1 August 2020
1QFY21 Results Update | Sector: Chemicals
SRF
Estimate change
TP change
Rating change
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CMP: INR3,792
TP: INR4,550 (+20%)
Buy
Packaging business drives performance for another quarter
PAT, EBITDA above estimates; Revenue in line
SRF’s 1QFY21 margin expansion was robust due to the packaging segment.
Chemicals segment reported strong revenue growth on back of Specialty
Chemicals. However, the COVID-19 pandemic and Auto sector slowdown
impacted Technical Textiles and Refrigerant segments.
Factoring in the estimate beat, we have increased FY21/FY22E earnings by
15%/6%. Maintain
Buy
rating.
1QFY21 revenue declined 12% YoY to INR15.5b (v/s est. INR15.9b) with
EBITDA margin expansion of 450bp to 24.1% (v/s est. 18.3%). This was
driven by the Packaging Film business. EBITDA was up 8% YoY to INR3.7b
(v/s est. INR2.9b) while Adj. PAT grew 16% YoY to INR1.9b (v/s est. INR1.1b).
Chemicals
revenue grew 17% YoY to INR7.1b with EBIT margin contraction
of 50bp YoY to 12.6% (EBIT grew 13%).
Specialty Chemicals
reported robust
performance due to improved margins, better plant efficiencies and positive
sales off-take, despite logistical challenges faced during the nationwide
lockdown. However,
Fluorochemicals
sales were adversely impacted due to
the COVID-19 pandemic. Significant impact in white goods and automobile
sales largely impacted the
refrigerant gases’
segment.
Packaging Film
revenue declined 3% YoY to INR6.8b with margin expansion
of 11.8pp YoY to 32.6% (EBIT grew 52% YoY). Margin expansion was due to
higher spreads, led by supply-demand mismatch and higher share of value-
added products, resulting in higher value realizations across
Indian/international operations.
Technical Textiles’
revenue plunged 63% YoY to INR1.4b due to significant
slowdown in demand from tyre majors. The COVID-19 pandemic impacted
the segment the most, resulting in a complete shutdown of all its
manufacturing facilities across India. However, plants have resumed
manufacturing in a calibrated manner from May’20 and have since
stabilized operations. EBIT loss for the quarter stood at INR140m (v/s profit
of INR569m last year).
Capex:
Company plans to spend INR12-13b on capex in FY21 across
geographies and segments.
Going forward, net-debt to EBITDA should decline from current level of
~2.5x, as surplus cash will be utilized to repay debt. SRF aims to maintain
net-debt to EBITDA in the range of 1.5-1.8x.
The SRF board has approved setting up of an additional facility to produce
100kMT of Chloromethanes at Dahej, which is expected to be completed by
end-Jan’22. The projected cost is INR3.2b and would be funded through a
mix of debt and internal accruals. SRF already has 95kMT capacity, which is
operating at 100% utilization.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
Y/E Mar
2020 2021E
Sales
72.1
78.3
EBITDA
14.6
17.0
PAT
9.2
8.6
EBITDA (%)
20.2
21.7
EPS (INR)
157.2
146.7
EPS Gr. (%)
49.4
(6.6)
BV/Sh. (INR)
860
982
Ratios
Net D/E
0.7
0.6
RoE (%)
20.1
15.9
RoCE (%)
13.3
10.9
Payout (%)
9.6
16.0
Valuations
P/E (x)
24.1
25.8
EV/EBITDA (x)
17.7
15.1
Div Yield (%)
0.4
0.5
FCF Yield (%)
(1.3)
3.4
SRF IN
59
217.9 / 2.9
4259 / 2492
-3/8/40
1072
Chemicals business shows resilience
2022E
98.8
22.0
12.2
22.2
208.6
42.1
1,168
0.5
19.4
13.8
11.1
18.2
11.5
0.5
3.2
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
52.3
52.3
52.3
11.3
11.3
11.3
17.1
18.3
18.2
19.3
18.1
18.2
Highlights from management commentary
Note: FII includes depository receipts
Research Analyst: Sumant Kumar
(Sumant.Kumar@MotilalOswal.com)
Darshit Shah
(Darshit.Shah@motilaloswal.com) /
Yusuf Inamdar
(yusuf.inamdar@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.