Midwest quartz ramp-up supports earnings growth despite first-quarter margin pressure

Investment View and Key Takeaways

In its August 13, 2026 1QFY27 results update, Motilal Oswal Financial Services Limited retained its BUY view on Midwest Limited, despite an earnings miss caused principally by elevated costs. The broker expects the near-term impact of cost inflation to settle and margins to stabilise. The longer-term investment case remains supported by steady granite earnings and Midwest’s expansion into quartz and rare-earth critical minerals.

1QFY27 Operating and Financial Performance

Midwest reported 1QFY27 revenue of Rs 1,918 million, up 35 per cent year on year but down 11 per cent sequentially. The result was broadly in line with MOFSL’s estimate of Rs 1,936 million, with higher realisations supporting revenue growth.

Combined granite production was 26.5 thousand cubic metres, flat year on year. Black galaxy granite production increased 9 per cent year on year to 17.2 thousand cubic metres, while absolute black granite production declined 12 per cent to 9.3 thousand cubic metres. Combined granite sales volume grew 3 per cent to 27 thousand cubic metres, comprising black galaxy sales of 17.9 thousand cubic metres, up 13 per cent, and absolute black sales of 9.4 thousand cubic metres, down 13 per cent.

The blended granite average selling price was Rs 67,500 per cubic metre in 1QFY27, up 32 per cent year on year and 11 per cent quarter on quarter. Midwest implemented a price increase during the quarter to offset higher energy and logistics costs. However, EBITDA of Rs 489 million was 15 per cent below MOFSL’s estimate of Rs 578 million. The EBITDA margin declined to 25.5 per cent from 27.4 per cent in 1QFY26 and 27.0 per cent in 4QFY26, primarily because of higher costs, especially diesel prices. Adjusted profit after tax of Rs 294 million was below MOFSL’s estimate of Rs 365 million.

Growth Outlook and Quartz Ramp-Up

Management guided for FY27 revenue of about Rs 8,400 million, including Rs 7,200 million from granite and Rs 1,000 million to Rs 1,200 million from quartz. The company expects an overall EBITDA margin of about 26 to 27 per cent.

For FY28, management expects granite revenue growth of 10 to 12 per cent. Improved quartz utilisation and Phase 2 contribution could lift the EBITDA margin closer to 29 per cent.

Quartz Operations

Quartz commercial operations have commenced. Management expects monthly quartz production to reach 10 thousand tonnes by the end of 2QFY27 and 15 thousand tonnes by the end of 4QFY27. Quartz is expected to break even at around 10 thousand tonnes per month in 3QFY27, become profitable in 4QFY27 and achieve optimal profitability in FY28.

Quartz realisation is around Rs 10,000 per tonne, with engineered stone and solar-grade products forming a 65:35 mix.

Capital Expenditure and Project Updates

Management plans capex of Rs 1,250 million for Quartz Phase 2 and Rs 1,200 million for the Sri Lanka rare-earth project over FY27-28.

• Quartz Phase 2 machinery has been ordered. Completion is expected in 10 to 12 months, followed by two to three months of stabilisation, with commercialisation targeted in 4QFY27.
• The Kerala rare-earth project remains delayed following administrative changes after a change in government.

MOFSL Estimates and Valuation

MOFSL reduced its FY27E and FY28E estimates following the 1QFY27 earnings miss and the deferral of Quartz Phase 2 and HSM commissioning contributions to FY29.

Despite the estimate cuts, MOFSL forecasts FY26-28E revenue, EBITDA and PAT growth of 31 per cent, 47 per cent and 51 per cent, respectively, led by the Quartz Phase 1 ramp-up.

At the current market price, Midwest traded at 11 times FY28E EV/EBITDA. MOFSL’s target price of Rs 1,300 values FY28E EBITDA of Rs 3,749 million at 12 times EV/EBITDA, assumes net cash of Rs 37 million and uses 36 million shares outstanding.