Hold SRF; target of Rs 2135: ICICI Securities

ICICI Securities research report on SRF

SRF’s Q1FY24 print for its chemical business (EBIT down 11.6% YoY) was below our expectations and was hurt from lower sales in ref-gas (both volume and price declined) while specialty sales were hurt from destocking. Company anticipates specialty chemicals sales to be impacted over the next few quarters though it has not seen any order cancellation, which implies steady underlying demand. SRF expects ref-gas revenue to improve in Q2FY24 on better sales in the domestic market, and H2FY24 to benefit from higher US sales. We remain cautious on near-term ref-gas sales in domestic market due to start of quota determination period, which could intensify competition; and the US has to undergo 30% phase-down in GWP consumption w.e.f. 1st Jan’24.

Outlook

We have cut our EPS estimates by 16% / 4.8% for FY24E / FY25E factoring-in a gradual recovery. Accordingly, we have cut our target price to INR 2,135 (from INR 2,520) as we cut chemical business EV/EBITDA multiple to 18x (from 20x). Maintain HOLD.