MOSL: SRF (Buy)-Chemicals/Packaging drive operating performance
SRF: Chemicals/Packaging drive operating performance
(SRF IN, Mkt Cap USD2.4b, CMP INR2957, TP INR3460, 17% Upside, Buy)
- In-line EBITDA adjusted for one-time expense: Revenue declined 1% YoY to INR17.4b in 2QFY20, while the EBITDA margin expanded 120bp YoY to 19.3%, driven by Chemicals and Packaging businesses. EBITDA increased 6% YoY to INR3.4b; adjusted for stamp duty of INR288m, it stood at INR3.6b (in-line). Adj. PAT grew 41% YoY to INR2,051m. For 1HFY20, revenue/EBITDA/PAT were up 2%/7%/26% YoY.
- Yet another quarter of strong performance by Chemicals: Chemicals revenue grew 25% YoY to INR6.8b, with margin expansion of 770bp YoY to 19.3%. Capex of INR400m for Specialty Chemicals has been approved. Packaging film revenue declined 5% YoY to INR6.6b, with margin expansion of 230bp YoY to 19.6%. The company plans incur capex of USD50m toward a BOPP plant in Thailand. Technical Textiles revenue declined by a significant 29% YoY to INR3.2b due to the slump in the automotive sector. Segmental margin contracted 890bp YoY to 6.5% due to one-time stamp duty payment of INR288m; adjusting for the same, the margin stood at 15.4%.
- Key takeaways: (i) SRF maintained its growth guidance of 40-50% in Specialty Chemicals for FY20. (ii) It guided for capex of INR10-11b and INR7b for FY20 and FY21, respectively.
SRF three main lines of business are industrial synthetics, industrial fabrics, and chemicals. Industrial synthetics business includes nylon industrial yarn and nylon tyre cord fabric. Industrial fabrics business includes belting fabrics and coated fabrics. Chemicals business includes fluorochemicals and chloromethanes. Through its subsidiaries, Co. manufactures synthetic cords and industrial fabrics, trading in certain specified items in the Jebel Ali Free Zone, Dubai. In addition, Co.'s subsidiaries are engaged in investment holding and in the marketing of imports to the U.S.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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