MRF: Driving growth

The firm reported improved financials by checking the cost of rubber

The financial performance of tyre companies has improved in the last one year. MRF's numbers for the year ended September 2007 thus come as no surprise. A tight check on the cost of rubber, the key raw material, helped the company improve its financials.

The consolidated operating profits of MRF grew by an impressive 80.4 per cent y-o-y to Rs 443 crore in the last financial year and net sales rose by 18.1 per cent to Rs 4413.3 crore. The company's operating profit margin increased by 340 basis points y-o-y to 10 per cent for the year ended September 2007.

The improvement in operating margins was aided by MRF's consolidated adjusted raw material costs as a percentage of net sales declining 270 basis points y-o-y to 67.3 per cent in FY07.

The company's improved performance has not gone unnoticed by the street, as the stock rose by over 61 per cent in the past two months compared with a 3 per cent rise in the Sensex.

Apollo Tyres expanded its standalone operating profit margin by 500 basis points to 12.8 per cent in the September 2007 quarter.

Going forward, MRF should benefit from the softening rubber prices as it will be able to control the raw material costs better.

Moreover, the demand conditions from the automobile sector will determine MRF's performance. While passenger car sales remain strong, the slack commercial vehicle figures are expected to improve in FY09.

The shares of MRF are trading at 18 times trailing 12-month earnings and hence there does not appear to be much headroom for near-term appreciation.

Educomp: Bright education

The online education and e-learning solutions provider Educomp Solutions is back in the news after signing a joint development agreement with the US-based Learning.com, following a spate of acquisitions.

Learning.com provides web-enhanced instructions to engage students in interactive lessons and activities, in partnership with schools and educators.

Learning.com has three main proprietary products for web-based teaching and learning, catering to K-5 (kindergarten to fifth grade) and K-8 schools, in subjects such as maths, language arts, social studies and science, and literacy assessment solutions.

Educomp and Learning.com plan to develop digital curriculum jointly, based on Learning.com's platform, by bringing in Educomp's content repository.

Educomp had announced a foray into formal school management last month.

Educomp has made three acquisitions in the recent past, including that of AsknLearn, a Singapore based e-learning content provider, a 76 per cent stake in ThreeBrix E-Services, an online and offline learning solutions provider focused on Indian students, and a 70.1 per cent stake in Savvica, a Toronto-based educational software company providing online learning community management solutions.

In terms of financials, Educomp expanded its revenues by an annual 128 per cent to Rs 45 crore in Q2 FY08. The company's operating profit margin improved 390 basis points to 50.9 per cent in September 2007 quarter.

Going forward, analysts expect Educomp's revenues to continue growing at over 100 per cent a year and its operating margins to remain at around 50 per cent.

With this agreement, the company will gain the capability to deliver its content online, thus opening newer revenue streams for itself. The company's share price has risen from Rs 3,080 in September to Rs 3930 on Monday.

At their current price, the shares are valued at a price-earnings multiple of 50 times and 32 times estimated FY09 and FY10 earnings respectively.

With contributions from Amriteshwar Mathur and Niren Shah