SRF Limited Stock Analysis

SRF

SRF Limited (“SRF” or the “Company”) is a chemical-based multi-business entity engaged in the manufacturing of industrial and specialty intermediates. The Company’s diversified business portfolio covers Fluoro-chemicals, Specialty Chemicals, Packaging Films, Technical Textiles, Coated and Laminated Fabrics.

Operates through eleven manufacturing plants in India, one each in Thailand and South Africa and an upcoming facility in Hungary. The Company exports to more than 75 countries.

SRF has filed 182 patents for R&D and technology so far, of which forty-eight have been granted.

[1] Fluorochemicals Business – Set up in the year 1989, SRF’s Fluorochemicals Business (FCB) drives its work through the sale of refrigerants, pharma propellants, and industrial chemicals.

  • Refrigerants – SRF offers a wide range of refrigerants for different applications. Refrigerants are used in applications such as room air-conditioners, automobile airconditioners, refrigerators and chillers. SRF is the only Indian manufacturer of ozone-friendly refrigerants such as F 134a and F 32.
  • Pharma Propellants – SRF acquired the Dymel® HFA 134a/P medical propellant brand from DuPont™ in January 2015.
  • Industrial Chemicals – SRF manufactures a wide range of industrial chemicals, used in diverse applications such as solvent and feedstock in pharmaceuticals and agrochemical, metal de-greasing

[2] Specialty Chemicals Business – The infrastructure of the Specialty Chemicals Business includes more than twenty manufacturing facilities at its Chemicals Business complexes in Rajasthan in Northern India and at Dahej, Gujarat in Western India. These fully-integrated complexes provide a strong competitive advantage to SRF to manage product development and industrial scale manufacturing from design-to-despatch.

3] Packaging Films Business – With operations in four countries, SRF provides packaging solutions to a wide gamut of applications ranging from food to non-food both in the category of fast-moving consumer goods and industrial products. SRF is one of the largest manufacturers of a spectrum of standard and specialty Bi-axially Oriented Polyethylene Terephthalate (BOPET) and Bi-axially Oriented Polypropylene (BOPP) films, sold under the PETLAR™ and OPLAR™ brand names respectively.

[4] Technical Textiles Business –

  • Tyre Cord Fabrics – SRF offers a wide range of quality tyre cord fabrics, both nylon and polyester, which are used in all kinds of vehicles from bicycles to the heavy commercial vehicles and passenger cars. SRF produces its tyre cord fabrics at three manufacturing sites in India and one overseas plant in Thailand. These fabrics are sold to all major tyre companies in India and abroad.
  • Belting Fabrics – SRF manufactures and supplies a wide range of belting fabrics that are used as a reinforcement material inside the conveyor belts. As the 2nd largest manufacturer of conveyor belting fabrics in the world, SRF serves its customers in over 20 countries in Europe, Asia, Africa, USA and Latin America.
  • Coated & Laminated Fabrics Business –
  • Coated Fabrics – As a pioneer of Poly Vinyl Chloride (PVC) synthetic coated fabrics in India, SRF offers a diverse range of products for applications in varied segments, including architecture, lifestyle, sports, advertising, defense, mines, food & agriculture, automobile and transportation.
  • Laminated Fabrics – Used as flex in hoardings, billboards and signage, SRF’s laminated fabrics are not only suitable for high quality screen printing and digital printing, but are also compatible with all solvent-based printers such as Vutek, Nur and Scitex.

Financial Position

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

4,539.85

4,592.72

4,821.80

5,589.04

7,692.69

Growth

1.16%

4.99%

15.91%

37.64%

EBITDA (In Rs. Cr.)

717.46

962.52

969.39

906.24

1,355.22

EBITDA Margin

15.80%

20.96%

20.10%

16.21%

17.62%

EBIT (In Rs. Cr.)

472.43

687.56

685.95

590.44

988.35

EBIT Margin

10.41%

14.97%

14.23%

10.56%

12.85%

PBT (In Rs. Cr.)

399.43

584.94

657.19

581.67

826.89

PAT (In Rs. Cr.)

302.81

429.89

514.99

461.71

641.63

PAT Margin

6.67%

9.36%

10.68%

8.26%

8.34%

EPS (In Rs.)

52.74

74.87

89.69

80.41

111.63

EPS Growth Rate

42%

20%

-10%

38.8%

Historic P/E (Closing Price of 31st March)

18.81

17.48

18.14

24.32

21.96

CURRENT P/E (based on price of 11th  November  – Rs. 3157.50 )

24.76

EV/EBITDA

12.85

11.89

12.31

16.13

15.67

D/E

0.88

0.77

0.62

0.77

0.80

Interest Coverage

5.21

7.38

9.53

7.31

6.72

ROCE

10.93%

14.05%

13.29%

9.34%

13.32%

ROE

17.39%

21.17%

20.65%

16.32%

20.03%

Quarterly Performance

Quarterly Results

Q2 FY 2019

Q3 FY 2019

Q4 FY 2019

Q1 FY 2020

Q2 FY 2020

TTM

Q-o-Q %

Y-o-Y %

Revenue (In Rs. Cr.)

1,754.95

1,964.04

2,072.03

1,783.29

1,737.80

7,557.16

-2.55%

-0.98%

EBITDA (In Rs. Cr.)

300.26

341.22

387.94

379.74

331.00

1,439.90

-12.84%

10.24%

EBITDA Margin

17.11%

17.37%

18.72%

21.29%

19.05%

19.05%

 

 

PAT (In Rs. Cr.)

128.73

165.71

190.89

175.34

200.93

732.87

14.59%

56.09%

PAT Margin

7.34%

8.44%

9.21%

9.83%

11.56%

9.70%

 

 

EPS (Rs.)

22.41

28.83

33.21

30.50

34.96

127.50

14.62%

56.00%

Peer Comparison

SRFWHAT’S DRIVING THE STOCK?

Market Leadership

SRF is the market leader in most of its businesses. Due to extensive experience in handling fluorine, it is the sole producer of some key refrigerants in India. In the fluoro-specialities segment, continuous investment in R&D, and improved manufacturing capability have made it a one-of-its-kind player, exporting from India products that find application in pharmaceutical and agro-based products.

  • In the Technical Textiles Business (TTB), the Company is the largest nylon tyre cord fabric manufacturer in India, and addition of new value-added products in the belting fabric segment (a part of the TTB) should further assist its market position.
  • The market position in the Packaging Films Business (PFB) is supported by large capacity and high volume of value-added products. The Company is likely to sustain its healthy market share, given its leadership position, established track record, and large R&D capability leading to technical expertise.

Diversified revenue

SRF has a presence in TTB (24% of the revenue), chemicals business (CB; 33%) and PFB (38% against 38%). The management has successfully diversified the geographical presence through investments in the PFB in South Africa, Thailand and Hungary (upcoming), among other countries.

The diversified revenue protects against downswing in any one business, and keeps the operating margin steady.

Capacity Expansion

  • In Aug’19, the board had approved setting up an integrated Poly Tetra Fluoro Ethylene [PTFE] plant along with an R22 plant as feedstock at a cost of Rs. 4.2b. This will enable the company to enter the Fluoropolymers segment, a new business stream that will further enhance the value chain.
  • In Oct’19, SRF commissioned a dedicated facility to produce agrochemical intermediates at CAPEX of Rs. 1,660m. In addition, the Company has also commenced a HFC plant for which it incurred CAPEX of Rs. 4.77b thereby taking its capacity to 34kMT from 17.5kMT.
  • The board also approved the setting up of a brownfield BOPP film line with capacity of 45KMTPA in Thailand by SRF Industries (Thailand) Ltd., a wholly-owned subsidiary of the company at a total cost of USD50m. The line is expected to come on stream by Oct’21.

WHAT’S DRAGGING THE STOCK?

Slowdown In Auto Dents Technical Textile Segment Performance

Technical Textiles segment revenue de-grew 29% YoY to Rs. 323 Cr. in 2QFY20, with margins contracting 890bp to 6.5%. Tyre Cord Fabric segment was adversely impacted due to slump in the auto sector. Shutdowns and production cuts by tyre companies led to an overall decline in volumes and margins of the business. Replacement demand was impacted due to financing issues.

The Company is evaluating the new corporate tax regime as it has large amount of MAT credits available as of now.  Tax rate (on a standalone basis) is expected to be 29-30% for FY20.