Neutral SRF; target of Rs 2580: Motilal Oswal

Neutral

Motilal Oswal's research report on SRF

SRF’s Chemical business was the top performer in FY23 with 41% growth, whereas its Packaging Film and Technical Textile businesses remained under pressure. Going forward as well, the chemical business is expected to drive growth as the company has allocated a higher share of capex (~83% of total guided capex) to the business over the next five years. The Chemical business is expected to maintain robust growth (~20% CAGR over FY23-25E) on the back of a resilient capex plan (~10 plants to be commissioned in FY24) and upcoming launches. The sustainability of margins will be the key monitorable. SRF has guided for ~INR25b of capex in FY24 and ~INR150b over CY24-28. The majority of the capex (INR22-23b for FY24; INR120-130b for FY24-28) is allocated to the chemical business as the company plans to enter fluoropolymers and other refrigerants. The Packaging Film segment is expected to witness moderate growth going ahead as margin pressure is likely to continue for the near term. Increasing share of value-added products and operational efficiency will aid profitability. The Technical Textile business is expected to recover on the back of improving NTCF demand and capacity addition in the belting fabrics segment. Margins are likely to stay under pressure due to cheap imports from China.

Outlook

We reiterate our Neutral rating on the stock with our SoTP-based TP of INR2,580, owing to its rich valuation, which has been priced into the near-term upside.

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SRF - 28 -06 - 2023 - moti