Chemical company SRF saw its share price zooming over 100 percent so far this year and emerged as the third biggest gainer in the BSE200 index after JSW Energy and IRCTC.
The stock rallied 112 percent in FY22 because of its diversified portfolio and strong financial performance. The stock with a market capitalisation of nearly Rs 67,800 crore outperformed all the major indices, including BSE Sensex and Midcap, which gained 21 percent and 27 percent in the same period.
"SRF gained on the back of diversified portfolio of technical textiles, specialty chemicals, packaging films and others. Also, the company being a leader in specialty chemicals, refrigerants and packaging films, has posted strong financial performance," said Astha Jain, Senior Research Analyst at Hem Securities.
The company - with its strong research and development (R&D), business development and world-class manufacturing infrastructure - is sitting firmly to cash in on opportunities present in the application of fluorine in existing organic intermediates, refrigerants and future opportunities available in fluoropolymers, battery electrolytes, etc.
SRF is a chemical-based multi-business company that produces industrial and specialty intermediates.
Gaurav Garg, Head of Research at CapitalVia Global Research, told Moneycontrol that the first quarter results have added more fuel to the running stock.
SRF's consolidated net profit quadrupled in Q1FY22, reaching Rs 395.3 crore from Rs 176.9 crore in Q1FY21. Revenue increased 75 percent to Rs 2,699 crore from Rs 1,545 crore a year back.
"The growth came due to a surge in the demand for specialty chemicals in domestic as well as the international markets, which account for more than 40 percent of revenue for the company. In technical textiles, margins have structurally expanded as the industry has become more favourable," said Garg.
Following the bumper results announced in July, SRF announced a 4:1 bonus issue where four shares were given away for each share held.
On the basis of future projections, Astha Jain of Hem Securities expects the company to average an annual growth rate of 20 percent in topline till FY24 with expansion in margins on the back of capacity expansion across refrigerants, addition of two multi-purpose plants in speciality chemical segment and foray into fluoropolymers.
Is it overvalued?
Experts largely feel that given the significant rally in the stock price, it is a bit overvalued and could see some healthy correction going ahead.
SRF shot up 168 percent in the last one year and surged 331 percent since March 2020 lows. But in March lows, it did not see major correction like other stocks, falling just 37 percent in one-and-a-half-month period (second half of February till March-end 2020).
"The stock has been showing a consistent growth in profit over the past periods and the EPS has also shown significant growth, the stock is trading at a P/E of 73x which seems a bit overvalued and therefore a healthy correction is expected," said Garg.
Looking ahead, according to him, SRF may rally another 20 percent by the end of FY22 due to the increasing demand for specialty chemicals as well as the technical textiles but there is a chance for a minor correction in the stock as it was in the rally since April before it shows 20-25 percent surge by the end of FY22.
"On the daily chart, the stock is clearly in bullish trend as we can witness the flag and pennant pattern frequently. According to the patterns, we may expect a target of Rs 12,350-12,400 as it is moving in the bullish upward channels with a support of Rs 10,680-10,750," said Garg.
The relative strength index (RSI) for the stock stands at 70 which indicates that it has been overbought but based on the pattern, it is likely to move up to 80-84 as it witnessed in the previous sessions.
Astha Jain, Senior Research Analyst at Hem Securities, feels the stock is showing strong momentum on weekly charts with continuous higher highs and higher low formations since last two weeks. "However, weekly close above Rs 11,410 will confirm further upside till the Rs 12,040 and Rs 12,350 levels," she said.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.