IGI Logo

Chemical segment boosts earnings

SRF posted strong results in Q3FY22 (revenue/EBITDA/PAT up by 56% YoY each), driven by outperformance in all the segments. Higher prices in refrigerant gases and chloromethane boosted overall margins in the chemical business (EBIT margins up 840bps YoY to 29.4%) while packaging film and technical textile margins were stable.

Management shared an encouraging outlook for Q4FY22, driven by strong demand in refrigerant gases and robust growth in speciality chemical. We raise our FY22/23/24 estimated by 13%/7%/17% and expect earnings growth momentum to continue in chemicals, driven by sustained capex of INR18-20bn p.a. Raise SOTP based target price to INR2,744, while maintaining multiple, retain ‘BUY’.

Strong earnings growth momentum across the segment

Q3FY22 witnessed strong earnings growth from the chemical segment, with segment EBIT up by 121% YoY to INR4.2bn benefiting from higher prices in refrigerant gases, increased export volumes in HFC blends and higher profitability in chloromethanes. Specialty chemicals continued with growth momentum. Packaging film (EBIT up 20% YoY to INR2.5bn) margins dropped by 650bps YoY to 20% on high base but have improved QoQ. Technical textiles (EBIT up 67% YoY to INR1.1bn) maintained momentum despite weak demand from nylon tyre cord. Overall, EBITDA/PAT to grow by 56%/56% YoY to INR8.5bn/5bn.

Management remained confident about robust performance

SRF is confident about sustaining strong performance as pricing scenario remains robust in refrigerant gases with solid demand in Q4/Q1. With strong growth in specialty chemicals, overall chemical segment profitability to pick up further in subsequent quarters. We see SRF in solid growth phase with ongoing capex of INR18-20bn p.a. over the next two years across chemicals including CMS, HFCs and PTFE and packaging film including recently announces aluminium foil. Though its packaging film and technical textiles is also contributing to growth, we are excited about strong growth opportunity in chemicals, which is benefiting from the ‘China plus one’ strategy and strong domestic demand.

Outlook and valuations: Growth momentum to sustain; retain ‘BUY’

To factor robust earnings growth, we upgrade our FY22/23/24 estimates by 11%/9%/19%. Though we maintain our SOTP based framework (EV/EBITDA of 32x for chemicals and 12x packaging film and technical textiles), we raise target price to INR2,744 (from INR2,433) rolling forward to Q1FY24, retain ‘BUY’.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.edelweiss.in/disclaimer
SEBI Registration No. INH000000172

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