Powered by: Motilal Oswal
3/09/2018 10:19:33 AM | Source: Emkay Global Financial Services Ltd
Buy SRF Ltd For Target Rs. 2,305.00 - Emkay Global
News By Tags | #872 #2259 #1302 #3116 #1157
Buy SRF Ltd For Target Rs. 2,305.00 - Emkay Global

* SRF’s Q1FY19 revenue grew by 34.6% yoy to Rs17.4bn (Emkay Est. of Rs16.16bn), driven by strong performance of Packaging Films (+64% yoy) and Chemicals (+44% yoy) segments, aided by 6.2% yoy growth in Technical Textiles.

* EBITDA stood at Rs3.1bn with margin expanding by 277bps yoy to 17.9% (Emkay Est: 19.4%) on account of better operational performance across segments. Margin expansion was supported by a healthy performance in Core Speciality Chemicals.

* Forex-adjusted EBIT margins of Packaging Films and Chemical & Polymer segments expanded by 535/323bps yoy to 16.1%/18.7%. There was Rs152mn forex loss in Q1FY19 v/s Rs114mn forex gain in Q1FY18.

* Management sees strong growth in Speciality Chemicals, driven by the commencement of 3 new dedicated facilities and uptick in global agrochemicals cycle. We maintain BUY with SoTP-based TP of Rs2,305 (10.4x EV/EBITDA FY20E).

Recovery in key segments’ growth & profitability…

Speciality Chemicals driving growth in Chemicals segment:

In Q1FY19, the segment revenue grew by 44% yoy to Rs4.77bn (adj. for excise) with 323bps forex adjusted EBIT margin expansion to 18.7% (15.5% in Q1FY18; 17.3% in Q4FY18). Core Speciality Chemicals revenue jumped significantly on yoy basis on the back of new product additions in Chemicals portfolio and a low base. Although domestic Air-Conditioners (AC) market remained sluggish, SRF maintain its market share of more than 50% despite a weak summer. Demand for Refrigerants witnessed low growth due to high inventory in USA. We forecast 23%/22% growth in FY19/20E with 400bps/150bps improvement in EBITDA margin.

Strong performance in Packaging Films (PF):

PF business delivered another strong quarter of growth. Revenue surged by 64% yoy to Rs6.3bn, led by new capacity addition. Further, EBIT margin (forex adjusted) expanded by 535bps yoy to 16.1% (10.8% in Q1FY18), led by robust global demand for BOPET Films. During Q1FY19, the company approved 2nd BOPET Film line (40,000MTPA) and a Resin plant at a cost of US$60mn in Thailand. We forecast 26%/27% top-line growth with 0bps/130bps improvement in EBITDA margin in FY19/20E.

Long-term growth prospects intact; Maintain BUY

Better visibility in the Speciality Chemicals business, along with planned capex across key verticals should position SRF to grow well in future. We maintain our SoTP-based TP of Rs2,305 10.4x EV/EBITDA FY20E) and BUY rating.

 

To Read Complete Report & Disclaimer Click Here

 

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354  

 

Above views are of the author and not of the website kindly read disclaimer

Disclaimer: The content of this article is for informational purposes only and should not be considered financial or investment advice. Investments in financial markets are subject to market risks, and past performance is not indicative of future results. Readers are strongly advised to consult a licensed financial expert or advisor for tailored advice before making any investment decisions. The data and information presented in this article may not be accurate, comprehensive, or up-to-date. Readers should not rely solely on the content of this article for any current or future financial references. To Read Complete Disclaimer Click Here