Buy SRF; target of Rs 3000: Motilal Oswal

Motilal Oswal's research report on SRF

SRF delivered a healthy performance in 2Q, with EBIT growing 30% YoY, led by a 73%/71%/10% YoY jump in EBIT in the technical textiles business (TTB)/ performance films and foil (PFF)/chemicals business. However, it faced margin pressure due to higher raw material prices and notably elevated freight and logistics costs in the chemicals segment, resulting in a 60bp dip in EBIT margin. SRF’s overall business is expected to perform well, aided by cost optimization and improved pass-through of input costs, capacity ramp-up, diversified revenue streams and a strong capex pipeline. Growth in FY27 is likely to be fueled by refrigerant gases, the ramp-up of fluoropolymers, and the PFF business.

Outlook

Factoring in the weaker-than-expected 2Q performance and lower margin expectations for the chemicals business, we broadly maintain our FY27 EBITDA estimates while cutting our FY28E EBITDA estimates by 6%. We reiterate our BUY rating with an SoTP-based TP of INR3,000.