3 September 2020
Company Update | Sector: Chemicals
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
248.5 / 3.3
4437 / 2492
TP: INR5,170 (+20%)
Investing heavily in Chemicals; Returns to accrue going forward
Technical Textiles/Packaging capex in self-sustaining mode
SRF incurred total capex of INR84b over the last 10 years, of which 57% was
deployed toward the Chemicals segment. Of the total capex, 63% was incurred in
the past 5 years itself.
Additionally, on 31 Aug’20, the SRF board approved fund raise of INR7.5b through
QIP and INR2.5b through issuance of listed redeemable secured non-convertible
debentures by way of private placement.
In this report, we analyse SRF’s capex over the past decade and the company’s plans
in the future.
Financials Snapshot (INR b)
FY21E 2022E 2023E
78.3 98.8 118
8.58 12.2 15.5
EBITDA Margin (%) 21.7 22.2 22.5
Cons. Adj. EPS (INR) 147 209 265
EPS Gr. (%)
982 1,168 1,407
0.61 0.45 0.32
15.9 19.4 20.6
10.9 13.8 15.6
16 11.1 9.85
29.4 20.7 16.3
16.9 12.9 10.5
Div. Yield (%)
0.46 0.46 0.52
FCF Yield (%)
2.98 2.85 3.26
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Capex accelerates over last 5 years; higher capital invested in Chemicals
Over FY11-20, SRF’s cumulative capex stood at INR84b with the company
delivering revenue of 11% CAGR to INR72b. Of the total capex incurred over
the last 10 years, 57% has been deployed toward Chemicals, resulting in 16%
revenue CAGR to INR29.8b.
Over the last 10 years, incremental revenue/EBITDA stood at
INR47.1b/INR8.4b while the company incurred capex of INR56.4b over FY11-
18 (assuming lag effect of 2 years due to monetization i.e. capex of 8 years is
considered for calculating ratios). Thus, translating into incremental
revenue/EBITDA to capex of 0.83x/0.15x.
Over the last 5 years, SRF has incurred capex of INR53b – constituting 63% of
the capex incurred over the last decade. Thus, capex intensity has increased in
the last 5 years.
Average asset turnover/fixed asset turnover for the last 10 years stood at
0.9x/0.8x, signifying the capital heavy nature of certain business segments.
Average consol. capital employed (CE) to EBITDA for the last 10/5 years stood
at 6.2x/6.4x. For the Chemicals segment, average CE to EBITDA over the last 5
years was reported at 6.2x (v/s average CE of Technical Textiles/Packaging
films of 4.4x/5.4x over the same period).
SRF plans to spend INR12-13b on capex in FY21 across geographies and
Capex in Technical textiles/Packaging largely self-sustainable
According to our observations in the past – for the Packaging segment –
whenever EBITDA performance improved substantially, it was followed by
higher capex in the following years. For instance, in FY11 when the segment’s
EBITDA increased 6.2x YoY to INR3.8b, SRF incurred capex of INR7b over FY13-
14. The same was witnessed in FY20 – on the back of 47% EBITDA CAGR over
FY18-20 to INR6.4b in FY20 – the company incurred capex of INR11b (in FY20).
Against this backdrop, the segment’s EBITDA less capex for the last 10/5 years
is negative at INR3.4b/1.1b.
Sumant Kumar - Research Analyst
Research Analyst: Darshit Shah
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.