The MRF stock, often known for its heavyweight price tag, has come under fresh scrutiny. According to the brokerage report from Motilal Oswal, the recent rally in the stock has stretched valuations too far, prompting the firm to issue a ‘Sell’ rating and project a 23% downside from current levels.
The brokerage has set a target price of Rs 121,162, indicating that it expects the stock to cool off sharply in the months ahead.
Let’s take a look at the key reasons why the brokerage is cautious on this stock –
Motilal Oswal on MRF: Valuation a worry
According to the brokerage report, MRF’s latest quarterly numbers are mixed and do not justify the lofty valuations the stock is currently demanding.
The company posted a net profit of Rs 510 crore in the second quarter of FY26, which aligned with Motilal Oswal’s estimates. However, the revenue lagged expectations due to what the brokerage described as a “temporary GST-led destocking impact on distributors.”
The brokerage also noted that despite better-than-expected profits, the broader picture raises concerns. It pointed out that “following the recent rally, the stock currently trades at 32.5x/27.6x FY26/FY27 EPS estimates.” This is significantly higher than the 10-year earnings average of 25x, as per Motilal’s calculation.
Motilal Oswal on MRF: Margins hold up, but revenue slips
On to the details of the Q2 earnings performance, while revenue missed projections, the earnings before interest, tax, depreciation and amortisation (EBITDA) margin, a measure of operating profitability performed better than expected. The brokerage highlighted that the margin came in at 15%, above its estimate of 14.2%, mainly because raw material costs were lower.
Still, revenue fell short. The company reported standalone revenue of Rs 7,250 crore, compared to the brokerage’s estimate of Rs 75.7 billion.
The brokerage added that sales are usually softer in the second quarter due to seasonality. Original equipment (OE) sales, meaning tyre sales to vehicle manufacturers, showed “strong double-digit growth,” and exports held up despite tariff pressures. However, the cut in Goods and Services Tax (GST) late in the quarter caused a temporary dip in replacement tyre demand.
MRF’s board also announced an interim dividend of Rs 3 per share.
Motilal Oswal on MRF: Concerns about competitive position
The brokerage’s concerns go beyond quarterly numbers. According to the brokerage report, MRF’s market positioning has weakened over the past few years, especially in key tyre categories such as Passenger Car Radial (PCR) and Truck and Bus Radial (TBR).
This, the brokerage noted, has led to a noticeable shift in pricing power. It added, “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.”
Motilal Oswal estimates that MRF could still deliver a 13% earnings compound annual growth rate (CAGR) from the financial year 2025 to 2028. But the brokerage argues this growth does not justify the steep valuations investors are currently paying.
The brokerage added, “Hence, we reiterate our Sell rating on the stock with a target price of Rs 121,162 (valuing it at 20x Sep’27E EPS).”