Buy SRF; target of Rs 2960: Sharekhan

Sharekhan's research report on SRF

Q2FY23 results was weak with 15%/12% miss in operating profit/PAT at Rs. 769 crore/Rs. 481 crore, down 23%/21% q-o-q due to margin pressure at its technical textile/packaging film and weak revenue at technical textile given lower volume offtake for NTCF. Packaging film EBIT margin declined sharply by 913 bps /1211 bps y-o-y/q-o-q to 7.6% due to weak BOPET spreads, high power cost and lower utilization at Hungary plant and inventory loss. Technical textile EBIT margin contracted by 1031 bps/685 bps y-o-y/q-o-q to 13.5% given subdued NTCF demand affected utilization. Chemical EBIT margin remained resilient at 28.3% (up 597 bps y-o-y; down 194 bps q-o-q) led by strong traction in specialty chemical and Fluorochemicals business. Packaging film margin to remain under pressure as new BOPET capacities has come onstream while management expects technical textile to witness recovery in H2FY23. Management maintained 20% growth guidance for specialty chemical and expects sustained high ref-gas price. Capital intensity on high growth chemical segment to remain strong with FY23/long term capex plan of Rs. 3,000 crore/Rs. 15000 crore.

Outlook

We maintain a Buy rating on SRF with an unchanged PT of Rs. 2,960 as strong capex plan and China plus one strategy would continue to drive sustained strong earnings growth. At CMP, the stock trades at 35.6x/28.2x/25.1x its FY23E/24E/FY25E EPS.

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SRF - 05-11-2022 - khan