Buy SRF; target of Rs 5600: HDFC Securities

HDFC Securities' research report on SRF

The robust performance of chemical segment (30/25% YoY/QoQ), led by speciality chemicals business, the continuance of strong show of packaging films segment (26/23% YoY/QoQ) owing to healthy demand, and sharp recovery in technical textile segment sequentially (3/136% YoY/QoQ%) along with improved gross margin helped SRF deliver 52/80% beat on estimates. The current momentum in the speciality chemicals business will continue in 2HFY21 as well. Thus, the management has raised the YoY growth guidance for speciality chemical from earlier guidance of 20-22% to >25% for FY21. Over the next 3-4 years, the company will deploy ~50-60% of its Capex toward high growth business of speciality chemicals to tap the opportunities emerging from the agrochemical and pharma industry. We expect, over the next decade, the speciality business to drive the growth for SRF. Besides, it will spend ~20-30% of Capex on packaging films business.

Outlook

We raise the target price to INR 5,600/share (earlier INR 5,120/share) owing to higher guidance and long-term growth prospect of speciality chemicals business and capacity addition in the packaging films business. Maintain BUY.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More