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Reliance Securities
SRF (Buy)
Target: ₹13,900
CMP: ₹10,155.7
Diversified portfolio – comprising of Technical Textiles, Specialty Chemicals, Packaging Films and Others – augurs well for SRF. Higher-margin business segments i.e. specialty chemicals and packaging films are expected to contribute 42 per cent/40 per cent to FY24 EBIT.
Looking ahead, we expect SRF’s earnings to clock 26 per cent CAGR over FY21-FY24 led by 22 per cent CAGR in revenue during the same period. The revenue growth is expected to be driven primarily by 22 per cent CAGR and 23 per cent CAGR in chemicals and packaging films segments, respectively while the technical textiles business is expected to clock 18 per cent CAGR. We expect the EBIT margin of chemicals segment to expand to 21.5 per cent in FY24 from 20 per cent in FY21 led by operating leverage playing out on HFC capacity addition.
Amid disruptions in demand-supply dynamics led by global capacity addition of BOPET in the next few quarters, we expect EBIT margin of packaging films business to soften to 22 per cent in FY24 from 27 per cent in FY21.
We value SRF’s chemicals business at 29x of FY24 EBITDA, packaging films and technical textiles business at 15x of FY24 EBITDA. We have compared SRF’s chemical business with Navin Fluorine (NFIL) and observed that our target multiple is at 20 per cent discount to NFIL.
We maintain BUY on SRF with an upwardly revised SOTP-based TP of ₹13,900 (from ₹4,386 earlier).
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