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SRF Limited - FY22E growth capped on higher plants utilisation - ICICI Securities

Posted On: 2021-05-07 05:41:06 (Time Zone: UTC)

SRF's chemical business revenues and EBIT came above estimates in Q4FY21, and performance in other businesses were equally strong. Specialty chemical revenue rose 43% YoY in FY21 (guidance: >25%) was strong, but flattish ref-gas revenues disappointed. SRF has guided for 10-15% growth in specialty chemicals in FY22 on large base while its fresh capex may show result only in FY23E. But, FY22E can see expansion in margins on operating leverage, but FY23E may see pressure on the same due to large planned launches. SRF remains aggressive on capex in specialty chemicals and it has been strongly rewarded with growth, which may continue in the medium term too. We raised our EPS estimates by 11.5%/10% in FY22E/FY23E on higher packaging film margins. We raise our target price to Rs6,756 (from Rs5,644) on higher chemical segment multiple at 22x (from 18x). Maintain HOLD.

- Chemical business delivers growth on high base. SRF's revenues rose 40% YoY to Rs26bn driven by higher realisation in packaging film business and technical textiles on rise in RM prices and strong performance in chemical business. Chemical business revenues were up 31% YoY to Rs11.5bn on higher growth in both specialty and ref-gas. Specialty chemicals benefited from a few high-value batch-manufactured products. Packaging film revenues rose 63% YoY to Rs9.8bn on ramp-up in Thailand and Hungary, and higher realisation on rise in RM cost. Technical textile revenues were up 27% YoY on faster than expected recovery in domestic tyre industry and RM inflation.

- EBITDA up 78% YoY to Rs6.4bn. Gross profit rose 39% YoY to Rs13bn and margin dipped 61bps YoY to 50% due to steady spread and higher realisation. EBITDA was up 78% YoY to Rs6.4bn due to operating leverage. EBIT expanded 101% YoY to Rs5.2bn.

- Strong EBIT across business. Chemical business EBIT rose 73% YoY to Rs2.8bn. EBIT margin increased by 590bps YoY to 24% on higher contribution from specialty chemicals. Packaging films EBIT was up 67% on rise in volumes and strong spreads, while margin dip was due to stable spread and higher RM prices. Technical textile EBIT came in at Rs728mn, up 96% on low base and likely inventory gains.

- Call highlights: 1) Specialty chemical revenues were Rs23bn in FY21, up 43% YoY; SRF has guided for 10-15% growth in FY22 (existing capacity can deliver revenues of Rs27bn-28bn). 2) Company does see long-term growth intact and continues to commit capex of Rs6bn-6.5bn in specialty chemicals in FY22. 3) SRF has R&D product pipeline of 60 and plans to commercialise 2-3 products each quarter with 15-16 products under production. 4) Ref-gas exit capacity utilisation for HFC is peaked, but we see headroom for capacity utilisation from full year perspective; SRF is investing in R-134a efficiency through change in catalyst. 5) Capex for FY22 is seen at Rs16bn-19bn with 60-70% allocation for chemical business (including spend on PTFE, MPP-4, CMS, R-32 and others), Rs1.5bn in technical textiles and balance in packaging films.

Shares of SRF LTD. was last trading in BSE at Rs.6861.65 as compared to the previous close of Rs. 6841.3. The total number of shares traded during the day was 14680 in over 2688 trades.

The stock hit an intraday high of Rs. 6986.05 and intraday low of 6760. The net turnover during the day was Rs. 100720883.

Source: Equity Bulls

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