This Murugappa Group stock is down 38% from its peak. But why are investors turning bullish again?

It currently trades at ₹2,984 and was marginally down on Thursday despite choppy market conditions. The stock has rebounded nearly 20% to this level in the last one month.

Though the company’s performance has been weighed down by subdued growth across business segments, its investments in emerging businesses are expected to start contributing meaningfully from FY27 onwards. Let’s trace the factors that led to the sharp reversal in investor sentiment after the initial dip.

A diversified play beyond core engineering

For starters, Tube Investments operates across three key segments at the standalone level—engineering, metal formed products, and mobility. Engineering and metal-formed products remain at the core, contributing 84% to revenue.

At the consolidated level, the business profile becomes even more diverse. It includes gearbox manufacturing through Shanti Gears and power and industrial systems via CG Power.

Over the past few years, the company has also been expanding into newer areas. It entered the electric vehicle segment, and has also ventured into medical consumables, contract development and manufacturing operations (CDMO), and electronics.

While these new businesses are still in the early stages and contribute minimally to revenue, they signal the company’s long-term diversification strategy.

New capacity may aid the rebound

The engineering division manufactures cold-drawn welded (CDW) tubes. Tube Investments is one of the world’s largest producers of CDW precision tubes and also holds a leading position in India.

These tubes are widely used in the automotive, bicycle, two-wheeler, and industrial machinery industries. The company also customizes tubes for hydraulic and pneumatic applications based on industry requirements.

This segment remains the company’s key revenue driver at the standalone level, contributing 64% ( ₹5,029 crores) of the ₹7,892 crores standalone revenue in FY25.

However, revenue from this segment increased by 2% over last year in FY25, while profit before tax stayed flat at ₹617 crore. Sluggish revenue growth and stagnant profitability have weighed on its performance. Management has attributed this to capacity constraints. Nevertheless, the company continues to gain market share, which indicates that underlying demand remains strong.

There’s a positive development on this front. The new facility at Nashik has started operations, adding about 7-8% incremental capacity, roughly about 4,000 tonnes per month. The company is obtaining customer approvals, which will take 3-4 months.

Once cleared, the utilisation will ramp up in the second half of FY26. Management expects this expansion to drive double-digit revenue growth and margin improvement, which could be one of the reasons behind the stock’s quick rebound.

New railway contract signals turnaround

Under the metal formed products division, the company produces cold roll-formed sections and components. It is a leading supplier of roll-formed car doorframes in India and a major vendor for auto companies. It also leads the market in automotive drive and cam chains.

The division diversified product mix includes drive chains, automobile component kits, railway coach parts, and fine blanking. Notably, this segment posted muted growth in FY25. Revenue rose 3% to ₹1564 crores, partially impacted by weak demand in the auto sector.

The railway business, in particular, has been a significant drag, with no meaningful contribution for the last six to seven quarters.

Consequently, profit before tax declined 14% to ₹161 crore, as margins contracted two percentage points to 10.3%. That said, the recent ₹1,000 crore, 7-year contract for railway bogies signed with Indian Railways may mark a turning point. Execution is expected to begin in the fourth quarter of the current fiscal.

The company expects this to revive the railway business, with operations picking up toward the end of FY26. This could also help lift margins and bring back growth in the segment.

Mobility segment sees export-led revival

With a market share of over 20% in the retail bicycle segment, the company is one of the largest organized players in India. Its bicycle brands – BSA, Hercules, Montra, and Rodeo – are among the best-selling brands in the country.

This segment also posted sluggish performance in FY25. Revenue grew just 1% to ₹671 crore. Heightened competition from low-end, low-priced products from the unorganized sector continues to put pressure on the mobility division.

To address this, the management has outlined growth strategies, including expanding into new geographies–particularly exports– and diversifying its product mix. It has also entered the premium e-bike category with an enhanced range of offerings.

Encouragingly, the bicycle business is showing early signs of recovery, driven by export momentum. The segment turned profitable with ₹4.8 crore profits, from a loss of ₹17.8 crore last year. The company plans to strengthen its export strategy further, which is seeing steady traction.

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EV losses widen but break-even eyed

Beyond its standalone operations, the company ventured into electric vehicles with TI Clean Mobility, launched in FY22. This subsidiary is now consolidated into the financial affairs of Tube Investments.

TI Clean Mobility manufactures electric three-wheelers, tractors, small, medium and heavy commercial vehicles. This business is on a strong growth trajectory, supported by long-term structural tailwinds.

Revenue more than doubled to ₹541 crore, from ₹206 crore in FY24. However, the segment continues to be loss-making, as it remains in investment mode. Losses more than doubled to ₹549 crore, from ₹259 crore last year. This includes ₹137 crores fair value loss on compulsorily convertible preference shares (CCPS) liability marked through profit or loss. Excluding this, the adjusted loss stood at ₹412 crores.

However, management aims to achieve operational break-even in at least two businesses—the electric truck and three-wheeler—within this fiscal year. The focus will be on scaling up revenue–$1 billion in the next three to four year–improving contribution margins, and achieving economies of scale.

The CDMO business is yet to commence operations. Plant construction is underway and expected to be completed by the end of FY26. Meanwhile, customer acquisition has already started, and the company is seeing positive traction. Ramp-up is expected from next year.

Muted performance, but valuation supportive

At the standalone level, the company’s revenue from operations grew 4% to ₹7,892 crore, while net profit rose 76% to ₹1,297 crore. This includes a fair value gain of ₹569 crore on CCPS in the subsidiary. Adjusting for this, net profit rose 2% to ₹751 crore, as against ₹735 crore last year.

Tube Investments is expanding across several emerging business with long-term growth potential. Electric vehicle and CDMO business offer significant runway. While, the core business is currently facing growth challenges, recovery is expected to gain pace by the end of FY26, with full momentum likely by FY27.

This shift in narrative, along with signs of revival, could have supported the recent rebound in stock price. The share has corrected about 38%, from its 52-week high of ₹4,811 (hit in October 2024), and much of the underperformance now appears priced in.

At a price-to-equity multiple of 44, the stock trades at a 38% discount to its 10-year median of 73, offering some valuation comfort for long-term investors.

According to Motilal Oswal, Tube Investments has built a diversified revenue stream, and its core business has strong growth potential. It has a buy recommendation with a target price of ₹3,658, which is about 20% higher than thecurrentlevel.

For more such analysis, read Profit Pulse.

About the author: Madhvendra has over seven years of experience in equity markets and has cleared the NISM-Series-XV: Research Analyst Certification Examination. He specialises in writing detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.

Disclosure: The writer does not hold the stocks discussed in this article. The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.