SRF slips 4% as UBS downgrades to 'Sell' from 'Buy'; sees downside of 22%
The market's expectation of a demand recovery for SRF's chemical segment will be met with disappointment, UBS said
 "SRF slips 4% as UBS downgrades to 'Sell' from 'Buy'; sees downside of 22%")
SRF share price slipped 4 per cent and registered an intraday low of Rs 830 per share on BSE on Thursday. The stock declined after global brokerage UBS downgraded the stock from 'Buy' to 'Sell'. The global brokerage has also lowered the target price from Rs 2,700 to Rs 2,100 per share.
"Our target price on SRF would trade close to its five-year-average Price to Earnings (P/E) on FY26E EPS as against the current 20 per cent premium," the report read.
At around 9:15 AM, SRF shares were down 2.31 per cent at Rs 2,250 per share on BSE. In comparison, the BSE Sensex was up 0.16 per cent at 81,630.94 at around the same time.
Listing down the reasons for the downgrade, UBS said that the market's expectation of a demand recovery for SRF's chemical segment will "meet with disappointment".
This will be due to a slip in crop prices on deteriorating US farm income, a soft feed demand outlook in China's hog industry, and the risk of a downcycle for Brazil's agrochemical imports.
Further, as per analysts at UBS, after a 3-year gain, Indian manufacturers lost the US export share to Chinese suppliers in 2024.
Additionally, SRF is also facing challenges while exporting refrigerant gas to the US owning to weak demand and Chinese manufacturers gaining share, subsidising export prices on strong domestic market profitability.
"Refrigerant gas prices in China rose around 26-95 per cent in the first half of calendar year 2024 (H1CY24), while recently, an expert suggested they are likely to be stable in H2, implying Chinese manufacturers will continue to subsidise the export market. Our analysis of the US ref gas import data suggests Indian suppliers are losing share to Chinese and Mexican counterparts," it said in its report.
"Refrigerant gas prices in China rose around 26-95 per cent in the first half of calendar year 2024 (H1CY24), while recently, an expert suggested they are likely to be stable in H2, implying Chinese manufacturers will continue to subsidise the export market. Our analysis of the US ref gas import data suggests Indian suppliers are losing share to Chinese and Mexican counterparts," it said in its report.
The chemical segment, including agrochemicals and ref gases, contributes 70 per cent of Ebitda and 85 per cent of our sum of the parts valuation, and it is facing headwinds, UBS added.
"SRF is trading at 40x one-year forward PE, a 20 per cent premium to its five-year average. We believe its current multiple prices in recoveries in the ag chem and ref gas segments. We believe a disappointing recovery, followed by earnings estimate cuts, could lead SRF to de-rate," UBS said.
"SRF is trading at 40x one-year forward PE, a 20 per cent premium to its five-year average. We believe its current multiple prices in recoveries in the ag chem and ref gas segments. We believe a disappointing recovery, followed by earnings estimate cuts, could lead SRF to de-rate," UBS said.
In the past one year, SRF shares have gained only 1.1 per cent as against Sensex's rise of 23 per cent.