MRF shares hit Rs 1 lakh mark: Why is it not the most expensive stock?

On Tuesday, MRF became the first Indian stock to hit the Rs 1 lakh per share mark. The stock, which opened the trading day at Rs 99,500 on the BSE, hit an all-time high of  Rs 1,00,300 in morning trade. While the MRF stock is India’s costliest on paper, it is not the most expensive. Let’s take a closer look at why this is the case: The Economic Times quoted Warren Buffet as saying that price is what you pay and value is what you get.

Thus, the price of a share, should not be conflated with the value of the stock.

The value of a stock is contingent on a slew of factors including market capitalisation, price-to-earnings (P/E) ratio, price to book value (P/B) ratio, investor expectations of growth prospects. “Market capitalisation considers a company’s total value by multiplying its stock price by outstanding shares. The P/E ratio compares a company’s share price to its per-share earnings, indicating its expected growth or lack thereof,” Sonam Srivastava, Founder at Wright Research told the newspaper. “Conversely, penny stocks, despite their low price, can be expensive due to their high risk. They’re often less established, prone to price manipulation, and have large bid-ask spreads, making them costly to trade. Therefore, it’s crucial to research and evaluate a company’s underlying value and future prospects before investing,” Srivastava added. According to Moneycontrol, MRF seems expensive when its PE ratio is compared to its peers. “The current forward valuation at 22.3x FY25E earnings per share represents an almost 100 percent premium to its peers, despite a weakening competitive position and similar capital efficiencies,” analysts at Motilal Oswal Financial Services were quoted as saying by the website. According to Business Today, another reason for MRF’s massive share price is that unlike its blue-chip brethren, it never issued a stock split or a bonus. Companies usually announce a stock split to make a stock more appealing to retail investors. “It makes the stock more affordable and more liquid, without diluting the company’s ability to pay dividends,” Makarand Joshi, Founding Partner of MMJC & Associates, a corporate compliance firm, told Moneycontrol. In March 2023, MRF announced a 1,500% dividend – that’s Rs 150 per share on the face value of Rs 10. Taking into account the current price, that works out to just 0.15 per cent. One can also look at MRF’s market cap – which currently stands at Rs 42,000 crore As per Business Today, that does not even put MRF in India’s top 100 companies (the top three of which are Reliance (16.8 lakh crore), TCS (11.8 lakh crore) and HDFC bank (Rs 9 lakh crore). What about MRF’s future? The Economic Times quoted brokerage firm Anand Rathi as saying the MRF stock shows ‘limited upside’ at the moment.

It has advised clients to hold the stock with a target of Rs 96,000.

“For MRF, replacement demand would gradually recover as economic activity rises and the impact of the high base fades. OEM demand would be healthy at high single digits. We expect a 6% volume growth over FY23-25. EBITDA margins would be stable from Q4 as most of the benefit of lower input costs have already been factored in.” But Gaurav Bissa, VP, InCred Equities, told Business Today the share price is likely to go up even further. “MRF has witnessed a strong upside in the last few months with continued outperformance against broader market indices. The stock is currently forming bullish flag pattern on the weekly charts which is a continuation pattern in nature. The stock had earlier given a breakout retest from a triangle pattern Rs 95,000 levels followed by some consolidation. A close above Rs 1 lakh will confirm bullish flag breakout, which can push it towards Rs 1.15 lakh levels. The stock is showing equally interesting setup on point and figure charts. The stock has seen follow through of bullish abc pattern breakout on 0.25x3 daily time frame. The cluster target comes around Rs 1.15 lakh on point and figure charts, which coincides with the bullish flag and triangle pattern targets,” said Bissa. Mint quoted Santosh Meena, Head of Research at Swastika Investmart, as saying, “MRF, one of the leading stocks in the Indian stock market, has made history by becoming the first six-digit stock after surpassing the impressive milestone of rupees one lakh. The technical chart analysis indicates that there is further potential for growth, as we can observe a breakout pattern known as a classical flag formation. This pattern suggests that the stock’s upward momentum is likely to continue, with a potential target of around ₹1,10,000,” With inputs from agencies Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News ,  India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.