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Global brokerage firm Citi has maintained its bullish outlook on MRF even as the company's September-quarter performance was hit by rising raw material prices. The brokerage has retained its 'Outperform' rating on the stock with a target price of ₹1,65,238, indicating an upside potential of 30% from the stock's Wednesday closing price of ₹1,27,125.
Earlier this week, the tyre manufacturer reported an 18% year-on-year (YoY) increase in revenue to ₹85.2 billion. However, higher-than-expected raw material inflation led to a 430-basis-point (bp) YoY contraction in its EBITDA margin to 10.7%. The margin pressure also resulted in a 28% YoY decline in profit after tax (PAT) to ₹3.7 billion.
The brokerage said the margin pressure would have been even higher if the company had not undertaken price increases of 13-15% in the replacement segment during the first half of FY27. It also noted that cost-reduction initiatives had helped partially cushion the impact of higher input prices, CNBC-TV18 reported. Mint could not independently verify the report.
Citi pointed out that the benefit of price increases in the original equipment manufacturer (OEM) segment typically flows through with a one-quarter lag. As a result, the full impact of the price hikes undertaken in Q2 FY27 is expected to be reflected in the current quarter.
Citi expects costs to remain elevated in Q3 FY27, indicating that a recovery in margins could take time. However, the brokerage sees profitability improving from FY28, supported by an expected moderation in commodity prices following the recent decline in crude oil prices and the full realisation of price increases undertaken by tyre manufacturers.
The brokerage believes that a combination of softer input costs, pricing actions and cost-control measures could support an improvement in profitability over the medium term.
Domestic brokerage firm Motilal Oswal also expects margins to begin recovering from FY28. However, it has cut its FY27 earnings estimate by 17% and now expects MRF's earnings to remain flat over FY26-FY28. While the company's return on capital employed (RoCE) has improved to 11.8% from a recent low of 10% in FY25, it is likely to decline to 7% by FY27E, the brokerage said.
Motilal Oswal reiterated its 'Sell' rating on the stock with a target price of ₹1,05,400, based on 18 times its FY28E earnings per share (EPS). This target is significantly lower than Citi's valuation.
Meanwhile, MRF's management remains cautious about the demand outlook, given the risk of a subnormal monsoon. Further, rising raw material costs and supply chain disruptions due to the ongoing Middle East conflict remain key near-term headwinds.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
Ksheera Sagar has been working as a Market Research Analyst at LiveMint for the past four years, covering stocks, commodities, and broader financial markets. In this role, he closely tracks daily market movements, corporate earnings, sector trends, and macroeconomic developments. <br><br> He has over a decade of experience in the financial services industry and has previously worked with multiple organisations, including global investment bank J.P. Morgan, bringing strong research experience into the newsroom. <br><br> During his career, he has gained extensive exposure to equity research, market analysis, and financial data interpretation, strengthening his expertise across asset classes and market cycles. <br><br> He is known for his data-driven analysis and crisp, listicle-style market stories that break down complex financial developments across key markets for a wide audience. His strong research skills enable him to write detailed and insightful stories on stocks and sectors, focusing on the underlying factors driving market movements. <br><br> His work combines quantitative insights with clear storytelling, presenting financial developments in a clear and structured manner. Moreover, he enjoys writing multibagger and listicle-style copies. Outside of work, Ksheera enjoys playing the piano and exploring new places. He has a keen interest in travel, music, and continuously learning about global markets and economic trends.
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