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MOSL: SRF (Buy)-A year of holistic growth as Specialty Chemicals turns around

SRF: A year of holistic growth as Specialty Chemicals turns around; Chemicals segment to lead growth in FY20

(SRF IN, Mkt Cap USD2.1b, CMP INR2602, TP INR2983, 15% Upside, Buy)

 

• In-line revenue; EBITDA/PAT above estimates: Revenue increased 28.5% YoY to INR20.7b (our estimate: INR20.1b) in 4QFY19. EBITDA grew 43% YoY to INR3.9b (our estimate: INR3.6b), with the margin expanding 190bp YoY to 18.8% (our estimate: 17.7%). Adj. PAT rose 63% YoY to INR1.9b (our estimate: INR1.6b).
• FY19 performance: Revenue grew 38%, with the margin expanding 170bp to 17.9%. Adj. PAT increased 60.2%.
• Chemicals/Packaging compensate for drag from Technical Textiles: The Technical Textile margin shrank 270bp YoY to 11.7% in the quarter owing to an inventory loss (INR50-100m) due to RM price volatility and lower sales volumes due to sluggishness in the auto sector. However, this adverse impact was offset by the Chemicals/Packaging segments, where revenue grew 65.8%/18.3% YoY and margins expanded 160bp (to 19.8%)/330bp (to 17%). We note that growth in Packaging was driven by increased capacities and better margins, while that in Chemicals was supported by higher chloromethane sales and a revival in agrochem.
• Key takeaways: SRF guided for growth of 20-25% in Fluorochemicals and 40-50% in Specialty Chemicals in FY20. Trends in auto sales in India - which could impact the OEM-related business - will be a key monitorable.