Motilal Oswal has maintained its 'Sell' rating on MRF following the company’s first-quarter results for fiscal 2027. The brokerage cited pressure on profit margins caused by high raw material costs and a cautious demand outlook as key reasons. Shares were trading near ₹130,845 as analysts highlighted expensive valuations relative to earnings.
Motilal Oswal has reaffirmed its 'Sell' recommendation for tyre manufacturer MRF, maintaining a price target of ₹113,936. The brokerage firm's stance comes after the company announced its financial performance for the first quarter of the 2027 fiscal year, where profit growth struggled to keep pace with revenue expansion.
Margin Pressure and Financials
For the quarter ended June 2026, MRF reported consolidated revenue of approximately ₹8,415.5 crore, reflecting a year-on-year growth of about 9.6%. Despite this top-line growth, the company's consolidated net profit saw a slight decline, falling to ₹495.35 crore from ₹501.82 crore in the same period last year. A significant factor behind this performance was the contraction in EBITDA margins, which came in at 11.4%. This was lower than expectations and notably below the ~13.7%–13.95% levels seen in the previous year's corresponding quarter.
Analysts at the brokerage attributed the margin weakness to a sharp rise in input costs, specifically mentioning natural rubber and crude oil. These rising costs have made it difficult for the company to maintain profitability at previous levels, leading to concern about whether the company can pass on these costs to customers effectively.
Demand Outlook and Valuation Concerns
Beyond cost pressures, management expressed a cautious outlook regarding future demand. The brokerage highlighted potential risks from a subnormal monsoon season, which could affect rural demand for tyre products. Additionally, global supply chain disruptions caused by ongoing conflict in the Middle East continue to be a concern for operations.
From a valuation perspective, Motilal Oswal noted that the stock currently trades at 25.5 times and 21.9 times its estimated earnings for fiscal years 2027 and 2028, respectively. The brokerage considers these valuations to be expensive, particularly given the projected growth rates and the ongoing margin challenges. The target price of ₹113,936 is based on a 19x multiple of the projected earnings per share for fiscal 2028.
Key Risks to Monitor
Investors should be aware of several risks currently surrounding the stock. Beyond the operational challenges like raw material price volatility, MRF faces a significant contingent liability in the form of a ₹622 crore penalty imposed by the Competition Commission of India (CCI). While the outcome of such regulatory matters remains a process to watch, it adds to the uncertainty for shareholders.
The key focus for investors moving forward will be whether MRF can improve its return on capital employed (RoCE), which analysts expect may decline to 10% by fiscal 2027. Market participants will also track raw material price trends and volume growth to see if the company can overcome the current margin pressure.