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MOSL: Morning India (25/August/21): SRF - Annual Report Update—Fluorochemicals to support growth in Chemicals in FY22

MOrning India (25/August/21): SRF - Annual Report Update—Fluorochemicals to support growth in Chemicals in FY22

 

 

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SRF - Annual Report Update: Fluorochemicals to support growth in Chemicals in FY22

• SRF's Specialty Chemicals Business maintained its growth momentum with 47% YoY revenue growth in FY21 despite 56% growth in FY20. Chemicals Technology Group (CTG) is SRF's in-house R&D center, which has enabled growth in the Fluorinated Molecules business and is now increasingly developing complex non-fluorinated intermediates.
• In Fluorochemicals revenue de-grew 4% YoY in FY21, impacted by slowdown in the Refrigerants market globally coupled with pressure on prices. SRF's performance has been robust over the last three years, with a revenue/EBITDA/PAT CAGR of 15%/33%/42%.
• The stock price has seen a ~40% CAGR over this period. Earnings momentum is likely to slow due to (a) margin contraction in the Packaging Films segment and (b) slower growth momentum in Specialty Chemicals due to a high base. Going forward, we expect SRF to post a revenue/EBITDA/PAT CAGR of 26%/22%/26% over FY21-23.
• On a one-year forward EV/EBITDA basis, SRF is currently trading at 20.5x (on FY22E) - this is at a premium of ~70% each to its average trading multiple for the last three/five years. This, in our view, is rich v/s the earnings growth expectation.
• We are encouraged by the long-term structural opportunity in the Chemicals sector and the company's ability to participate in the same. We maintain our Neutral stance on SRF on higher valuations.