MRF share price: Why CLSA sees 32% upside despite near-term margin pressures

Résumé détaillé

CLSA expects MRF's costs to remain elevated in Q3 FY27, indicating that margin recovery 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.

Shares of MRF Ltd. opened lower in Wednesday's trading session but the stock is looking to recover from the lows of the day, after the tyre manufacturer reported a sharp decline in Q2 FY27 profitability, as higher raw material costs weighed on margins despite healthy revenue growth.

Global investment banking firm CLSA has maintained its "outperform" rating on MRF with a price target of ₹1,65,238, which implies an upside potential of 32% from current levels.

According to CLSA, MRF's EBITDA margin for Q2 FY27 stood at 10.7%, contracting 73 basis points quarter-on-quarter (QoQ). This was primarily driven by a 95-basis-point QoQ decline in gross margin, following an 8-9% sequential increase in the raw material basket cost.

Tyre manufacturers have already undertaken price increases of 13-15% in the replacement segment during the first half of FY27 to offset the impact of rising commodity costs. Cost-reduction initiatives have also helped partially cushion the pressure from higher input prices, CLSA's note added further.

However, the benefit of price increases in the original equipment manufacturer (OEM) segment typically flows through with a one-quarter lag. This means the full impact of price hikes undertaken in Q2 FY27 is expected to be reflected in Q3 FY27, potentially providing some relief to margins.

CLSA expects costs to remain elevated in Q3 FY27, indicating that margin recovery 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.

MRF reported a 28% year-on-year (YoY) decline in net profit to ₹369 crore in Q2 FY27, compared with ₹512 crore in the corresponding quarter last year.

Profitability…

Début de l'article, extrait de CNBC-TV18. Pour lire la suite, ouvrez l'article chez le média.