Motilal Oswal has maintained a "Buy" rating on Midwest Limited with a target price of INR 1,300. While the company reported a 35% revenue growth in 1QFY27, profitability faced pressure due to higher diesel and logistics costs. Investors are tracking the company's efforts to diversify into quartz and mineral sands to reduce its reliance on the volatile granite business.
Motilal Oswal has reiterated its "Buy" recommendation on Midwest Limited, setting a target price of INR 1,300. This outlook follows the company’s financial results for the first quarter of fiscal year 2027, highlighting both revenue growth and the cost challenges currently facing the business.
Revenue and Profitability Trends
Midwest Limited reported revenue of INR 1.9 billion for the quarter ending June 2026. This represents a 35% increase compared to the same period last year. However, the company also saw an 11% decline in revenue compared to the previous quarter.
While the year-over-year revenue growth is significant, the company’s operating profit (EBITDA) of INR 489 million fell short of brokerage estimates. A key factor behind this performance was the compression in profit margins. The operating margin dropped to 25.5% in the first quarter of fiscal year 2027, compared to 27.4% in the same quarter of the previous year. This margin pressure is largely attributed to higher operational expenses, specifically rising diesel prices and increased logistics costs that impacted the company's bottom line.
Production and Strategy
On the operational front, the company's combined granite production remained flat year-over-year at 26,500 cubic meters. Within its product mix, the production of black galaxy granite rose by 9%, while absolute black granite production saw a decline of 12%. Total granite sales volume saw a modest increase of 3%.
Midwest is currently working on a strategic shift to reduce its heavy dependence on the granite market. The company is investing in diversifying its operations into quartz and mineral sands. This move is designed to provide more stable revenue streams, but success depends on the effective ramp-up of these new business lines. The brokerage expects this diversification to become a more meaningful contributor to the company’s profitability starting from the fourth quarter of fiscal year 2027.
Investor Monitorables
Investors may monitor the execution risk associated with the company’s transition into new segments. The quartz and mineral sands business is in an early stage, and its ability to offset the cyclical nature of the granite sector will be a critical factor. Furthermore, the company’s ability to manage its operating costs amidst fluctuating fuel and logistics prices will be essential for maintaining profit margins. The market will also track future granite price realizations, as the business remains sensitive to commodity price volatility.