24 May 2017
4QFY17 Results Update | Sector: Textiles
SRF Ltd
Buy
BSE SENSEX
30,302
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
9,361
SRF IN
57.4
91.0/1.4
1970 / 1166
-10/-8/12
389
47.6
CMP: INR1,585
TP: INR1,816(+15%)
Refrigerants business on strong footing; Maintain Buy
EBITDA below estimate, Chemicals continues to underperform:
SRF reported
overall revenue of INR13.3b (est. of INR12.3b) in 4QFY17, as against INR11.1b in
4QFY16. On a YoY basis, Chemicals grew by 11.7%, Technical Textiles by 23.3%
and Packaging by 26.3%. EBITDA margin contracted from 20.2% in 4QFY16 to
16.3% (est. of 20.5%) in the quarter. EBITDA declined 4% to INR2,157m (est. of
INR2,533m) from INR2,248m in 4QFY16. Segment-wise, PBIT margin for
Technical Textiles was at 10% (v/s 11.1% in 4QFY16), Chemical at 16.6% (v/s
23.2% YoY) and Packaging at 9.7% (v/s 12.8% YoY). Consequently, adj. PAT grew
7% from INR1,072m in 4QFY16 to INR1,147m (est. INR1,161m) in 4QFY17. For
FY17, revenue grew 5% YoY to INR48.2b, EBITDA margin shrunk 110bp to 20.1%,
while adj. PAT grew 13% to INR4.9b.
Refrigerant Gas business on strong footing:
R-134a gas registered healthy
growth, driven by exports. Total volume for FY17 is expected to have crossed
~10,000t (v/s ~7,000t for full-year FY16), in line with management guidance. Due
to anti-dumping levied on Chinese R-134a in the US, SRF’s performance should
see a boost in terms of volumes and margins (approx. 200bp improvement).
Specialty Chemicals to remain subdued in 1HFY18:
Management highlighted
that the global agri-chem environment continues to remain weak, impacting its
SpChem business, and the pain will continue for next few quarters. However, the
pipeline of molecules or funnel remains healthy, with SRF continuing to invest in
capability building.
Valuation and view:
We believe SRF is the best play in chemicals as it is highly
R&D-driven and operating in a niche area. We believe once the global agrochem
situation improves, SRF will benefit the most as it has capacities in place along
with improved R&D prowess. However, considering an increase in the tax rate
and higher depreciation due to new capex, we cut FY18E/FY19E earnings by
12%/12%. We expect 16% revenue CAGR and 15% adj. PAT CAGR over FY17-19E.
We value the stock on SOTP basis and maintain
Buy
with a TP of INR1,816.
Financials & Valuations(INR b)
2017 2018E
Y/E Mar
48.2
56.6
Net Sales
9.7
10.8
EBITDA
4.9
5.1
PAT
85.9
89.0
EPS (INR)
12.8
3.6
Gr. (%)
544.6
613.5
BV/Sh (INR)
16.6
15.1
RoE (%)
17.7
19.2
RoCE (%)
18.4
17.8
P/E (x)
2.9
2.6
P/BV (x)
2019E
65.3
13.1
6.5
111.5
25.3
701.9
17.0
23.6
14.2
2.3
Estimate change
TP change
Rating change
Quarterly Performance (Consolidated)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
MotilalOswal 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