year 2020. While tractor and off the road tyres showed growth, all other segment either declined or remained flat, with steepest declines coming in segments like Scooter and 3 Wheeler. Primarily, decline in Original Equipment business led to overall industry drop. Tyre exports also dropped 10% in financial year 2020-2021. Capacity utilisation of the industry declined further.

Tyre Industry also was affected by increase in raw material costs in the second half of the year 2020-2021. Industry may not be able to pass on the full costs to the Consumer.

Product wise Performance

During fiscal 2020-21, your company achieved a total income of Rs. 16129 crores. There was a decrease in most of the product groups adding up to a 12% decrease in total tyre production. In the Heavy Commercial Vehicle product group, there was an decrease of 2% over the previous year while Light Commercial Vehicle Tyres also decreased by around 2%. Small Commercial Vehicle Tyres declined by 19% in the 4-wheel product group, while it decreased by 31% in the 3-wheel product group, over the previous year. Passenger & Sports Utility Vehicle showed a decline of 17%. Farm product group grew by 6%. The Motorcycle and Scooter product group declined by 5% and 25% respectively. The Off-The Road Tyre product group grew by 36%.


Exports of tyres took a huge hit in the first half of 2020-2021 owing to the nationwide lockdown on account of the Covid pandemic, thus disrupting production and shipments of tyres. The second half of 2020-2021, however, saw good traction leading to a spurt in export of tyres. The deficit in the first quarter sales impacted the overall performance – the full year Sales being Rs. 1333 crores against the previous years Rs. 1651 crores. However, demand continued to be robust in the second half of 2020-2021, across most global markets that the Company is currently exporting to. MRFs key markets of Middle East & African region, along with Philippines, Indonesia & Bangladesh continued to have sustained demand for its products across categories. The demand for tyres in the Truck Radial & Bias, Light truck and Motorcycle categories continued to grow reflecting the strong brand equity your Company has in these markets. It is expected that despite the current unstable pandemic scenario across many global markets, the coming year should continue to see good demand for your Companys products across all categories. As in the previous years the Middle East, & the Far East region, along with Africa and Bangladesh will continue to drive growth in the coming year.

Discussion on Financial Performance with respect to Operational Performance

(Rs. in Crores)

2020-2021 2019-2020
Revenue from operations 15922 15991
Other Income 207 331
Total Income 16129 16322
Profit before tax 1700 1399
Provision for tax 451 4
Profit after tax 1249 1395

The revenue from operations of the Company for the 2020-2021 stood at Rs. 15922 crores against 15991 crores for the previous year ended 31st March 2020. During the year ended 31st March 2021, the Earnings Before Interest and Depreciation (EBIDTA) stood at Rs. 3102 crores as against Rs. 2654 crores in the previous year ended 31st March, 2020. After providing for Depreciation and Interest, the Profit Before Tax for the year ended 31st March 2021 is Rs. 1700 crores as compared to Rs. 1399 crores in the previous year ended 31st March 2020. After making provision for Income Tax, the net profit for the year ended 31st March 2021 is Rs. 1249 crores as against Rs. 1395 crores in the previous year ended 31st March 2020.

Key Financial Ratios

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 Net Profit Margin (%) except for Interest coverage ratio which increased from 10.62% to 14.06% and Operating Profit Margin from 8.40% to 11.04%. During the year, the Interest coverage ratio increased from 10.62% to 14.06% due to increase in EBITDA and due to slight reduction in interest expenses during the year. The Operating profit margin of the Company increased from 8.40% to 11.04% mainly due to decrease in raw material consumption and reduction in other expenses.

The Return on Net Worth decreased during the year from 12.23% to 9.66% when compared to the previous year. This is due to the reversal of deferred tax last year and hence the tax expenses were lower and this has resulted in higher total comprehensive Income which resulted in high return on net worth last year.

Awards and Accolades

During the Financial year, your Company has been awarded the "Highest Export Award 2019-2020" by the All India Rubber Industries Association (AIRIA).

Opportunities and Threats

Forecast of a normal monsoon for the third year in a row will be a positive for the rural sector and the economy as a whole. There was significant growth in Exports of Agricultural and Allied sectors in financial year 2021 on account of a good monsoon and high global commodity prices. Indications are that India will see another year of good agricultural exports. The higher income levels should help sustain demand from the rural sector. On the flip side, if in the first Covid wave, rural demand was a countervailing factor to the urban lockdowns, the second wave is seen as penetrating rural India and could be a dampener on rural demand.

RBIs analysis of the state of the economy in May, 2021 observes that the "biggest toll of the second wave is in terms of a demand shock" while the aggregate supply is less impacted.

Higher inflation that is now visible in India may spur RBI to increase interest rates which might curb demand. In fact, higher inflation is now visible in many countries, including the United States of America. Any move, real or perceived, by the US Federal Reserve to tighten money supply can cause an outflow of Funds from emerging markets, which can roil domestic financial markets and the stability of the Rupee.

Tyre industry is likely to see cost increases in the first quarter of 2021-2022 as well which can affect operating margins.


The prospects for the automobile industry has been impacted by the Covid second wave, just when things started looking better. As per FADA, Vehicle registrations have declined by 28% in April, 2021. Factory shutdowns have been extended. The impact in rural areas also is seen to be more in the second wave, affecting in particular Two Wheeler demand. Component shortages including key components like semi conductors will also impact in the near term. Recovery of the sector is linked to containment of the Virus spread and progress of Vaccination. However, pent up demand might come to the aid of the Industry from second quarter like in the last year, particularly in the passenger segment which currently is sitting on order backlogs. Government unveiled the Voluntary Vehicle Scrapping Policy in March, 2020 which is aimed at creating an eco system for scrapping old vehicles, reducing the population of old polluting vehicles and formalizing the vehicle scrapping industry. This could potentially provide a big boost to the automobile industry in the long term. But in the near term, besides growth of the economy, the fortunes of the automobile industry is linked to a rise in employment and income levels, considering that entry level models have suffered cost increase.

However, in view of the second wave of Covid 19 and the subsequent lockdowns imposed by various State Governments in the first quarter of financial year 2021-2022, the business is expected to be affected in the short term.

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

The key risks in financial year 2021-2022 are the uncertainties arising out of the Covid pandemic.

The issues posed by the Second wave of Covid pandemic will result in the automobile industry remaining in slow lane in financial year 2021-2022. The slowdown in growth will pose a challenge to the Companys performance.

On the operations side, the Company will face difficulties in operating the manufacturing facilities, sales offices, stocking points and administrative offices in the face of lockdowns, restrictions in movements between states and districts, restrictions on public transport, risks of shut downs because of prevalence of infections, availability of contract labour etc. which will pose challenges in maintaining production to meet market demand.

Challenges faced with regard to availability of raw materials because of Covid-19 continue to remain. Moreover, continued volatility in raw material prices will pose difficulties for the Company.

Human Resources

Your Company 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.

As Covid-19 has brought several economies to a standstill, we are together combating the unprecedented challenges of Covid-19. Special task force, under guidance of management, has worked out a detailed Standard Operating Procedure (SOP) for safe work place and extending care for employees family, people and community.

In order to strengthen our human resource for meeting the future challenges and expansion plans, we have focused on hiring the best resources available and retaining and developing our existing talent pool. We also concentrated on acquisition of top talent from premier institutes to build a leadership talent pool especially in Research & Development and Sales & Marketing, the key areas of our operation for product superiority and market dominance.

We leverage human capital for competitiveness by nurturing knowledge, entrepreneurship and creativity.

Our talent management strategy is in tune with our growth needs and we focus intensively on developing internal resources for critical positions along with need based recruitment for specific lateral positions.

Our human resource development is focussed on our Companys mission to have competitive edge in technology & excellence in manufacturing. All our training programs designed and tailor made to meet our specific requirements. Training effectiveness measurement is an integral part of our learning and development strategy. We have introduced e-learning and virtual academy as part of our Learning & Development road map. 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, thereby keeping with our commitment of shaping the future of our plants The total employee strength as on 31st March, 2021 was 18180.

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.