Sharekhan has given Buy recommendation for SRF with a target price of Rs. 2960 in its research report issued on Aug 30, 2022
Sharekhan’s research report on SRF
SRF’s management has guided for five-year capex plan of Rs. 15,000 crore (~83% or Rs. 12,500 crore to be spent on chemical) and indicated import substitution in fluoropolymers and industrial chemical to drive growth. Management sounded confident of sustaining 20%+ revenue growth/ROCE in specialty chemical. SRF targets to take pharma revenue to 20-25% in the next five years versus 14-15% currently. Management sees growth opportunities in fluoropolymers, given import substitution opportunity and global customers looking for alternative suppliers. SRF’s PTFE plant (completion expected by Q3FY23) would focus on substituting PTFE imports in India. Management reiterated its outlook for the packaging film business and believes BOPP and VAP should somewhat help negate the margin decline in BOPET. Technical textile would see small capex of Rs. 162 crore to expand belting fabric capacity by 63% to 1800 metric tonne per month.
We maintain Buy on SRF with a revised PT of Rs. 2,960, as strong capex plan and China plus one strategy would continue to drive sustained strong earnings growth. At the CMP, the stock trades at 34.1x/28.6x its FY2023E/FY2024E EPS.