Target: ₹36,726.00
CMP: ₹31,070.90
3M India has passed on commodity inflation and INR depreciation to end-consumers in medium-long term, we note its EBITDA margin in 9MFY26 (19.7 per cent) is at its highest level since FY13. We remain confident that it is likely to end FY26E with the highest EBITDA margin in the past decade. Considering the inflation in other commodities such as copper, aluminium and crude oil, and with USD-INR rates reaching nearly ₹94 in March 2026, we believe there is an imminent risk to EBITDA margins.
There is a negative correlation coefficient of 0.37 between INR depreciation and EBITDA margin (with a one-year lag). While INR depreciation has an impact on EBITDA margin, we believe the company is in a position to pass on some of the additional costs via price hikes, revenue mix changes, cost-saving initiatives and operating leverage. 9MFY26.
3M India imports the majority of its raw materials and incurs significant expenses, including royalties and corporate management fees. While it generates some export revenue, we believe steep INR depreciation may impact profitability. We note its net outflows as a percentage of net sales stood at about 43 per cent over FY19-25.
We also note other commodities such as crude oil, copper and aluminium are in an inflationary zone. Furthermore, global shipping crisis and higher crude oil prices could impact freight costs. We cut TP to ₹36,726 (vs ₹39,250 earlier); implied target P/E works out to 50x FY28E EPS. Maintain ADD.