SRF shares: Here's what brokerages say on this multibagger after consistent fall in profit
SRF posted a 24 per cent year-on-year decline in consolidated net profit at Rs 422 crore for the March 2024 quarter, hurt by sustained weak demand in its mainstay chemicals business.
- May 10, 2024,
- Updated May 10, 2024 11:14 AM IST
Brokerage firms remain mixed on SRF shares even as the company reported a fall in net profit in the March 2024 quarter, marking the fifth straight quarter of the consistent fall in the bottomline. However, some brokerage have downgraded the stock, with others cutting the target prices for the multibagger stock.
SRF posted a 24 per cent year-on-year (YoY) decline in consolidated net profit at Rs 422 crore for the March 2024 quarter, hurt by sustained weak demand in its mainstay chemicals business. The Indian chemicals and polymers maker had posted a net profit of Rs 562 crore in the previous corresponding quarter.
SRF's revenue from operations dipped 5 per cent YoY to Rs 3,570 crore, while as against Rs 3,778 crore a year ago. Ebitda tanked 25 per cent to Rs 696 crore as against Rs 932 crore last fiscal. EBITDA margin contracted to 19.5 per cent from 24.6 per cent in the same period a year ago.
SRF's chemical business, which consists of specialty chemicals, fluorochemicals and agrochemicals among others, contributes half the company's quarterly revenue. The chemical industry has been struggling with high inventory and destocking for the past few quarters, leading to continuous pressure on volume and margins, said the market experts.
On the positive side, chemicals EBIT surprised positively and management has given a 20 per cent chemicals sales growth guidance for FY25. This will be driven by 25-30 per cent volume growth in ref gas business, and ramp-up of two active ingredients in FY25, said JM Financial.
"Process improvement and volume increase in key spec chem intermediate would offset price threats from China. On top of this, positive operating leverage should support the margins. Hence, there is no cut in chemicals business estimates. We recommend investors to buy amid current pessimism especially around ref gas," it said with a revised target price of Rs 2,795 from Rs 2,665.
SRF’s Q4FY24 results did improve significantly qoq, but lagged expectations. The timeline for a strong recovery is also pushed back amid intense competitive pressure from China, said Kotak Institutional Equities. "We cut FY2025-26E EPS by 14-18 per cent as we tone down expectations, particularly on the margin front," it added, downgrading the stock to add with a fair value of Rs 2,360.
Shares of SRF rose more than 2.35 per cent to Rs 2,345.90 on Friday, commanding a total market capitalization of more than Rs 68,500 crore. The scrip had settled at Rs 2,291.90 in the previous trading session on Thursday. However, the stock is down more than 10 per cent in the week, after announcing its earnings.
Shares of SRF have remained mostly flat in the last six months period and on a year-to-date basis. The stock is down 11 per cent in the last one year. However, the stock has surged more than 375 per cent in the last five year, while it is up more than 2,900 per cent in the last 10 years.
Chemical Segment continued to show weakness with a decline of 14 per cent in revenue YoY during the quarter. The speciality chemical business faced obstacles stemming from inventory realization by key customers, while the fluorochemicals business encountered pricing pressure and lower volume due to Chinese dumping, said Prabhudas Lilladher.
"While the company appears strong in terms of product launches and growth, it is trading at 35 times FY26 EPS and 19 times FY26 EV/Ebitda. Due to continued concerns on agrochemical demand and competition from China to persist in the near-term, we maintain our 'reduce' rating on the stock with a based target price of Rs 2,123," it said.
The chemicals business- fluorochemicals and specialty chemicals- is expected to witness major improvement from 2HFY25 onwards. The packaging business is expected to remain under pressure in the medium term, said Motilal Oswal Financial Services.
"Factoring in the sub-par performance of the chemicals and packaging businesses in 4QFY24 and the weak medium-term outlook, we reduce our FY25 and FY26E Ebitda by 12 per cent and 10 per cent. We value the stock on an SoTP-basis to arrive at our target price of Rs 2,100," it added with a neutral.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Brokerage firms remain mixed on SRF shares even as the company reported a fall in net profit in the March 2024 quarter, marking the fifth straight quarter of the consistent fall in the bottomline. However, some brokerage have downgraded the stock, with others cutting the target prices for the multibagger stock.
SRF posted a 24 per cent year-on-year (YoY) decline in consolidated net profit at Rs 422 crore for the March 2024 quarter, hurt by sustained weak demand in its mainstay chemicals business. The Indian chemicals and polymers maker had posted a net profit of Rs 562 crore in the previous corresponding quarter.
SRF's revenue from operations dipped 5 per cent YoY to Rs 3,570 crore, while as against Rs 3,778 crore a year ago. Ebitda tanked 25 per cent to Rs 696 crore as against Rs 932 crore last fiscal. EBITDA margin contracted to 19.5 per cent from 24.6 per cent in the same period a year ago.
SRF's chemical business, which consists of specialty chemicals, fluorochemicals and agrochemicals among others, contributes half the company's quarterly revenue. The chemical industry has been struggling with high inventory and destocking for the past few quarters, leading to continuous pressure on volume and margins, said the market experts.
On the positive side, chemicals EBIT surprised positively and management has given a 20 per cent chemicals sales growth guidance for FY25. This will be driven by 25-30 per cent volume growth in ref gas business, and ramp-up of two active ingredients in FY25, said JM Financial.
"Process improvement and volume increase in key spec chem intermediate would offset price threats from China. On top of this, positive operating leverage should support the margins. Hence, there is no cut in chemicals business estimates. We recommend investors to buy amid current pessimism especially around ref gas," it said with a revised target price of Rs 2,795 from Rs 2,665.
SRF’s Q4FY24 results did improve significantly qoq, but lagged expectations. The timeline for a strong recovery is also pushed back amid intense competitive pressure from China, said Kotak Institutional Equities. "We cut FY2025-26E EPS by 14-18 per cent as we tone down expectations, particularly on the margin front," it added, downgrading the stock to add with a fair value of Rs 2,360.
Shares of SRF rose more than 2.35 per cent to Rs 2,345.90 on Friday, commanding a total market capitalization of more than Rs 68,500 crore. The scrip had settled at Rs 2,291.90 in the previous trading session on Thursday. However, the stock is down more than 10 per cent in the week, after announcing its earnings.
Shares of SRF have remained mostly flat in the last six months period and on a year-to-date basis. The stock is down 11 per cent in the last one year. However, the stock has surged more than 375 per cent in the last five year, while it is up more than 2,900 per cent in the last 10 years.
Chemical Segment continued to show weakness with a decline of 14 per cent in revenue YoY during the quarter. The speciality chemical business faced obstacles stemming from inventory realization by key customers, while the fluorochemicals business encountered pricing pressure and lower volume due to Chinese dumping, said Prabhudas Lilladher.
"While the company appears strong in terms of product launches and growth, it is trading at 35 times FY26 EPS and 19 times FY26 EV/Ebitda. Due to continued concerns on agrochemical demand and competition from China to persist in the near-term, we maintain our 'reduce' rating on the stock with a based target price of Rs 2,123," it said.
The chemicals business- fluorochemicals and specialty chemicals- is expected to witness major improvement from 2HFY25 onwards. The packaging business is expected to remain under pressure in the medium term, said Motilal Oswal Financial Services.
"Factoring in the sub-par performance of the chemicals and packaging businesses in 4QFY24 and the weak medium-term outlook, we reduce our FY25 and FY26E Ebitda by 12 per cent and 10 per cent. We value the stock on an SoTP-basis to arrive at our target price of Rs 2,100," it added with a neutral.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.