Slack in chemicals, lower packaging margins to dent SRF's earnings growth

Given the valuation worries, investors should await further correction before considering the stock

The shares of specialty chemical company SRF were down 8.5 per cent in trade on Friday, after brokerages downgraded the stock, citing expensive valuations. While most analysts have revised their earnings estimates upwards for the company by five per cent for FY22, they believe the risk reward remains unfavourable after the recent rally. After a 16 per cent gain since the start of April the stock is trading at just under 23 times its FY23 earnings estimates. Even on an enterprise value to operating profit basis, valuations at 18 times are at a 50 per cent premium to five-year averages.