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Buy SRF: Revenue exceeds estimate; PAT in-line in Q1FY18

Motilal Oswal | 10 Aug, 2017  | Follow Author | Add to my Favourites 
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- Revenue exceeds estimate; PAT in-line:
SRF reported overall revenue of INR13.88b (est. of INR11.46b) in 1QFY18 v/s INR12.9b in 1QFY17. On a YoY basis, Chemicals segment declined 8%, while Technical textiles/Packaging grew by 11.3%/19.4%. EBITDA margin contracted from 22.8% in 1QFY17 to 15.1% (est. of 21.3%) in 1QFY18. EBITDA during the quarter stood at INR2,091m (est. of INR2,441m), as against INR2,962m in 1QFY17 – down 29% as gross margin contracted 610bp YoY to 48.3%. Consequently, adj. PAT declined 33% from INR1,546m in 1QFY17 to INR1,038m (est. of INR1,063m) in 1QFY18.

- SpChem continues facing headwinds: SpChem witnessed another subdued quarter due to unfavorable global agrochem environment. Overall, SRF faced pressure from higher effective tax rate, channel destocking on account of GST, and unfavorable currency movement. However, the company continues to develop products and commit capex on demand revival expectations. Management expects the operating macroeconomic situation to ease in 2HFY18, enabling execution of the deferred order book.

- Ref gas grows despite domestic turbulence: On the domestic front, Ref gas witnessed a loss of sale of ~200 tonnes due to GST transitional phase in peak season. However, exports (~60% of total ref gas) remained strong, with 1QFY18 witnessing highest production and sales of refrigerants and blends due to higher HFC32 usage. The segment is likely to continue increasing market share.

- Valuation and view: SRF continues to invest in R&D/capacity expansion, keeping itself ready for demand revival. However, with no visibility of recovery in global agrochem before 4QFY18, we cut our FY18/FY19E earnings by 8%/6%. We expect CAGR of 15% in revenue and 10% in adj. PAT over FY17-19E. We value the stock at 16x FY19E EPS and maintain Buy with a TP of INR1,648.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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