According to the industry analysts, margins have been under pressure probably due to increase in other expenses like wage bill, power and fuel and freight costs.
Similarly, net profit too, declined from Rs 30.16 crore in the first half to Rs 18.12 crore in the second. This was partly due to the rising interest burden as the company has borrowed heavily. As on September 1995, the debt portion has increased from Rs 222 crore to Rs 374 crore. Higher provisions for depreciation have also played a major role. MRF continues to follow its erstwhile conservative norms for depreciation provisions.
Being the leader in the industry, the company is expected to attain similar sales growth in the current year too. But margins would continue to remain under pressure partly due to higher interest burden and increasing competition.
The interest burden will be higher due to fund requirements, as the company is setting up a Rs 100-crore radial tyre plant with an annual capacity of 12 lakh tyres. This will be financed through internal accruals and is expected to go on stream in 1997. However, since the scrip has a very low floating stock, capital appreciation is possible only when the sentiment changes