Broker’s call: SRF (Buy)

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Goal: $3,085

CMP: INR 2,560.25

SRF reported EBITDA/PAT at Rs.930 crore / Rs.570 crore (Elara: Rs.830 crore / Rs.470 crore) in Q4, vs. Rs.830 crore / Rs.510 crore in Q3 FY23, as the specialty chemicals segment continued to grow. Seeing the improvement along with a quarterly boom in technical textiles segment earnings.

The chemicals business may post stronger growth in FY24, while the packaging film segment is expected to underperform due to oversupply concerns. Use of hydrofluorocarbons (HFC) and a 30% supply cut in the US from January 2024 may lead to some volatility in earnings by the end of FY24, but the opportunity for HFO by H2FY25 as its patent expires may gradually offset the HFC decline Size by fiscal year 25.

SRF announced a capital expenditure of ₹710 crore on fluoropolymer intermediates and specialty agrochemicals.

We estimate SRF on discounted cash flow, assuming a terminal growth rate of 5 percent and 11.8 percent cost of capital, with an average EBITDA margin of 23.1 percent (from 23 percent) in FY23-25 ​​and ’24 percent in fiscal year 26-30.

Keep buying with a TP of Rs 3,085. Our implied target is 20.0x FY25E EV/EBITDA and 31.4x FY25 P/E.