Purchase SRF with an aim of Rs 2745: Sharekhan

 Purchase SRF with an aim of Rs 2745: Sharekhan

In its research report dated October 30, 2023, Sharekhan, who is optimistic on SRF, suggested a buy rating on the company with a target price of Rs 2745.

The SRF study report by Sharekhan

The findings of Q2FY2024 show pressure on price and demand in the fluorochemicals industry, inventory reduction in specialty chemicals, and sluggish demand for some industrial chemicals. Thus, combined PAT of Rs. 320 crore was 7% below our expectation, down 17% quarter over quarter. Due to a 14% decrease in sales and a 332 bps q-o-q contraction in EBIT margin to 24.4%, the Chemical segment's EBIT fell by 24% quarter over quarter to Rs. 348 crore. Ref-gas had pressure on volume and price, while specialty chemicals saw a decline in demand worldwide as a result of certain important clients rationalizing their inventories. In H2FY24, management anticipates single-digit growth in the specialty chemical category, indicating a strong rebound. By the end of FY25, management anticipates an increase in price and an overall capacity utilization of 85% from the ref-gas sector. The management thinks that although technical textiles will continue to be steady, the packaging films industry has poor near-term prospects.

Prospects

Given the difficulties facing the chemicals business, immediate problems are likely to continue. Still, SRF is a solid business with good long-term profit growth potential because to its investment in specialty chemicals. The recent drop in the stock price presents an excellent investment opportunity, and the firm's 21x FY2026E EPS valuation appears fair. Therefore, we continue to recommend buying SRF with a PT of Rs. 2,745 that hasn't altered.