Global firm keeps strong target on MRF stock despite profit hit

Global brokerage firm Citi has kept an Outperform rating on MRF with a target price of 165,238 rupees. This points to a possible 30 percent jump from the stock price of 127,125 rupees recorded on Wednesday.

Business Pressures and Costs

The tyre maker faced drops in profit and margins during the September quarter due to rising costs for raw materials. Citi noted that the margin hit would have been worse if the company had not raised prices by 13 to 15 percent in the replacement segment in the first half of financial year 27. Steps to cut costs also helped soften the blow of expensive inputs, while benefits from price hikes in the original equipment maker segment usually take one quarter to show.

Outlook and Differing Views

Costs are expected to stay high in the third quarter of financial year 27, meaning profit margins may take time to recover. However, Citi expects profitability to get better from financial year 28 as commodity costs cool down following a drop in crude oil prices. At the same time, domestic firm Motilal Oswal has kept a Sell rating on the stock with a target price of 105,400 rupees. Motilal Oswal cut its earnings estimate for financial year 27 by 17 percent and expects earnings to stay flat through financial year 28.

Challenges Ahead

MRF management remains careful about future demand due to the risk of a weak monsoon. Rising raw material costs and supply chain issues from the ongoing Middle East conflict also pose near-term challenges for the business.

Context

Stock brokerages regularly study corporate earnings reports to issue price targets and ratings that guide investors in the market. Tyre companies depend heavily on global rubber and crude oil derivatives as raw inputs, making their profit margins sensitive to changes in global commodity prices.