Buy SRF; target of Rs 2745: Sharekhan

Sharekhan is bullish on SRF has recommended buy rating on the stock with a target price of Rs 2745 in its research report dated October 30, 2023.

Broker Research

November 03, 2023 / 11:29 IST

Buy

Sharekhan's research report on SRF

Q2FY2024 results reflect demand/pricing pressure on the fluorochemicals business, inventory rationalisation in specialty chemicals and weak demand for some industrial chemicals. Thus, consolidated PAT of Rs. 320 crore (down 17% q-o-q) was 7% below our estimate. Chemical segment’s EBIT declined by 24% q-o-q to Rs. 348 crore due to a 14% decline in revenue and a 332 bps q-o-q contraction in EBIT margin to 24.4%. Ref-gas witnessed volume/pricing pressure, while specialty chemical witnessed weak global demand owing to inventory rationalization by certain key customers. Management expects single digit growth in specialty chemical segment which indicates good recovery in H2FY24. From the Ref-gas segment, management expects uptick in the pricing and overall utilization of 85% capacity by end of FY25. Management believes that near-term prospects for packaging films business are weak while technical textile to remain stable.

Outlook

Near-term issues are likely to persist, given challenges in the chemicals industry. Having said that, SRF is a quality player and its investment in specialty chemicals provides strong long-term earnings growth prospects. Recent weakness in stock price is a good investment opportunity and the stock’s valuation seems reasonable at 21x its FY2026E EPS. Hence, we maintain our Buy rating on SRF with an unchanged PT of Rs. 2,745.

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