Do you own this multibagger? SRF Ltd is a large-cap chemical company engaged in manufacturing industrial and specialty intermediates. SRF’s share price has grown at 76 per cent CAGR over the past three years. The share price has increased by 141.84 per cent in the last year, from Rs 1080.45 on March 30, 2021, to Rs 2,705.90 on March 30, 2022, 3:30 p.m. IST, representing a 150.44 per cent return. This implies that the stock has doubled investors’ money in the last 12 months and even the brokerage firm ICICI Securities sees more upside. The stock has been given a buy call rating for a target price of Rs 3065 in a time frame of 12 months by the brokerage.
Incorporated in 1970, SRF started with nylon cord tyre and thereafter diversified into other areas such as refrigerant gases, speciality chemicals and packaging film among others. The chemical division accounts for 43 per cent of overall revenues followed by packaging film (39 per cent), technical textile (15 per cent) and others (3 per cent).
“Focused capex towards speciality chemicals keeping in mind higher consumption of fluoro-compounds across agrochemical and pharma besides general themes of vertical integration and higher operating leverage,” the note stated.
Further, maiden foray into polytetrafluoroethylene (PTFE) through backward integration of R22 to diversify business risk, to a certain extent, prudent and measured strategy to increase presence across other fluoropolymers is likely to enhance revenue visibility over the medium to long run, it added.
In packaging, the company has earmarked a capex of Rs 425 crore towards aluminium foils to tap the import substitution theme (domestic import of aluminium foil |~4500 crore) with an expected asset turn of 1.75-2x. The company is targeting import market share of mid-teens initially, which could act as key triggers for future stock price performance.
“Going ahead, we expect strong incremental traction from existing customers. Control over working capital along with better operational performance to improve FCF generation. Prudent capital allocation towards high RoCE generating businesses to improve return ratios further,” ICICI Securities’ note said.
ICICI Securities has also highlighted that “We initiate coverage under Stock Tales format with a BUY rating and target price of Rs 3065. We value SRF on SOTP to arrive at a target price of Rs 3065/share.”
Adverse agriculture season may impact speciality chemical growth and lower spread in packaging film to impact operational growth are the key risks of the stock, says ICICI Securities.
Promoters held 50.73 per cent in the SRF Ltd. as of 31-Dec-2021 while overseas and domestic institutional investors owned 19.09 per cent and 9.16 per cent, respectively.
Earlier, SRF Ltd said in the regulatory filing that its board has approved the appointment of Ashish Bharat Ram as Chairman and Managing Director with effect from April 1, 2022. Also, the Board also decided to re-designate Kartik Bharat Ram as Joint Managing Director of the Company with effect from April 1, 2022 subject to shareholder’s approval in the forthcoming Annual General Meeting.
“This is further to our letter dated January 26, 2022, wherein appointment of Mr. Vellayan Subbiah as the Chairman of the Board of Directors with effect from April 1, 2022, was intimated to the stock exchanges,” the company said in the regulatory filing.
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