14 February 2017
Q3FY17 Results Update | Sector: Textiles
SRF Ltd
Buy
BSE SENSEX
28,339
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
8,792
SRF IN
57
90.8 / 1.4
1,970 / 1,022
-7/-3/22
340.1
47.6
CMP: INR1,581 TP: INR1,825(+15%)
SpChem pain to continue, but funnel remains healthy
Financials & Valuations (INR b)
2016
2017E
Y/E Mar
46.0
47.3
Net Sales
9.6
10.0
EBITDA
4.2
4.7
PAT
73.7
82.4
EPS (INR)
39.7
11.8
Gr. (%)
456.8
523.8
BV/Sh (INR)
17.0
16.5
RoE (%)
19.4
18.4
RoCE (%)
21.6
19.3
P/E (x)
3.5
3.0
P/BV (x)
2018E
55.2
11.6
5.7
99.9
21.3
603.4
17.4
20.8
15.9
2.6
Estimate change
TP change
Rating change
Revenue, EBITDA in line:
SRF’s consolidated revenue grew 3.4% YoY to
INR11.33b (our estimate: INR11.46b). Chemicals business (CB) de-grew 4.2% YoY
while Packaging (PB) remained flattish YoY. Technical Textiles (TTB) grew 13.3%
YoY, mainly because the base quarter was impacted by floods in Chennai.
EBITDA margin declined to 20.4% in 3QFY17 from 21.3% in 3QFY16 due to sharp
margin decline in CB. Lower operating leverage in CB led to lower PBIT margin of
16% v/s 26.4% in 3QFY16. Margins in TTB and PB remained healthy. Adjusted
PAT grew 6.4% YoY to INR1,083m (our estimate: INR978m).
Growth revival in Specialty Chemicals delayed:
The management highlighted
that the global agrochemicals environment remains weak, impacting its Specialty
Chemicals (SpChem) business. It expects the pain to continue for the next couple
of quarters. However, the pipeline of molecules or the funnel remains healthy
and it continues to invest in capability building and focus on Pharmaceuticals.
Within Pharmaceuticals, SRF plans to extend its reach in US and Japan. Margins
also dropped on account of operating leverage. The mix between Agrochemicals
and Pharmaceuticals for 3QFY17 was 80:20.
Refrigerant gas business performs well; HFO technical capabilities in place:
R-
134a gas registered healthy growth, driven by exports. The total volume for
9MFY17 was ~6,700 tonnes (against ~7,000 tonnes in FY16); the management
believes it will achieve its initial guidance of ~10,000 tonnes for FY17. Supply of
dymel (higher margins) is likely to commence in six months. Technical
capabilities to manufacture HFO1234yf are also in place.
Valuation and view:
We believe SRF is the best play in Chemicals. It is R&D-
driven and operates in a niche area. TB remains a cash cow while PB margins are
stable, SRF being the lowest cost manufacturer. Once the global agrochemicals
industry bounces back, SRF should benefit the most, as it has capacities in place
and has only improved its R&D prowess over the years. However, considering
that SpChem pain will extend into FY18, we cut our FY18 earnings estimates by
5%. We expect SRF to post 11% revenue CAGR and 20% adjusted PAT CAGR over
FY16-19. We maintain
Buy
with a target price of INR1,825.
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.
Chintan Modi
(Chintan.Modi@MotilalOswal.com); +91 22 6129 1554
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 6129 1535

SRF Ltd
Exhibit 1: Revenue trend
Revenues (INR m)
12,214
5.7%
11,628
-2.2%
10,956
-1.6%
11,150
3.1%
-0.2%
Growth %
12,192
11,438
-1.6%
11,330
3.4%
Source: Company, MOSL
Exhibit 2: EBITDA margin trend
EBITDA (INR m)
Margins (%)
23.3%
21.8%
21.4%
21.3%
20.3% 20.4%
2,841
2,326
2,317
Exhibit 3: PAT trend
PAT (INR m)
1,124
9%
1,097
9%
1,017
9%
1,042
11%
9%
Margins (%)
1,395
1,135
10%
1,083
10%
20.0%
2,232
2,667
2,484
2,337
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Revenue mix
Technical Textile
Chemicals
Packaging
Exhibit 5: PBIT mix
Technical Textile
Chemicals
Packaging
14% 15% 5%
29% 27% 25% 21% 25% 29% 28%
49% 54%
54%
45% 47%
62%
13%
54% 47% 37% 36%
37%
25% 28% 34%
30% 27% 26% 29% 29% 29% 26% 27% 29% 28%
27% 27% 29% 31% 31% 34% 39% 35% 32% 32%
43% 45% 44% 40% 40% 37% 36% 38% 40% 41%
37% 31% 41%
27% 26%
Source: Company, MOSL
Source: Company, MOSL
14 February 2017
2

SRF Ltd
Exhibit 6: Chemicals revenue trend
Revenues (INR m)
Growth
Exhibit 7: Chemicals PBIT trend
PBIT (INR m)
Margins (%)
27%
30.1%
18.0% 20.5%
36.4%
11.4%
-4.2%
24%
19%
25%
22%
26%
24%
26%
17% 16%
0.3%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 8: Packaging revenue trend
Revenues (INR m)
Growth
Exhibit 9: Packaging PBIT trend
PBIT (INR m)
17%
Margins (%)
18%
14% 13% 14%
17.1%
0.7%
9.7%
7%
0.9%
-5.2%
-1.9% -0.2%
7%
2%
15% 14%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Technical Textile revenue trend
Revenues (INR m)
Growth
Exhibit 11: Technical Textile PBIT trend
PBIT (INR m)
648
13.3%
424
12%
-4.4%
8%
10%
463
566
462
11%
9%
213
5%
Margins (%)
673
493
12%
14%
13% 13%
610
631
-8.2%
-3.1%
-17.6%
-14.1%
-5.6%
Source: Company, MOSL
Source: Company, MOSL
14 February 2017
3

SRF Ltd
Key highlights from concall
The company did not witness any significant impact of Demonestisation in
3QFY17 whereas 4QFY17 can see some impact.
Outlook for margins in packaging business remains tough as new lines are
expected to come up at industry level in FY18. However, due to benefits of DTA
– custom duty will be saved and to that extent any negative impact on margins
will be offset.
BOPET – new site in MP is now operational and will start contributing
meaningfully from FY18 while BOPP capex is on time and will be operational in
last quarter of FY18.
In technical Textile, SRF remains market leader in coated and laminated fabric
while performance in belting fabric improved as mining activity picked up.
In SpChem, pipeline is full and ready to meet the needs as and when the
demand comes in. Overall sentiments continued to remain subdued however
qualification lots leads continued to remain healthy. Management maintained a
cautious stance
Dymel – plant is ready and has started producing, but process has to be
completed with regards to evaluation and testing and will take 3-6months to
start supplying.
Flouro chem – SRF is now the largest manufacturer of refrigerants in India with
market share above 50%. R134a and its blends will drive the revenue going
ahead. R32 progress is currently slow.
In case of HFO1234yf, the company will put up commercial plant once there is
significant demand.
14 February 2017
4

SRF Ltd
Valuation and view
We believe SRF will be the preferred choice for global agrochemicals and
pharmaceutical players for fluorine-based molecule requirements on the back of
SRF’s strong R&D capabilities and ability to provide support across value chain—
from access to critical starting materials, in-house process research and
development, lab synthesis and pilot production to setting up dedicated plants
for commercial production.
SRF continues to exhibit superior performance across all segments except
specialty chemicals which is going through transitory phase. Due to focus on
value added films and being the lowest cost operator, margin in PB segment
have remained stable while most of the players in industry have witnessed
sharp decline in margins. TTB continues to remain steady and has posted strong
margin improvement at 12.9% in 3QFY17.
We believe, once the global Agchem bounces back, SRF will benefit the most as
it has got capacities in place and has only improved its R&D prowess over the
years. However, considering the near term pain, we cut our FY18 earnings
estimates by 5% while largely maintaining FY17/19 estimates. We expect it to
post 11% revenue CAGR while adj. PAT to register 20% CAGR over FY16-19E. We
value the stock on SOTP basis and maintain Buy with a target price of INR1,825.
Exhibit 12: SOTP valuation
Business Segment
Chemicals
Technical Textile
Packaging
Total
EPS FY19E
70.7
28.3
26.1
125.1
P/E Multiple FY19E
20x
8x
7x
15x
Value (INR)
1415
227
183
1825
Exhibit 13: Price to earnings (One year forward)
23
17
12
6
0
6.9
10.6
7.5
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Exhibit 14: Price to book (One year forward)
4.1
3.1
2.1
1.1
0.1
1.2
1.2
1.6
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Source: Company, MOSL
Source: Company, MOSL
14 February 2017
5

SRF Ltd
Story in charts
Exhibit 15: Share of chemicals in revenues increasing
Technical Textile
22
24
54
Chemicals
Packaging Films
Exhibit 16: Contribution within chemicals
Specialty chemicals
HFC-134a
Chloromethanes
Dymel
Other commodity chemcials
Engineering plastics
27
28
45
FY15
28
34
38
FY16
27
35
38
FY17E
29
35
37
FY18E
30
37
33
FY19E
44
11
20
7
18
FY14
45
1
12
19
8
15
FY15
45
3
18
17
6
11
FY16
42
4
23
16
6
10
FY17E
40
3
27
15
6
9
FY18E
42
3
27
13
6
9
FY19E
FY14
Source: MOSL, Company
Source: MOSL, Company
Exhibit 17: PAT to post a CAGR of 20% over FY16-19E
PAT
86
40
13
1625
-36
FY14
3028
FY15
4229
FY16
4798
FY17E
5737
FY18E
7313
FY19E
20
Growth %
Exhibit 18: Debt to equity to reduce to 0.4
1.1
0.9
27
21,753
20,244
21,012
Debt
0.8
0.6
19,212
0.5
19,212
0.4
14,712
FY14
FY15
FY16
FY17E
FY18E
FY19E
Debt to equity
Source: MOSL, Company
Source: MOSL, Company
Exhibit 19: RoCE to improve to 24%
RoE %
19
16
9
8
FY14
FY15
FY16
FY17E
FY18E
FY19E
14
17
18
17
RoCE %
21
19
24
Exhibit 20: Strong free cash flow generating
FCF
4,167
1,021
579
2,066
884
7,148
17
-2,517
FY12
FY13
-4,430
FY14
FY15
FY16
FY17E FY18E FY19E
Source: MOSL, Company
Source: MOSL, Company
14 February 2017
6

SRF Ltd
Exhibit 21: Operating matrix
Revenues (INR m)
Technical Textile
Chemicals
Packaging
Revenue growth %
Technical Textile
Chemicals
Packaging
PBIT (INR m)
Technical Textile
Chemicals
Packaging
PBIT margins (%)
Technical Textile
Chemicals
Packaging
FY13
37,829
21,283
10,348
6,199
-5.5
-0.4
-14.0
-6.1
4,760
1,234
3,465
60
12.6
5.8
33.5
1.0
FY14
40,181
21,802
9,561
8,817
6.2
2.4
-7.6
42.2
3,494
1,631
1,913
-50
8.7
7.5
20.0
-0.6
FY15
45,398
20,319
12,634
12,445
13.0
-6.8
32.1
41.1
5,576
1,957
2,983
636
12.3
9.6
23.6
5.1
FY16
46,001
17,429
15,524
13,048
1.3
-14.2
22.9
4.8
7,545
1,728
3,888
1,930
16.4
9.9
25.0
14.8
FY17E
47,307
18,052
16,404
12,850
2.8
3.6
5.7
-1.5
7,619
2,347
3,281
1,992
16.1
13.0
20.0
15.5
FY18E
55,209
20,155
19,153
15,900
16.7
11.6
16.8
23.7
8,987
2,419
4,501
2,067
16.3
12.0
23.5
13.0
FY19E
63,702
20,800
23,832
19,069
15.4
3.2
24.4
19.9
11,061
2,600
6,077
2,384
17.4
12.5
25.5
12.5
Source: Company, MOSL
14 February 2017
7

SRF Ltd
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2012
40,010
15.2
8,314
20.8
1,837
6,478
1,172
312
0
5,617
1,829
32.6
0
3,788
3,788
-21.8
2012
584
17,931
18,515
12,284
2,128
32,927
41,463
20,713
20,750
4,175
1,405
13,321
4,877
4,837
1,401
2,206
6,753
6,500
253
6,568
32,927
2013
37,830
-5.4
6,143
16.2
2,089
4,054
998
420
0
3,476
946
27.2
0
2,530
2,530
-33.2
2013
584
19,105
19,689
17,040
2,503
39,232
47,566
24,197
23,369
5,654
1,512
15,181
5,632
5,087
1,910
2,552
6,513
6,240
273
8,668
39,232
2014
40,181
6.2
5,053
12.6
2,248
2,806
961
235
0
2,080
455
21.9
0
1,625
1,625
-35.8
2014
584
20,082
20,667
21,753
2,752
45,172
61,072
25,657
35,415
1,121
366
17,693
7,464
6,915
825
2,489
9,516
9,173
343
8,177
45,172
2015
45,398
13.0
7,175
15.8
2,450
4,724
1,376
646
0
3,994
966
24.2
0
3,028
3,028
86.4
2015
584
22,379
22,963
20,244
3,386
46,593
66,773
27,585
39,188
1,041
943
17,624
7,635
6,107
1,073
2,810
12,238
11,955
283
5,386
46,593
2016
46,001
1.3
9,610
20.9
2,892
6,718
1,283
273
0
5,708
1,478
25.9
0
4,229
4,229
39.7
2016
584
26,110
26,695
21,012
3,997
51,704
72,754
30,476
42,278
0
1,619
20,765
7,050
5,145
3,892
4,678
12,993
12,715
278
7,772
51,704
2017E
47,307
2.8
9,958
21.1
2,970
6,989
1,066
259
90
6,272
1,474
23.5
0
4,798
4,729
11.8
2017E
584
30,027
30,611
19,212
3,997
53,821
78,754
33,446
45,308
0
1,619
20,363
7,555
5,785
2,212
4,811
13,504
12,216
1,289
6,858
53,821
2018E
55,209
16.7
11,594
21.0
3,224
8,369
(INR Million)
2019E
63,754
15.5
13,835
21.7
3,420
10,414
941
272
0
7,700
1,964
25.5
0
5,737
5,737
21.3
2018E
584
34,679
35,263
19,212
3,997
58,473
85,754
36,670
49,084
0
1,619
22,800
9,000
6,958
1,070
5,773
15,065
13,492
1,573
7,735
58,473
831
300
0
9,883
2,570
26.0
0
7,313
7,313
27.5
2019E
584
40,636
41,221
14,712
3,997
59,930
88,754
40,091
48,664
0
1,619
26,315
10,111
8,035
1,531
6,639
16,703
14,760
1,942
9,613
59,930
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
14 February 2017
8

SRF Ltd
Financials and Valuations
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
Ratios
2012
64.8
96.3
316.8
13.9
24.9
2013
44.1
79.0
336.9
10.0
26.4
2014
28.3
66.3
353.6
10.0
41.3
2015
52.7
93.7
392.9
10.0
22.5
30.1
4.0
2.4
15.4
0.6
2016
73.7
121.8
456.8
10.0
15.7
21.6
3.5
2.4
11.3
0.6
17.0
19.4
19.3
0.9
38
110
118
0.6
2016
9,610
273
703
-1,478
0
9,107
-4,940
4,167
0
-676
-5,616
0
768
-1,283
-157
-672
2,819
1,073
3,892
2017E
82.4
131.7
523.8
13.2
18.4
19.3
3.0
2.3
10.9
0.8
16.5
18.4
18.3
0.9
42
118
110
0.5
2017E
9,958
259
-767
-1,474
90
8,066
-6,000
2,066
0
0
-6,000
0
-1,800
-1,066
-881
-3,747
-1,681
3,892
2,211
2018E
99.9
153.3
603.4
16.3
18.9
15.9
2.6
2.0
9.4
1.0
17.4
20.8
20.2
0.9
43
119
110
0.5
2018E
11,594
272
-2,018
-1,964
0
7,884
-7,000
884
0
0
-7,000
0
0
-941
-1,085
-2,026
-1,142
2,211
1,069
2019E
125.1
183.7
705.4
20.0
18.5
12.7
2.3
1.6
7.6
1.3
19.1
24.5
23.7
1.1
43
116
110
0.3
2019E
13,835
300
-1,416
-2,570
0
10,148
-3,000
7,148
0
0
-3,000
0
-4,500
-831
-1,356
-6,687
461
1,069
1,531
21.3
31.3
34.8
1.2
41
77
84
0.5
2012
8,314
857
-64
-1,658
-802
6,648
-5,627
1,021
-243
256
-5,614
-900
2,336
-1,028
-944
-536
498
902
1,401
13.2
16.9
20.2
1.0
46
95
92
0.7
2013
6,143
394
-1,445
-632
-232
4,227
-6,744
-2,517
-63
92
-6,716
0
4,547
-889
-660
2,998
509
1,401
1,910
8.1
9.4
10.1
0.9
58
114
126
1.0
2014
5,053
182
-1,199
-413
-156
3,467
-7,897
-4,430
1,156
144
-6,597
0
3,911
-1,198
-668
2,045
-1,085
1,910
825
13.9
15.6
15.2
1.0
46
110
91
0.8
2015
7,175
616
-1,011
-850
-507
5,423
-4,845
579
-632
482
-4,994
0
1,889
-1,392
-678
-181
248
825
1,073
Cash Flow Statement
(INR Million)
14 February 2017
9

SRF Ltd
Corporate profile
Company description
SRF is a multi-business entity involved in Technical
Textiles (TTB; 45% of FY15 revenue), Chemicals (CB;
28%), and Packaging (PB; 27%). In terms of PBIT,
TTB contributed 35%, CB 53%, and PB 11%. In the
past few years, SRF has invested heavily (~INR18b)
in Dahej for setting up a chemicals complex, which
should begin to contribute meaningfully from FY15.
The Chemicals business is likely to drive overall
growth and profitability, the Packaging business is
in the midst of an upturn and the Technical Textiles
business continues to generate enough cash flows
to support expansion of the Chemicals business.
Exhibit 2: Shareholding pattern (%)
Dec-16
Promoter
DII
FII
Others
52.4
10.8
18.6
18.2
Sep-16
52.4
11.2
18.0
18.5
Dec-15
52.4
12.6
16.1
19.0
Source: Capitaline
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 3: Top holders
Holder Name
Amansa Holdings Private Limited
DSP Blackrock Mip Fund
Sundaram Mutual Fund A/C Sundaram
Select Midcap
Stichting Depositary Apg Emerging Markets
Equity Pool
Uti-Unit Scheme For Charitable And
Religious Trusts And Registered Societies
% Holding
6.5
3.7
2.3
2.0
1.6
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Arun Bharat Ram
Ashish Bharat Ram
Kartikeya Bharat Ram
Anoop K Joshi
Designation
Chairman
Managing Director
Deputy Managing Director
CFO & Company Secretary
Exhibit 5: Directors
Name
L Lakshman
Tejpreet S Chopra
Vinayak Chatterjee
K Ravichandra
Name
Pramod Bhasin
Vellayan Subbiah
Meenakshi Gopinath
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Deloitte Haskins & Sells
H Tara & Co
Sanjay Grover & Associates
Sanjay Gupta & Associates
Type
Statutory
Cost Auditor
Secretarial Audit
Cost Auditor
Source: Capitaline
14 February 2017
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
82.4
99.9
125.1
Consensus
forecast
84.4
99.2
119.9
Variation (%)
-2.4
0.7
4.4
Source: Bloomberg
10

SRF Ltd
NOTES
14 February 2017
11

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