SRF : huge upside possible
Call & Research Report by Anand Rathi Research
Report Date: 17 November 2021
CMP Rs. 2055, Target Rs. 2452
Target Period : 2 Quarters
SRF Limited has reported a growth of 35.1% in its consolidated revenues at ₹28,390 million in Q2-FY22 as against Rs21,008 million in Q2-FY21. The performance wan driven by broad based growth in all its business segments.
On the profitability front, the company’s consolidated operating margins stood 23%% at ₹6,544 million in Q2-FY22 as against 27.3% at Rs 5,725 million in Q2-FY21. The decline in operating performance was mainly attributable to due to combination of higher input prices as well as increased cost of logistics.
The consolidated PAT margins for the company during the quarter stood 13.1% at ₹3,725 million as against 15.9% at Rs 3,343 million in Q2-FY21. The PAT margins witnessed lower impact owing to reduction of interest costs primarily.
On segment basis, the Chemicals Business reported a growth of 28% in its revenues from ₹8,812 million to ₹11,264 million during Q2-FY22 over Q2-FY21. During the quarter, the Fluorochemicals Business performed well on account of higher sales volumes in the refrigerants, blends, and chloromethanes segments, with better realizations, especially driven by international sales. The Specialty Chemicals Business delivered a robust performance owing to higher sales from exports and domestic markets Demand for existing and new, niche products has contributed to the overall
sales. Rising crude prices, logistics concerns and globalshortage of key raw materials had an impact on the business during Q2FY22.
The Packaging Films Business reported a growth of 28.7% in its revenues from ₹8,329 million to ₹10,717 million during Q2FY22 over Q2-FY21. The operating profit of the Packaging Films Business declined 27.1% from ₹2,462 million to Rs 1,795 million in Q2-FY22 YoY. During the quarter, margins of BOPET films were under pressure. However, this trend was partially offset with a sustained demand of BOPP films.
The Technical Textiles Business reported an increase of 68% in its segment revenue from ₹3,321 million to ₹5,579 million during Q2-FY22 over Q2- FY21. The operating profit of the Technical Textiles Business increased 164.6% from ₹502 million to Rs. 1,328 million in Q2FY22 over CPLY. Higher sales volumes from the Nylon Tyre Cord Fabrics, Belting Fabrics and Polyester Industrial Yarn segments augured well for the business. The Other Businesses reported an increase of 51.8% in its segment revenue from Rs 569 million to Rs 863 million in Q2-FY22 over Q2-FY21. Both the Coated and Laminated Fabrics Business performed reasonably well in a difficult external environment.
Going ahead, the company envisages to continue to move up in value chain in most of its business segments, increase utilisation of its new plants along with de-bottlenecking in various existing processes in order to sustain growth in long term. The company also is focusing on expanding in new markets / geographies and product offerings. In terms of capex, the plans to incur about ₹20,000 million in current year of which ₹6,600 million has
already been spent.
We have incorporated current financials and updated our numbers for the company. We continue to remain positive on the stock and maintain our BUY rating on the stock with a revised target price of ₹2,452 per share.