SRF: Chemicals booming; others dragging

27 Jun 2023 , 11:43 AM

Recommendation: Add; Target price: Rs 2625

 

In the FY23 annual report (AR), mgmt has provided a positive outlook for the Chemical business, but expects headwinds in PFB and TTB businesses to largely continue (as demand remains slow). In this note, analysts of IIFL Securities also highlight other ESG trends and key highlights from AR. They leave their estimates and TP largely unchanged. Given near-term pressures across the Chemical industry, analysts of IIFL Securities maintain ADD rating.

Chemical business outlook remains strong: 

After delivering >40% growth in FY22 and FY23, management is targeting a ~20% growth in the Chemical business in FY24. While the demand momentum for fluorochemicals will probably hold steady, the company continues to develop and launch new products within specialty chemicals. The new HFC plant and product approval for the PTFE plant are underway. Additionally, SRF has ambitions to expand its fluoropolymer range.

PFB and TTB continue to face headwinds: 

Both the PFB and TTB businesses faced headwinds in FY23, which have also dragged onto FY24. Several new BOPP/BOPET capacities have come up across the world; demand for these products is also under pressure. Within TTB, demand for NTCF remains under pressure. The Aluminium Foil project is expected to be commissioned by Q2FY24.

Other highlights: 

While cash generation is healthy, SRF continues to invest all of it back into its capex program. Sustainability initiatives remain a key focus area. The company has saved 10,683MWH through energy-saving initiatives in FY23 and has increased recycled water consumption by ~14mn ltr. Contingent liability has bulked up to ~Rs3.4bn, on the back of tax adjustments made by the I-T department. ESOP allotted was limited to 3,800 shares (vs 195,000 in FY23).