Target: ₹1,10,000

CMP: ₹1,24,518.70

While MRF’s Q4 revenue was slightly above estimated, margin stood below expectations. Q4 revenue grew 9/3 per cent y-o-y/q-o-q (CEAT’s topline growth: 4 per cent y-o-y/1 per cent q-o-q). Outperformance in y-o-y revenue growth was likely due to market share gains in TBR. Gross margin dipped 120bps QoQ to 38.9 per cent in Q4.

Q3 EBITDA margin fell 300 bps q-o-q to 14.2 per cent, lower than our estimates of 16.2 per cent, while absolute EBITDA grew 5 per cent y-o-y but declined 15 per cent q-o-q to ₹890 crore. MRF made an ₹46.37 crore provision in Q4 with regards to EPR regulations, which hit margins 70bps. Adjusted PAT rose 14 YoY but dipped 25 per cent q-o-q to ₹380 crore. QoQ, MRF’s EBITDA margin fall was greater than CEAT’s.

Despite the recent aggressive competition, MRF’s regained its leadership in the domestic truck replacement segment. FY24 seems to be the peak margin for MRF and the tyre sector.

We believe, there are limited positive triggers for the tyre industry in the current environment, while price increases in an environment of softening demand may be monitored. Expect margin to dip from 16.9 per cent in FY24 to 15.4/15.6 per cent in FY25E/26, given bottoming of RM cost, intensifying competition and factoring in the impact of the EPR regulation.