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Reliance Securities
SRF (Buy)
CMP: ₹3,613.8
Target: ₹4,368
We believe SRF is one of the few companies, which will post earnings growth in FY21E. The company will witness further acceleration in FY22E and FY23E aided by traction in high-margin business, that is, specialty chemical and packaging films division.
SRF’s revenue growth is expected to be driven by 18 per cent revenue CAGR in chemicals segment and 14 per cent revenue CAGR in packaging films segment, while revenue from technical textiles segment is expected to clock a nominal 1 per cent CAGR over FY20-FY23E.
The company expects an uptick in utilisation level of the films segment, resulting from a surge in demand for hygienic packaging in the post Covid-19 world. Packaging business, which is considered essential in nature, continued operation globally during lockdown.
We believe chemical business’ revenue CAGR of 18 per cent (FY20-FY23E) will be driven by specialty chemical backed by a strong pipeline of innovative products for the international markets.
Our EBITDA estimate for FY21E /FY22/FY23E is 3 per cent/5 per cent and 6 per cent lower than the Bloomberg consensus. We expect consensus EBITDA to moderate for next 3 years. We upgrade SRF to ‘buy’ with an SOTP-based target price of ₹4,368.
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