MRF Tyres grips the road on margins but valuation tread wears thin

Twin wheels of raw material relief and pricing traction power a 26% stock climb

MRF Tyres — the largest listed tyre maker — has climbed 26 per cent over the past three months, making it the top performer in the Nifty Auto pack. Strong operating performance in the January-March quarter (Q4) of 2024-25 (FY25), expanding market share, falling raw material costs, and improved profitability have kept investor sentiment buoyant. But some brokerages say the stock’s run-up has made valuations expensive. 

MRF’s Q4 numbers outshone peers across most metrics. Revenue rose 12 per cent to just under ₹7,000 crore, in line with expectations. While two-wheeler and passenger vehicle original equipment manufacturer sales held steady, the company saw a sharp pickup in the truck and bus radial segment, along with stronger two-wheeler replacement demand. Revenue growth could have been higher but for aggressive pricing moves aimed at clawing back market share. 

The real standout was operating performance. Operating profit jumped 18 per cent year-on-year (Y-o-Y) and 30 per cent quarter-on-quarter (Q-o-Q) to ₹1,040 crore — well ahead of estimates. The gains were driven by better-than-expected gross margins and a reduction in overheads. A key surprise was the 340-basis point (bp) sequential rise in operating margin (up 80 bps Y-o-Y) to 15 per cent. In contrast, CEAT saw a 170-bp Y-o-Y decline to 11.6 per cent, while Apollo Tyres reported a 440-bp fall to 11.2 per cent. 

MRF also pared employee costs and other expenses by 2 per cent and 6 per cent, respectively, from the year-ago quarter. While input costs declined slightly on a sequential basis, part of the gain was offset by a weaker rupee. 

 

Looking ahead, analysts Mumuksh Mandlesha and Shagun Beria at Anand Rathi Research expect profitability to improve on the back of a stronger product mix and selective price hikes. They project revenue growth of 10 per cent over FY25 to 2026-27 (FY27), with operating and net profit growth at 16 per cent and 24 per cent, respectively. The brokerage has a ‘buy’ rating, citing further upside in margins and market share.

 

Falling raw material prices are expected to benefit the sector — and MRF. Brent crude is down 14 per cent over the past week and about 11 per cent Q-oQ in the April–June period of 2025-26 so far.

 

Natural rubber prices also remain weak in both domestic and global markets. After peaking at ₹245–250 per kilogram last August, they’ve dropped over 20 per cent and are now below ₹200. Roughly two-thirds of tyre production costs are tied to crude oil derivatives and natural rubber. These include synthetic rubber, nylon tyre cord fabric, carbon black, and rubber chemicals. 

 

Kotak Research expects MRF to maintain its lead in the near term, aided by competitive pricing. Softer crude and rubber prices should also help sustain margins. However, analyst Rishi Vora has maintained a ‘sell’ rating, citing stretched valuations.

 

Motilal Oswal Research has raised its FY26/FY27 earnings per share (EPS) estimates by 7 per cent and 4 per cent, respectively, factoring in lower input costs — but has also retained a ‘sell’ call. Analyst Aniket Mhatre points out that after the recent rally, the stock trades at 30.1x and 26.7x its FY26 and FY27 EPS, respectively — well above its 10-year average of 25x. This, he argues, is hard to justify given MRF’s weakening edge and capital efficiency now broadly in line with peers.