MOSL: SRF (Buy)-Packaging and Chemicals fire up; All moving parts to collectively drive growth

SRF: Packaging and Chemicals fire up; All moving parts to collectively drive growth

(SRF IN, Mkt Cap USD1.6b, CMP INR1853, TP INR2225, 20% Upside, Buy)

• Results above expectations: SRF’s revenue grew 34.6% YoY to INR17,413m (est. of INR15,248m) in 1QFY19, led by higher-than-expected growth of 52.3% YoY in Packaging film business, followed by growth of 33.8% YoY in Chemicals & polymers business. EBITDA margin expanded 170bp YoY to 17.9% (est. of 16.1%). EBITDA grew 48% YoY to INR3,112m (est. of INR2,455m). Adj. PAT grew 29% YoY to INR1,338m (est. INR1,196m), despite a higher tax rate of 26.6% (v/s 18% in 1QFY18) and higher interest cost of INR443m (v/s INR271m in 1QFY18).
• Healthy profitability across segments: SRF witnessed healthy profitability across segments. Enhanced margin (+450bp YoY) in Packaging was attributable to a revival in demand of BOPET, where margins were high on account of rising prices and operating leverage. Furthermore, better margins in polyester industrial yarn and belting fabric triggered margin expansion of 270bp YoY in Technical textiles. Margins in Chemicals segment, however, were flat YoY, but are expected to turnaround with a revival in specialty chemicals in 2HFY19.