Sharekhan's research report on SRF
Q4FY23 numbers show strength in chemical segment, which helped deliver strong 10% q-o-q growth in consolidated PAT to Rs. 562 crore (5% above our estimate) despite demand/margin headwinds for packaging film/technical textile businesses. Chemical segment EBIT grew by 47% y-o-y/31% q-o-q and was well significantly above our expectation, led by beat of 16%/700 bps in revenues/margins, given phenomenal performance by both fluorochemical and specialty chemical businesses. Packaging film’s EBIT declined by 85%/65% y-o-y/q-o-q to Rs. 41 crore as margins plunged by 1,629/631 bps y-o-y/q-o-q to just 3.6% amid soft BOPET/BOPP spreads. Technical textile segment’s EBIT improved q-o-q but still remains well below normal level given weak NTCF demand. Management was confident with its 20%+ revenue guidance and sustained high margin guidance for chemical segment despite a high base (revenue/EBIT growth of 41%/68% in FY23). Pharma CDMO foray plan and commercialization of 7-8 new AIs over next two years could be key catalyst for growth going forward.
Outlook
Stock price has run-up sharply by 18% from March lows but is still 10% below 52-week high of Rs. 2,864 and thus riskreward seems favourable given expectations of a 20% PAT CAGR over FY23-25E, efficient capital allocation (high capex intensity for chemical business) and a reasonable valuation of 25x its FY2025E EPS. Hence, we maintain a Buy on SRF with an unchanged PT of Rs. 2,960. SRF remains our top pick in the specialty chemical sector.
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