Sharekhan has given Buy recommendation for SRF with a target price of Rs. 2800 in its research report issued on May 10, 2022
Sharekhan’s research report on SRF
Q4FY22 operating profit/PAT of Rs. 948 crore/Rs. 606 crore, up 47%/59% y-o-y beat ours/street’s estimates led by stronger-than-expected growth in chemicals (EBIT up 83%/20% y-o-y/q-o-q) and lower tax rate. Chemical business performed robustly, clocking a revenue growth of 36% y-o-y and EBIT margin expansion of 819 bps y-o-y to 32% led by higher margins in ref-gas and strong demand for specialty chemicals. Packaging film saw decent EBIT growth of 8.5% q-o-q and resilient margin of 19.8% (flat q-o-q). Technical textiles’ EBIT declined 20% q-o-q due to revenue de-growth and margin contraction. Specialty chemical segment’s revenue growth guidance of 20% for FY23 and ref-gas pricing to remain strong given favourable demand-supply. Chemical segment would sustain EBIT margin of 31%. FY23 capex target of Rs. 2,500-2,700 crore (~44% on high growth chemicals). A 24% fall in stock price from 52-week high provides a good entry opportunity given capex-led strong earnings growth outlook.
Hence, we maintain a Buy on SRF with an unchanged PT of Rs. 2,800. At CMP, the stock trades at 28.3x/23.7x its FY23E/24E EPS.