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

SRF Ltd
Exhibit 1: Revenue trend
12,214
11,628
Revenues (INR m)
12,192
11,130
10,956
Growth %
11,438
11,330
19.1%
5.7%
-2.2%
-1.6%
2.9%
-0.2%
3.4%
-1.6%
13,258
Source: Company, MOSL
Exhibit 2: EBITDA margin trend
EBITDA (INR m)
21.8% 21.4%
21.3% 20.2%
23.3%
Margins (%)
20.3% 20.4%
16.3%
Exhibit 3: PAT trend
PAT (INR m)
1,395
1,124
9%
1,097
9%
1,017
9%
1,072
10%
11%
1,135
10%
1,120
10%
1,147
Margins (%)
9%
2,667
2,484
2,337
2,248
2,841
2,326
2,313
2,157
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Revenue mix
Technical Textile
26%
29%
44%
29%
31%
40%
29%
31%
40%
29%
34%
37%
Chemicals
25%
38%
37%
27%
35%
38%
Packaging
29%
32%
40%
28%
32%
41%
27%
36%
38%
Exhibit 5: PBIT mix
Technical Textile
5%
54%
45%
41%
27%
47%
26%
62%
13%
55%
47%
28%
37%
34%
29%
27%
25%
Chemicals
20%
25%
Packaging
29%
27%
36%
37%
21%
48%
25%
31%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6: Chemicals revenue trend
Revenues (INR m)
30.1%
18.0% 20.5%
43.1%
11.4%
0.3% -4.2%
11.7%
Growth
Exhibit 7: Chemicals PBIT trend
25%
19%
PBIT (INR m)
26%
23%
22%
Margins (%)
26%
17%
16%
17%
3,167 3,782 3,852 3,989 4,531 4,214 3,864 3,822 5,063
611
945
857
1,053 1,052 1,116
676
622
841
Source: Company, MOSL
Source: Company, MOSL
24 May 2017
2

SRF Ltd
Exhibit 8: Packaging revenue trend
Revenues (INR m)
17.1%
0.7%
Growth
26.3%
9.7%
5.1%
-5.2% -1.9% -0.2%
2%
17%
Exhibit 9: Packaging PBIT trend
PBIT (INR m)
14%
13%
13%
Margins (%)
18%
15% 14%
10%
2,848 3,527 3,561 3,360 2,993 3,343 3,494 3,352 3,779
59
604
490
431
384
596
527
477
366
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Technical Textile revenue trend
Revenues (INR m)
Growth
13.3%
-8.2%
-3.1%
-14.1%
-10.3%
-5.6% -4.4%
23.3%
Exhibit 11: Technical Textile PBIT trend
PBIT (INR m)
566
Margins (%)
673
463
10%
462
9%
213
5%
481
14%
11%
13%
13%
10%
610
654
536
11%
4,821 4,924 5,024 4,319 4,326 4,647 4,805 4,892 5,332
Source: Company, MOSL
Source: Company, MOSL
Other Highlights
The Board approved capex aggregating approximately INR2b in the Chemicals
Business to create production capability to produce new agrochemical with a peak
production capacity of 250 MT and carry out modifications in the P 11/12 plant with
the objective of improving capacities to meet R 134a production requirements, both
at Dahej.
CGMP manufacturing facility & Multipurpose plant capexes remain on schedule.
SRF is the first domestic company to launch the FLORON 22 cans in India, ensuring
genuine product usage. Also, launched the FLORON brand in Thailand - building on
own sales and distribution set up.
Revival in the mining and steel sector leading to enhanced performance from Belting
Fabric segment.
In Q4FY17, SRF commissioned a new BOPET films unit at the Indore while Domestic
Tariff Area BOPP plant installation is under process and is scheduled as per plan.
BOPP margins were seen to be under pressure.
24 May 2017
3

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. 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.
We believe, SRF is the best play in chemicals as it highly R&D driven and
operating in niche area. We believe, once the global ag-chem 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 increase in tax rate and
higher depreciation on account of new capex, we cut our FY18/FY19 earnings
estimates by 12%/12%. We expect SRF to post 16% revenue CAGR while adj.
PAT to register 15% CAGR over FY17-19E. We value the stock on SOTP basis and
maintain
Buy
with a target price of INR1,816.
Exhibit 12: SOTP valuation
Business Segment
Chemicals
Technical Textile
Packaging
Total
EPS FY19E
62.5
27.4
21.6
111.5
P/E Multiple
FY19E
22x
9x
9x
16x
Value (Rs)
1375
247
194
1816
Exhibit 13: Price to earnings (One year forward)
27
20
14
7
0
7.1
11.1
7.7
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Exhibit 14: Price to book (One year forward)
4.6
3.1
1.7
1.6
0.1
1.2
1.2
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Source: Company, MOSL
Source: Company, MOSL
24 May 2017
4

SRF Ltd
Story in charts
Exhibit 15: Share of chemicals in revenues increasing
Technical Textile
22
24
27
28
28
34
Chemicals
27
34
Packaging Films
29
34
Exhibit 16: Contribution within chemicals
Specialty chemicals
HFC-134a
Chloromethanes
44
45
1
12
19
8
15
FY15
45
3
18
17
6
11
FY16
Dymel
Other commodity chemcials
Engineering plastics
41
3
24
16
5
10
FY17E
39
3
28
14
6
9
FY18E
41
3
29
13
6
8
FY19E
30
37
11
20
7
18
FY14
54
45
FY15
38
FY16
38
FY17E
36
FY18E
33
FY19E
FY14
Source: MOSL, Company
Source: MOSL, Company
Exhibit 17: PAT to post a CAGR of 16% over FY16-19E
PAT
86
4299
42
20
-1
Growth %
6519
5150
5112
28
Exhibit 18: Debt to equity to reduce to 0.4
1.1
0.9
Debt
Debt to equity
0.8
0.6
0.5
17,774
0.3
14,274
3028
1625
-36
FY14
FY15
21,753
20,244
21,297
19,774
FY16
FY17E
FY18E
FY19E
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: MOSL, Company
Source: MOSL, Company
Exhibit 19: RoCE to improve to 24%
RoE %
20
16
9
8
FY14
FY15
FY16
FY17E
FY18E
FY19E
17
14
RoCE %
24
18
17
19
17
Exhibit 20: Strong free cash flow generating
FCF
3,441
1,021
579
1,424
4,150
4,896
15
-2,517
-4,430
FY12
FY13
FY14
FY15
FY16
FY17E FY18E FY19E
Source: MOSL, Company
Source: MOSL, Company
24 May 2017
5

SRF Ltd
Exhibit 21:
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
FY17
48,447
18,477
16,668
13,302
5.3
6.0
7.4
1.9
7,786
2,543
3,273
1,970
16.1
13.8
19.6
14.8
FY18E
56,607
20,635
19,498
16,474
16.8
11.7
17.0
23.8
8,338
2,559
3,802
1,977
14.7
12.4
19.5
12.0
FY19E
65,210
21,340
24,171
19,700
15.2
3.4
24.0
19.6
10,308
2,582
5,559
2,167
15.8
12.1
23.0
11.0
Source: Company, MOSL
24 May 2017
6

SRF Ltd
Financials and Valuations
Income Statement
Y/E March
Total Income from Operations
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY14
40,181
6.2
5,053
12.6
2,248
2,806
961
235
2,080
0
2,080
208
247
21.9
1,625
1,625
-35.8
4.0
FY15
45,398
13.0
7,175
15.8
2,450
4,724
1,376
646
3,994
0
3,994
314
652
24.2
3,028
3,028
86.4
6.7
FY16
45,927
1.2
9,728
21.2
2,750
6,979
1,305
278
5,952
-103
5,849
1,551
0
26.5
4,299
4,374
44.5
9.5
FY17
48,218
5.0
9,694
20.1
2,834
6,860
1,018
455
6,296
276
6,572
1,422
0
21.6
5,150
4,934
12.8
10.2
(INR Million)
FY18E
56,607
17.4
10,812
19.1
3,146
7,666
939
275
7,002
0
7,002
1,891
0
27.0
5,112
5,112
3.6
9.0
FY19E
65,272
15.3
13,054
20.0
3,361
9,694
801
289
9,181
0
9,181
2,663
0
29.0
6,519
6,519
27.5
10.0
Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Goodwill on Consolidation
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Other Current Liabilities
Provisions
Net Current Assets
Deferred Tax assets
Appl. of Funds
FY14
584
20,082
20,667
3,250
21,753
45,670
61,072
25,657
35,415
93
1,121
366
17,693
7,464
6,915
825
2,489
9,516
8,265
908
343
8,177
498
45,670
FY15
584
22,379
22,963
4,094
20,244
47,301
66,773
27,585
39,188
35
1,041
943
17,624
7,635
6,107
1,073
2,810
12,238
6,350
5,606
283
5,386
708
47,301
FY16
584
27,045
27,630
3,820
21,297
52,747
71,410
30,334
41,076
49
1,174
1,649
20,291
6,711
5,145
3,399
5,036
12,789
7,364
5,113
312
7,502
1,297
52,747
FY17
584
31,242
31,827
5,069
19,774
56,670
77,169
33,169
44,000
49
2,586
1,959
20,990
8,381
6,569
876
5,164
15,143
8,388
6,396
359
5,847
2,229
56,670
(INR Million)
FY18E
584
35,269
35,854
5,069
17,774
58,696
84,169
36,315
47,854
49
0
1,959
23,930
9,597
7,134
1,003
6,197
17,324
9,355
6,396
1,573
6,606
2,229
58,696
FY19E
584
40,432
41,016
5,069
14,274
60,359
88,169
39,675
48,493
49
0
1,959
26,098
10,683
8,047
242
7,126
18,469
10,131
6,396
1,942
7,630
2,229
60,359
24 May 2017
7

SRF Ltd
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Cap. Turnover (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Debt/Equity
FY14
28.3
66.3
353.6
10.0
41.3
56.0
23.9
4.5
2.8
22.2
0.6
-75.8
8.1
9.4
10.1
0.9
114
58
126
67
1.9
3
1.1
FY15
52.7
93.7
392.9
10.0
22.5
30.1
16.9
4.0
2.4
15.4
0.6
9.9
13.9
15.6
15.2
1.0
110
46
91
35
1.4
3
0.9
FY16
76.2
121.9
472.8
10.0
15.5
20.8
13.0
3.4
2.4
11.2
0.6
58.9
17.3
19.9
20.2
0.9
105
38
115
33
1.6
5
0.8
FY17
85.9
132.9
544.6
12.0
15.9
18.4
11.9
2.9
2.3
11.3
0.8
24.4
16.6
17.7
18.2
0.9
126
47
127
38
1.4
7
0.6
FY18E
89.0
141.3
613.5
16.3
21.2
17.8
11.2
2.6
1.9
10.0
1.0
71.0
15.1
19.2
18.9
1.0
119
43
116
36
1.4
8
0.5
FY19E
111.5
169.1
701.9
20.0
20.8
14.2
9.4
2.3
1.6
8.0
1.3
83.8
17.0
23.6
22.6
1.1
116
42
110
41
1.4
12
0.3
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
E: MOSL Estimates
FY14
2,080
2,248
908
-413
-1,199
3,623
-156
3,467
-7,897
-4,430
1,156
144
-6,597
0
3,911
-1,198
-668
0
2,045
-1,085
1,910
825
FY15
3,994
2,450
1,346
-850
-1,011
5,931
-507
5,423
-4,845
579
-632
482
-4,994
0
1,889
-1,392
-678
0
-181
248
825
1,073
FY16
5,952
2,750
1,305
-1,551
703
9,159
-947
8,212
-4,771
3,441
0
-707
-5,477
0
1,053
-1,305
-664
507
-409
2,326
1,073
3,399
FY17
6,296
2,834
1,018
-1,422
-2,151
6,576
2,018
8,594
-7,170
1,424
0
-310
-7,479
0
-1,523
-1,018
-821
0
-3,361
-2,247
3,399
1,152
FY18E
7,002
3,146
939
-1,891
-632
8,564
0
8,564
-4,414
4,150
0
0
-4,414
0
-2,000
-939
-1,085
0
-4,023
126
1,152
1,278
(INR Million)
FY19E
9,181
3,361
801
-2,663
-1,784
8,896
0
8,896
-4,000
4,896
0
0
-4,000
0
-3,500
-801
-1,356
0
-5,657
-761
1,278
517
24 May 2017
8

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 (%)
Mar-17
Promoter
DII
FII
Others
52.4
10.8
18.1
18.8
Dec-16
52.4
10.8
18.6
18.2
Mar-16
52.4
12.0
16.2
19.4
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
SOCIETIE
Source: Capitaline
% Holding
6.5
4.0
1.9
1.8
1.5
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
*Independent
Source: Capitaline
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
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY18
FY19
MOSL
forecast
89.0
111.5
Consensus
forecast
96.8
117.0
Variation (%)
-8.0
-4.7
Source: Bloomberg
24 May 2017
9

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