Motilal Oswal Brokerage Firm Issues Caution on Key Stocks
In a recent assessment, Motilal Oswal, a prominent brokerage firm, has adopted a cautious stance on several stocks, issuing ‘Sell’ recommendations for Thermax, Fine Organic Industries, and Relaxo Footwears. The firm cites a combination of growth challenges, margin pressures, and inflated valuations as reasons for this conservative outlook.
Stocks Under Pressure
Here’s a closer look at the three stocks that are now on the brokerage’s ‘Sell’ list:
Thermax: Target Price Set at Rs 3,100
Thermax has received a ‘Sell’ rating, with a target price set at Rs 3,100, suggesting a potential decline of 6% from its current trading position. The brokerage’s report indicates that while the company showcased respectable growth in revenue and EBITDA during Q4FY25, concerns linger regarding weak order inflows.
- The Industrial Products sector appears to be performing well.
- However, the Industrial Infrastructure and Green Solutions segments continue to face challenges due to cost pressures from older projects.
The report emphasizes, "We foresee that reduced order volumes and ongoing cost burdens from legacy projects will hinder execution and profit advancement for Thermax." Furthermore, the brokerage has revised down its FY26 and FY27 projections by 5%, forecasting a 12% CAGR in revenue and an 18% CAGR in profit after tax (PAT) over the next two fiscal years. Key risks include slower private capital expenditure recovery, rising commodity costs, and delays in new order acquisitions.
Fine Organic Industries: Target Price Set at Rs 3,660
Fine Organic Industries is another stock on the brokerage’s radar, with a revised target price of Rs 3,660, reflecting a significant 12% downside. The latest quarterly results disappointed, showcasing an 18% year-on-year drop in EBITDA and mounting pressure on profit margins.
- Management expresses caution regarding new contracts due to uncertainties about import duty policies.
- The firm notes, "Valuations seem high for a company projected to have no earnings growth from FY25 to FY27," as the stock currently trades at around 34 times FY27 estimated earnings.
The future outlook remains subdued, with forecasts indicating a CAGR of 4% in revenue, and declines of 1% and 2% in EBITDA and PAT, respectively, over FY25-27. Despite the long-term potential in the oleochemicals sector, immediate challenges are expected to hinder performance.
Relaxo Footwears: Target Price Set at Rs 375
Lastly, Relaxo Footwears has been assigned a ‘Sell’ rating, with a target price of Rs 375, indicating an 11% downside. The current fiscal year has proven difficult for the footwear giant, characterized by weakened sales volumes and ongoing changes in its distribution model.
- The brokerage report reveals that Relaxo experienced a 7% decline in EBITDA year-over-year, with volumes dropping by 10% due to low demand and restructuring efforts.
- The company is focusing on improving its product mix by emphasizing closed footwear, but a recovery in the core open footwear category is essential.
The brokerage has adjusted its revenue and EBITDA projections for FY26 and FY27 downward by 2-5%, predicting an 8% CAGR in revenue and an 11% CAGR in EBITDA over the next two years. Concerns linger over the company’s high valuation, currently trading at approximately 45 times FY27 earnings, despite recent price corrections.
In conclusion, Motilal Oswal maintains a ‘Sell’ rating on these stocks, citing factors such as inflation, distribution restructuring, and fierce competition as key elements likely to impede growth.
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