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Robust all‐round performance; BUY

Our View:

SRF reported a robust, above estimated, operating profit of Rs 8.8bn (+62% YoY; +30% QoQ), during the quarter, backed by strong operating earnings, across its business segments. With the 9MFY22 Ebitda of Rs 20.7bn, SRF has already clocked in operating profits higher than entire FY21, in the nine month period.

Chemicals business, benefited from strong revenue traction from both domestic and exports markets, led by demand from agrochemicals manufacturers and as China+1 momentum continued.    The refrigerant business also benefited from stronger refrigerant price environment. The packaging films business benefitted from higher volumes with actional capacities in Thailand and Hungary coming on stream. The margins for packaging films though healthy in 3Q, the segment however carries the overhang of margin moderation going ahead as more competing capacities get commissioned 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. Going ahead, re‐opening of mining sector is likely to propel demand for belting fabrics. Given 4Q, is a seasonally strong quarter for refrigerants and agrochemicals, we expect SRF’s strong earnings traction to continue. Maintain BUY, with a TP of Rs 2965/sh.  

Result Highlights

* Revenue: The consolidated net‐revenue stood at Rs 33.5bn (+56% YoY; +18% QoQ), driven by strong revenue traction in refrigerants and specialty chemical businesses, adequately aided by growth in technical textile and packaging film businesses as well.  

* Consolidated Ebitda & PAT: Consolidated Ebitda at Rs 8.8bn grew by robust 62% YoY & 30%QoQ.  Consol. PAT stood at Rs 5.1bn (+56% YoY; +31% QoQ).  

* Chemicals Segment: Revenue stood higher by 58% YoY and 27% QoQ at Rs 14.3bn. Ebit stood at Rs 4.2bn (+121% YoY and 67% QoQ).  

* Technical Textiles Segment: Revenue stood at Rs 5.4bn (+47% YoY; ‐4% QoQ) and EBIT stood at Rs 1.1bn (+67% YoY; ‐15% QoQ).  

* Packaging Films Segment: Revenue stood at Rs 12.7bn (59% YoY; 19% QoQ); EBIT stood at Rs 2.5bn (20% YoY; 42% QoQ).  

* Capex: Capex on consolidated basis in FY22 expected to be in the range of Rs 19‐ 20bn. For FY23, expected capex of ~Rs 21  ‐22bn including Rs 4bn of new capacities.  

Valuation

We value SRF at Rs 2965/sh, on DCF basis, implying a target P/E multiple of 37x FY24e, as against 29x the stock is currently trading at. Our TP is premised upon a revenue and Ebitda growth CAGR of ~ 17% over FY21‐30e.

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