MRF’s 4QFY24 result was weak as higher RM costs and operating expenses led to lower adjusted EBITDA margin of 16.2% (-100bp QoQ vs. est. 17%). A provision of INR463.6m, which was made in FY23, was recognized in 4Q along with the additional provision of INR981.4m for FY24 to cover EPR costs. We believe EPR costs would be recurring in nature, which, combined with rising RM costs, could hurt EBITDA margin in the upcoming quarters.
OutlookMRF’s competitive positioning in the sector has weakened over the past few years, which reflects in the dilution of pricing power in the PCR and TBR segments. This, coupled with the impact of the planned capex, should limit the expansion in return ratios. We expect MRF’s return ratios to dilute over the next two years as its RoE is expected to decline to 11.2% by FY26E (vs. 13.5% in FY24). The stock is currently trading at 25x FY26E EPS, above its 10-year LPA, despite its weakening competitive position and similar capital efficiency as peers. Hence, we maintain our Sell rating on the stock with a TP of INR 92,000 (valuing at 18x Mar-26E EPS).
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