SRF rallies 6% after board approves capex plan worth Rs 238 crore

Shares of SRF hit a new high of Rs 3,962, rallied 6 per cent, on the BSE on Wednesday after its Board approved capital expenditure plan worth of Rs 238 crore.

“The Board has approved a proposal to set up dedicated facilities to produce intermediates catering to the agro-chemicals segment at an aggregate cost around Rs 238 crore,” SRF said in exchange filing. READ FILING HERE

The project proposes a capacity addition of 2150 MTPA (million tonnes per annum) within a period of 10 months, i.e., by the end of November, 2020. The project is being financed by a mix of debt and internal accruals, it added.

SRF, with an annual turnover of Rs 7,541 crore, is a chemical based multi-business entity engaged in the manufacturing of industrial and specialty intermediates. The company’s diversified business portfolio covers technical textiles, fluorochemicals, specialty chemicals, packaging films, coated and laminated fabrics.

For the quarter ended December 2019 (Q3FY20), SRF reported a healthy 40.3 per cent year on year (YoY) growth in its consolidated net profit at Rs 259 crore on the back of a strong operational performance. However, revenue during the quarter grew 2.3 per cent at Rs 1,851 crore on YoY basis. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin improved 380 basis points to 21.4 per cent from 17.6 per cent.

The company re-measured its deferred tax balances and availed a credit of Rs 123 crore net of MAT adjustment due to which profit after tax growth came in at 125 per cent YoY to Rs 345 crore.

The management said the revival of the specialty chemicals business remains on course. The packaging films business benefitted from a favorable demand scenario. The company remains reasonably optimistic going forward.

Analysts at Dolat Capital believe that the specialty chemicals business is expected to beat managements growth guidance (40 per cent sales growth) for FY20E given the strong traction for agro-chemical intermediates from clients across Europe, North America and LATAM.

“Going forward, we expect Packaging films business to grow owing to capacity additions in Hungary and Thailand of BOPET (in FY21E) and in Thailand of BOPP (in FY22E), however, there could be a margin contraction from FY21E (expect 330 bps YoY decline in EBIT margins in FY21E) owing to capacity additions of BOPET globally,” the brokerage firm said in result update. Analysts find limited upside from the current market price due to the persistent run up in the stock price.

In the past four months, the stock of SRF has zoomed 50 per cent, as compared to a 9 per cent rise in the S&P BSE Sensex.