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Earnings miss led by higher input costs

Weak OEM demand across segments limits revenue growth

• MRF’s 1QFY26 PAT at INR4.8b was below our estimate of INR5.1b due to weaker than expected margins at 13.7% (estimate of 15%). Margin pressure was driven by higher input costs.
• Following the recent rally, the stock currently trades at 27.9x/24.7x FY26E/ FY27E EPS above its 10-year LPA of ~25x, despite its weakening competitive position and similar capital efficiency as peers. Hence, we reiterate our Sell rating on the stock with a TP of INR112,648 (valuing it at 20x Jun’27E EPS).

PAT below our estimate due to margin pressure

• The company’s standalone revenue grew ~7% YoY (9% QoQ) to INR75.6b and was in line with our estimates of INR73.6b.
• MRF delivered revenue growth despite tariff uncertainties, geopolitical tensions, and the early onset of monsoons, which had led to subdued market sentiments and a decline in OE vehicle sales across segments, except farm equipment. The farm segment remained largely unaffected by the above disruptions.
• MRF’s gross margin was below our estimate of 36%. It contracted ~300bp YoY and 170bp QoQ to 34.3%, largely due to higher input costs. This in turn led to a lower-than-estimated EBITDA margin at 13.7%, down ~240bp YoY (vs. our estimate of 15%).
• Its EBITDA declined 9% YoY and 1% QoQ to INR10.3b.
• As a result, PAT was down ~14% YoY to INR4.8b (vs. our estimate of INR5.1b).

Valuation and view

• MRF’s competitive positioning in the sector has weakened over the past few years, which is reflected in the dilution of its pricing power in the PCR and TBR segments. MRF is likely to continue to focus on recovering its lost share across segments. This is anticipated to limit margin upside, even in a falling input cost scenario. Overall, we expect MRF to post 12% earnings CAGR over FY25-27.
• Following the recent rally, the stock currently trades at 27.9x/24.7x FY26E/ FY27E EPS above its 10-year LPA of ~25x, despite its weakening competitive position and similar capital efficiency as peers. Hence, we reiterate our Sell rating on the stock with a TP of INR112,648 (valuing it at 20x Jun’27E EPS).

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