9 August 2016
1QFY17 Results Update | Sector: Textiles
TP: INR1,815 (+15%)
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In-line results; capex in chemicals boosts confidence
EBITDA in line but PAT exceeds estimates:
SRF’s consolidated revenues were
flat YoY at INR12.2b (est. of INR13.2b). Chemicals business (CB) continued its
slow growth trajectory of 11.5% YoY, while Technical Textiles (TTB) and
Packaging (PB) declined 5.6% and 5.2%, respectively, due to lower realizations.
EBITDA margins expanded to 23.3% in 1QFY17 from 21.8% in 1QFY16, driven
by margin expansion across the chemicals and technical textile businesses.
Accordingly, adj. PAT grew robustly by 24% YoY to INR1,395m (est. of
INR1,317m) in 1QFY17.
Pain in specialty chemicals to continue, focusing on pharma:
chemicals is expected to have delivered similar growth in the range of 11-12%
as the global agri-chem environment continues to remain weak due to high
channel inventory. We expect the pain in this business to continue over the
next few quarters, but are not perturbed as it is a temporary phase. Also, the
company continues to invest in capability building and has increased focus on
pharma (share has increased to 25% v/s 19% for the specialty chemicals
Confident of long-term growth in chemicals, announces capex of INR3,450m:
SRF announced capex of INR3,450m toward a multipurpose plant for specialty
chemicals (INR1.8b) and chloromethanes plant (INR1.65b). Both plants are
expected to come up by December 2017. SRF has also announced total capex
of INR35b over the next four years, 70% of which will go toward chemicals.
Valuation and view:
SRF has exhibited superior performance across all
segments, except specialty chemicals, which is going through a transitory
phase. Due to its focus on value-added packaging films, PB has exhibited strong
margins of 15.4% in 1QFY17, while most of the industry players have witnessed
a sharp decline in margins. TTB continues to remain steady, posting strong
margin improvement of 14.5% in 1QFY17. We maintain our estimates and
expect it to post 10.2% revenue CAGR (to INR55.9b) and 20.7% adj. PAT CAGR
over FY16-18E. We value the stock on an SOTP basis, and maintain our
rating with a TP of INR1,815 (implied P/E of 17x FY18E EPS).
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
Financials & Valuations (INR b)
EPS Gr. (%)
(Chintan.Modi@MotilalOswal.com); +91 22 3982 5422
(Niket.Shah@MotilalOswal.com); +91 22 39825000
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