Buy SRF; target of Rs 2800: Sharekhan

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

Sharekhan's research report on SRF

Q1 numbers were robust with a 48%/54% y-o-y growth in operating profit/PAT at Rs. 995 crore/Rs. 608 crore, above street estimates but in line with our expectations. Continued robust performance was driven by better-than-expected growth in technical textile and packaging film while chemical performance remained resilient and was broadly in line with our estimate. Technical textile segment’s performance recovered sharply q-o-q with 27% q-o-q rise in EBIT led by margin improvement and volume growth in exports market while packaging film EBIT margins remain stable versus expectation of q-o-q decline. Although chemical EBIT margin contracted 187 bps q-o-q but remained strong at 30.2% led by higher margin/volume for ref-gas. SRF’s capex intensity would remain high as management increased its FY23 capex guidance to Rs. 3,100-3,300 crore with new capex of Rs. 1200-1500 crore in specialty chemicals over 12-18 months. Reiterated FY23 specialty chemical growth guidance of 20% with upside potential and expect soft domestic ref-gas in Q2FY23 given seasonality impact while pricing in the US remains firm.

Outlook

We maintain a Buy rating on SRF with an unchanged PT of Rs. 2,800 as strong capex plan and China plus one strategy would continue to drive sustained strong earnings growth. At CMP, the stock trades at 30.7x/25.7x its FY23E/24E EPS.

More Info

At 11:20 hrs SRF was quoting at Rs 2,384.75, up Rs 20.15, or 0.85 percent.

It has touched an intraday high of Rs 2,398.30 and an intraday low of Rs 2,344.85.

It was trading with volumes of 7,283 shares, compared to its thirty day average of 31,013 shares, a decrease of -76.52 percent.

In the previous trading session, the share closed down 0.84 percent or Rs 20.10 at Rs 2,364.60.

The share touched its 52-week high Rs 2,773.00 and 52-week low Rs 1,514.82 on 08 April, 2022 and 28 July, 2021, respectively.

Currently, it is trading 14 percent below its 52-week high and 57.43 percent above its 52-week low.

Market capitalisation stands at Rs 70,689.91 crore.

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SRF - 250722 -khan