SRF rallies 13% in two sessions on strong Q3 earnings

The stock rallied 10 per cent to Rs 2,222 on Wednesday, extending its Tuesday's 3 per cent gain on the BSE.

Shares of SRF rallied 10 per cent to Rs 2,222 apiece on Wednesday, extending its Tuesday’s 3 per cent gain on BSE, after the company reported a strong set of numbers for the quarter ended December 2018 (Q3FY19).

The company posted growth of 26 per cent year-on-year (YoY) in consolidated net profit at Rs 166 crore in Q3FY19 on back of higher revenue. The operational revenue grew 41 per cent to Rs 1,964 crore from Rs 1,397 crore in the corresponding quarter of the previous year. EBITDA (earnings before interest, taxation, depreciation and ammortisation) margin expanded 30bp YoY to 16.9 per cent in 3QFY19.

Analysts, on an average, had expected a profit of Rs 147 crore on revenue of Rs 1,839 crore for the quarter.

The management said in spite of inventory losses in the crude based businesses, the company has performed reasonably well. The specialty chemicals business is now showing signs of a revival which will be visible from the next quarter onwards.

The fluorochemicals business continued to perform in line with expectations mainly on account of additional sales of chloromethanes. Further, new opportunities have emerged in the specialty chemicals business, which will result in better offtake, it added.

The Board approved a project to debottleneck certain specialty chemical plants to further increase the production capacity at Dahej at an estimated cost of Rs 140 crore. The board also approved a proposal to install additional spinning and textile capacity at the technical textiles plants in Manali and Gwalior at an estimated cost of Rs 80 crore, which will be incurred over a period of three years.

“SRF witnessed margin contraction across segments in Q3FY19. EBIT (earnings before interest and tax) margin contracted by 480bp to 42.6 per cent largely driven by raw material price volatility (higher fluorspar price in chemicals and inventory loss of Rs 20 crore in packaging film) and fixed cost due to capex capitalization in specialty chemicals,” Motilal Oswal Securities said in Q3FY19 result update.

However, over the last three months, the price of caprolactam (key raw materials for technical textiles) and MEG (key RM for packaging film) has corrected 25 per cent YoY and 35 per cent YoY, respectively, which should ease the situation, it added.

The brokerage firm maintains ‘buy’ rating on the stock with 12-month target price of Rs 636.

The company’s technical textile has remained steady and favorable demand-supply situation of BOPET is also playing out well for the company. Specialty chemicals segment – the only dampener in FY18 – has also shown strong signs of revival, with an estimated 40-50 per cent YoY growth in FY19, it added.

At 12:14 pm, SRF was trading 9 per cent higher at Rs 2,205 on the BSE, as compared to a 0.68 per cent rise in the S&P BSE Sensex. The trading volumes on the counter jumped nearly five-fold with a combined 1.25 million equity shares changed hands on the NSE and BSE so far.