Saturday, April 08, 2006

Dial M for ...

It's my opinion that MRF Tyres is overpriced. The scrip touched an all-time high of 3,895.00 rupees on 7th Apr. The charting of the company is enclosed .... (notice the price rise - extreme right)


- Notice the price stabilisation at the 2800-2900 levels (Oct-mid to Jan-end) and once again at the 3100-3200 levels (Feb to Mar). Net net, the price of the stock has vacillated between 2700 and 3250 over the last 7 months.
- The biggest movement post quarter result was when the scrip moved from 2800 to 3230 over 4 days.
- Suprisingly, the scrip has moved from 3050 to 3895 in 6 trading sessions : an increase of 27.7% ... with no supporting news.
- Q1 for the company was marginally better than Q4 of FY2005

At a CMP of 3895.00, MRF is at a fwdPE of 27.76, offers a dividend yield of 0.51%, has a NCAV of only 151.30. The input price (rubber) is on a rising trend - increasing by 50% over the last 12 months (the company is feeling the pinch of the same ... between March and July - historically, rubber prices tend to swell)

It's my opinion that the stock will be range bound ... 3500 to 4000. Which means, there is still money to be made by selling the stock short. An option will need to be considered, however. More on this, if I succeed.

PS: On April 3rd, MRF announced that it'll produce helicopter tyres once it gets the approval. Apparently, Brian Lara was in town for the launch of the same. Surely, that cant be the reason for the huge rise in the stock price.

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