Explained: At Rs 1 Lakh, Why Is MRF The Most Expensive Stock In India?

Earlier this year in June, Chennai-based tyre manufacturer MRF became the first ever stock in India to hit the historical mark of Rs 1 lakh per share. This mammoth figure, that too for just one share, had left many investors questioning MRF stock¡¯s affordability. Let us take a deep dive and understand why India¡¯s most expensive stock MRF is priced so high.

What Is MRF's Stock Price?

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As of 7th November 2023, MRF stock's price is Rs 1,07,101 per share (on NSE).

Why Is MRF Stock So Expensive?

The reason why companies are able to have relatively lower stock prices is that they frequently announce stock splits to make their shares more appealing and affordable to individual investors, which thus enhances their liquidity.

But MRF, on the other hand, has never split its shares. Back in 1970 and 1975, MRF had granted bonus shares in the ratios of 1:2 and 3:10 respectively, but no bonus shares have been issued since then. When the number of outstanding shares remains constant and the company continues to grow over time, its market value increases, and the stock price rises. That's what has been happening with MRF.

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Also Read: Maggi Maker Nestle's Shares Jump To All-Time High After Announcing First Stock Split

Does High Price Imply High Quality?

No. A costly stock does not always imply a high-quality stock. Understanding the difference between a high stock price and a high valuation cost is critical. Despite its high price, MRF is not the most expensive company in India because investors value stocks based on metrics such as price to earnings (PE) or price to book value (PB), market capitalisation and so on, instead of its stock price alone.

And MRF has historically never used a stock split to lower its share prices. Moreover, as MRF has demonstrated throughout the years, a high-priced stock can be justified by solid earnings and good future growth prospects. As a result, as per Forbes, it is critical to consider aspects other than the stock's price when determining its underlying value and potential.

Also Read: Why Do Companies List Shares On The Stock Market?

How MRF Compares To Its Peer Stocks

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When comparing the price-to-earnings (PE) ratio, MRF appears expensive compared to its peers. Currently standing at 36.81, MRF's PE ratio is much higher than its competitors. For instance, Apollo Tyres sits at 19.52 (and share price Rs 384.95), Ceat at 16.28 (and share price Rs 2,099.85), JK Tyre at 15.04 (and share price Rs 339.45), and Goodyear India at 23.61 (share price Rs 1273).

Keep in mind that higher PE ratios indicate limited room for returns. For the unversed, PE ratio is calculated by dividing the market value price per share by the company's earnings per share. A high P/E ratio can mean that a stock's price is high relative to earnings and possibly overvalued. A low P/E ratio might indicate that the current stock price is low relative to earnings.

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