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SRF Ltd>
  • CMP : 2,403.5 Chg : -18.75 (-0.77%)
  • Target : 2,550.0 (16.87%)
  • Target Period : 12-18 Month

20 Feb 2023

Specialty chemical continues to influence numbers…

About The Stock

Incorporated in 1970, SRF started with nylon cord tyre and thereafter diversified into refrigerant gases, speciality chemicals and packaging film among others.

  • Chemicals (Specialty + Fluorochemicals) form 43% of overall revenues followed by packaging film (39%), technical textile (15%) and others (3%).
  • The company exports to more than 90+ countries. The revenue from international market constitutes 57% of overall revenues while rest is from the domestic market segment

Sales growth in line with estimates led by chemicals while margins were below expectations due to cost pressure in packaging and technical textiles divisions.

  • Reported revenue growth was 4% YoY to ₹ 3,469.7 crores, led by chemicals (up 23% YoY), but pulled down by technical textile (down 21% YoY), packaging film (down 6% YoY) and other segment (down 14% YoY)
  • Gross margins increased 22 bps YoY to 51.2% while EBITDA margin fell 232 bps YoY to 24%. Absolute EBITDA was down 5% YoY to ₹ 833.5 crore
  • PAT increased 1% YoY to ₹ 511 crore. Finance cost increased 111% YoY to ₹ 62 crore due to higher capex investment
What should Investors do?

The stock appreciated at 47% CAGR in last three years.

  • We retain BUY rating on the back 1) sustained efforts to ride on the increasing opportunities for specialty + fluorochemicals across key industries, 2) entering into new segment of Fluoropolymer PTFE and 3) optical visibility capex drive with a heavy tilt towards chemicals
Target Price and Valuation

We value SRF on SOTP to arrive at a target price of
₹ 2550/share (earlier ₹ 2900/share).

Key Triggers for future price performance
  • Continuous capex towards speciality chemical on the back of higher consumption of fluoro compounds across agrochemical and pharma to support strong business performance in the years to come
  • Venturing into PTFE through backward integration of R22. Commencement of production, which is behind schedule
  • Control over working capital along with better operational performance to improve FCF generation
Alternate Stock Ideas

Besides SRF, in our chemical coverage, we also like Neogen Chemical.

  • Trigger for Neogen Chemical’s future revenue growth would be increasing CRAMS opportunity
  • BUY with a target price of ₹ 1680

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E FY25E 3 Year CAGR (FY22-FY25E)
Net Revenue 7,209.4 8,400.0 12,433.7 20.9 13,871.4 16,538.8 19,271.0 15.7
EBITDA 1,454.9 2,144.9 3,175.9 26.1 3,080.2 3,859.2 4,823.4 14.9
EBITDA Margins (%) 20.2 25.5 25.5 0.0 22.2 23.3 25.0 0.0
Adj.PAT 1,019.1 1,197.9 1,888.9 29.7 1,734.2 2,188.1 2,816.3 14.2
Adj. EPS (₹) 34.3 40.3 63.5 - 58.3 73.6 94.7 -
EV/EBITDA 46.7 31.6 21.3 - 22.4 17.9 14.3 -
P/E 63.7 54.2 34.4 - 37.4 29.7 23.0 -
ROE (%) 20.7 17.5 22.1 - 17.7 19.0 20.4 -
ROCE (%) 16.1 18.7 23.8 - 18.9 21.0 23.7 -
Source: Company, ICICI Direct Research



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