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Strong demand for specialty chemicals drives growth

Our View

SRF reported a robust operating profit of Rs 9.5bn (+47% YoY; +7.6% QoQ), broadly in-line with our and street estimates. The strong YoY growth during the quarter was primarily driven by strong earnings traction from the Chemicals business. The operating profit the FY22, as a consequence stood 47% higher YoY at Rs 30.2bn. Chemicals business (CB), benefited from strong revenue traction from both domestic and exports markets, led by stronger demand from agrochemicals and pharma segments coupled with better realizations across products. The refrigerant business also benefited from a stronger refrigerant price environment, with trend likely to continue. The EBIT margins also improved QoQ on partial pass-through of increase in costs, with incremental pass though likely in coming months, margins could improve further. The packaging films business benefitted from higher volumes with actional capacities in Thailand and Hungary coming on stream. In coming months while demand for BOPP films is expected to remain healthy, however pressure on BOPET margins is expected on account on competing capacity addition globally. The growth in technical textiles was led primarily by healthy demand for belting fabrics and polyester industrial yarns, even as demand for nylon tyre cord fabrics remained weak. Maintain BUY, with a TP of Rs 2920/sh.

Result Highlights

â–ª Revenue: The consolidated net-revenue stood at Rs 35.5bn (+36% YoY; +6% QoQ), driven by strong revenue traction in refrigerants and specialty chemicals, and aided by growth in technical textile and packaging film businesses as well.

â–ª Consolidated Ebitda & PAT: Consolidated Ebitda at Rs 9.5bn grew by robust 47% YoY & 8%QoQ. Consol. PAT stood at Rs 6bn (+59% YoY; +20% QoQ).

â–ª Chemicals Segment: Revenue stood higher by 36% YoY and 10% QoQ at Rs 15.7bn. Ebit stood at Rs 5.03bn (+83% YoY and 20% QoQ). Higher realization from refrigerants and cholormethanes aided growth.

â–ª Technical Textiles Segment: Revenue stood at Rs 4.96bn (+24% YoY; -8% QoQ) and EBIT stood at Rs 914bn (+26% YoY; -19% QoQ); The Business witnessed significant growth in the Belting Fabrics and the Polyester Industrial Yarn segments, partially offsetting the weak demand for Nylon Tyre Cord Fabrics.

â–ª Packaging Films Segment: Revenue stood at Rs 13.9bn (42% YoY; 9% QoQ), ; EBIT stood at Rs 2.75bn (+26% YoY; +9% QoQ, on buoyant demand for both BOPET and BOPP films.

Valuation

We value SRF at Rs 2920/sh, on DCF basis, implying a target P/E multiple of 36x FY24e, as against 26x the stock is currently trading at.

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