MRF share price target after Q2: Tyre maker faces margin pressure, but Citi sees 30% upside; sets ₹1,65,238 target

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Citi retained its Outperform rating on MRF, with a ₹1,65,238 target price, despite quarterly margin and profit declines caused by higher raw material costs.

Global brokerage firm Citi has maintained its bullish outlook on MRF even as the company's September-quarter performance was hit by rising raw material prices. The brokerage has retained its 'Outperform' rating on the stock with a target price of ₹1,65,238, indicating an upside potential of 30% from the stock's Wednesday closing price of ₹1,27,125.

Earlier this week, the tyre manufacturer reported an 18% year-on-year (YoY) increase in revenue to ₹85.2 billion. However, higher-than-expected raw material inflation led to a 430-basis-point (bp) YoY contraction in its EBITDA margin to 10.7%. The margin pressure also resulted in a 28% YoY decline in profit after tax (PAT) to ₹3.7 billion.

The brokerage said the margin pressure would have been even higher if the company had not undertaken price increases of 13-15% in the replacement segment during the first half of FY27. It also noted that cost-reduction initiatives had helped partially cushion the impact of higher input prices, CNBC-TV18 reported. Mint could not independently verify the report.

Citi pointed out that the benefit of price increases in the original equipment manufacturer (OEM) segment typically flows through with a one-quarter lag. As a result, the full impact of the price hikes undertaken in Q2 FY27 is expected to be reflected in the current quarter.

Citi expects costs to remain elevated in Q3 FY27, indicating that a recovery in margins 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.

Domestic brokerage firm Motilal Oswal also expects margins to begin recovering from FY28.

Motilal Oswal reiterated its 'Sell' rating on the stock…

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