Hi all

My star Stock: Buy SRF Ltd

Current Price : Rs. 1066

Investment Horizon : 90 days

Close Date : 20 July 2015

Target Price : Rs. 1200

Expected Returns : 12.57%

About SRF Ltd

SRF Ltd (SRFLTD) is a diverse player in manufacture of chemical based industrial intermediates. Its business portfolio consists of: (1) Technical textiles (nylon and polyester tyre cord, belting fabrics, industrial yarns)—54% to revenue and with 7% EBIT margins; (2) Fluorine chemicals (refrigerants, specialty, engineering plastics)—~24% to revenue and with EBIT margins of 20%, respectively; (3) Packaging films (BOPET and BOPP films)—22% of revenue with highly volatile EBIT margin (Nil as of FY14). SRF has 12 manufacturing facilities (9 in India and one each in Thailand, UAE and South Africa) and does business with 75 countries.

4 Reasons why you should invest in SRFLTD

1. Leader and specialist in fluorine chemistry:

SRF is the market leader in fluorine chemistry, having more than 25 years of experience in handling fluorine molecules - one of the most hazardous chemicals - and hosting India’s largest integrated fluorochemicals complex. The company has three business segments under chemicals: specialty, refrigerants and bulk fluorides. Its strong knowledge of fluorination and halogen chemistry along with a concerted focus on R&D had led to development of complex organo-fluorine compounds. It has emerged as the preferred supplier of complex organo-fluorine compounds with applications in pharma and agro industries.

2. Specialty chemicals: Entry barriers, high domain sophistication to sustain business growth:

SRF has developed a niche for itself in the specialty chemical business. The fluorochemicals industry has sizeable barriers to entry including economies of scale needed for the profitable production of high volume products, steep research and development costs and nascent environmental regulations. Also, the business is highly IPR and knowledge oriented (unmatched in India) hence gives a unique advantage over low cost manufacturers from China. As a result, much of the global supply is concentrated among a handful of major integrated companies. SRF’s specialty chemicals business has grown at 70% CAGR over last four years. Going forward, we expect the revenues to grow at 35% CAGR over FY15-17E.

3. Expanding capacity to leverage its strengths:

SRF has currently invested INR 1600cr in 100 acres of land (scalable to 250 acres) in its Dahej complex to make refrigerants and chemicals. This complex will make refrigerants (R-134a, INR 420cr capex) and specialty fluorochemicals (six plants with capex of INR 380cr + six in the pipeline). SRF’s specialty chemicals business has grown at 70% CAGR over last 4 years. Going forward, we expect the revenues to grow at 30% CAGR over FY14-17E.

4. Attractive valuations

We believe SRF is well-positioned to tap the strong demand in both domestic and international markets given the wide-scale of operations across geographies and the new capacity expansion that will propel growth. With the overall demand expected to remain robust in key markets in the fluorine based chemicals segment, the company’s operating performance is set to improve on better capacity utilisation, driven by the ramp up at the new Dahej facility. We expect SRF to report earnings CAGR of 28% over FY15-17E. SRF is trading at attractive valuations at P/E of 14x FY16E and 11x FY17E earnings.

Can we see any upside in bob in short term? Cmp is 177..any target?

Hi Yb, it can test 88 inn near term. BOB above 180 can test 194 in coming days.

Hi Tejas, thanks

Hi mohan, ril can test 945 levels. rcom hold for now. keep sl at 68. can test 74.

Hi SRB, Good morning

Hi ravi, no, dont enter it yet

Hi surya, thanks for sharing the same.

Hi Yb, can add 3-4rs

Hi sureesh, if holds onto 85 levels, can bounce back to 95.

Hi daks, Good morning. Welcome. Cairn can see some upmove. not sure of entering others for intraday. can test 236. sl near 227

Hi daks, most welcome.. looking for some. shall update shortly.