Refer to important disclosures at the end of this report ...images.moneycontrol.com/static-mcnews/2020/06/SRF-08062020.pdf · India Equity Research | Speciality Chemicals June 7,

Emkay Research is also available on www.emkayglobal.com and Bloomberg EMKAY<GO>. Please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.

We appreciate your support in the Asiamoney Brokers Poll 2020

CMP: Rs 3,650 as of (June 7, 2020)

TP: Rs 4,156 (▲) 12 months

Rating: BUY (■) Upside: 13.9 %

India Equity Research | Speciality Chemicals

June 7, 2020

Result Update

SRF Refer to important disclosures at the end of this report

Speciality chemical holds the ground; maintain Buy

Change in Estimates

EPS Chg FY21E/FY22E (%) 0.1/(-0.2)

Target Price change (%) 7.7

Target Period (Months) 12

Previous Reco BUY

Emkay vs Consensus

EPS Estimates

FY21E FY22E

Emkay 150.5 210.4

Consensus 159.1 204.1

Mean Consensus TP (12M) Rs 3,830

Stock Details

Bloomberg Code SRF IN

Face Value (Rs) 10

Shares outstanding (mn) 57

52 Week H/L 4,260 / 2,468

M Cap (Rs bn/USD bn) 210 / 2.78

Daily Avg Volume (nos.) 3,08,466

Daily Avg Turnover (US$ mn) 13.7

Shareholding Pattern Mar '20

Promoters 52.3%

FIIs 18.3%

DIIs 11.3%

Public and Others 18.1%

Price Performance

(%) 1M 3M 6M 12M

Absolute - (7) 13 26

Rel. to Nifty (9) 3 33 49

Robust revenue performance from specialty chemical continues in Q4FY20, with 47%

yoy growth amid supply chain disruptions due to Covid-19. The company has outpaced

its revenue guidance of 45-50% in the segment and delivered over 80% growth in FY20.

The economic slowdown impacted all other segments. Packaging Films’ (PF) margins

expanded 477bps yoy on lower raw material prices, while Chemicals margins fell 174bps

yoy due to weak export R-gas prices and lower utilization of new R-gas capacities.

Management is confident that Specialty Chemicals (20-25% growth FY21E) will drive

growth in the medium term. In R-gas, penetrating new export markets and in PF, capacity

expansion with a focus on high-value products would support revenue growth.

Strong demand outlook in Specialty Chemicals amid Covid-19 remains the core catalyst

for the stock to perform. Expansion in the chemical segment is likely to mitigate upcoming

margin pressure on PF due to oversupply in the market. We roll forward our SoTP-based

TP to June’22E earnings and arrive at a TP of Rs4,156. Maintain Buy rating/OW in EAP.

Relative price chart

Source: Bloomberg This report is solely produced by Emkay Global. The following person(s) are responsible for the production of the recommendation:

Rohit Sinha

[email protected]

+91 22 6612 1306

-10

6

22

38

54

70

2550

2880

3210

3540

3870

4200

Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 May-20

%Rs

SRF (LHS) Rel to Nifty (RHS)

What we like: Stronger-than-expected growth in the Specialty Chemical segment

What we did not like: Technical textile (TT) and R-Gas revenue under pressure from automotive

slowdown

Speciality chemical standing against the tide: SRF’s Chemicals segment reported sales growth

of 5% yoy to Rs8.8bn in Q4 (highest sales ever), owing to rising demand for specialty products from

Agrochem and Pharma sectors (mainly exports). Management expects Speciality Chemicals to

lead growth in the medium term and has allocated Rs2.5bn to develop the product pipeline in FY21.

On the other hand, weakness in the auto sector remains an overhang on R-gas and SRF aims to

revamp this by exploring new export markets (Europe), given the low cost domestic base benefit.

The Chemical segment’s EBIT margins contracted by 174bps yoy to 18% in Q4FY20. In PF, sales

fell 3.5% yoy to Rs6.01bn, while EBIT margin expanded 477bps to 21.7%, due to a rise in volumes

and value-added products (20% share). The company expects an uptick in utilization levels for the

films segment, resulting from a surge in demand for hygienic packaging in the post Covid-19 world.

However, with 4-5 new capacities coming in the next 3-5 quarters, margins in PF are likely to soften.

Although, TT segment (down 22%) continues to face pressure from a slump in the auto sector,

signs of recovery in the replacement market is expected to lend support from Q2FY21.

Growth outlook remain firm; maintain Buy: Strong demand outlook in Specialty Chemicals amid

Covid-19 issues remains the core catalyst for the stock to perform. Expansion in the chemical

segment is likely to mitigate upcoming margin pressure on PF due to oversupply in the market. We

roll forward our SoTP-based TP to June’22E earrings and arrive at a TP of Rs4,156. Maintain Buy

rating/OW in EAP. Key risks to our call are the underperformance of its specialty chemicals

segment and a longer-than-expected slowdown in the auto industry.

Please see our sector model portfolio (Emkay Alpha Portfolio): Speciality Chemicals (Page 11)

Financial Snapshot (Consolidated)

(Rs mn) FY19 FY20 FY21E FY22E FY23E

Revenue 70,996 72,094 82,954 1,01,662 1,13,034

EBITDA 12,970 14,549 17,495 22,882 26,443

EBITDA Margin (%) 18.3 20.2 21.1 22.5 23.4

APAT 5,916 9,159 8,650 12,095 14,437

EPS (Rs) 102.9 159.3 150.5 210.4 251.2

EPS (% chg) 30.3 54.8 (5.6) 39.8 19.4

ROE (%) 15.4 20.2 16.2 19.2 19.1

P/E (x) 35.5 22.9 24.3 17.3 14.5

EV/EBITDA (x) 18.6 16.6 13.9 10.5 8.9

P/BV (x) 5.1 4.3 3.7 3.1 2.5

Source: Company, Emkay Research

http://www.emkayglobal.com/

https://www.euromoney.com/research-and-awards/surveys-and-awards/asiamoney-brokers-poll/vote-now

SRF (SRF IN) India Equity Research | Result Update


June 7, 2020 | 2

Story in Charts

Exhibit 1: Revenue growth takes a back seat in challenging environment; Specialty plays savior


Exhibit 2: EBITDA under pressure owing to weak sales base; gross margins up 400bps yoy


Exhibit 3: Margins hold ground on operational efficiencies


Exhibit 4: Technical Textiles slumps from automotive weakness, Chemical gains in FY20; revenue contribution


Exhibit 5: Chemicals segment leads EBIT contribution


Exhibit 6: On margins front, Packaging Films seals the deal in all 4 quarters of FY20, despite revenue fall; EBIT margin trend


Exhibit 7: Chemical topline sees moderate uptick, owing to specialty demand and impacted by weak R-gas market


Exhibit 8: PF margins steady owing to better product mix; however market oversupply may weigh on pricing power in near term


11.3

13.3

12.9

12.9

14.0

16.1

16.0

17.5

18.1

19.4

17.6

17.4

18.5

18.6

3%

19%

6%

12%

23% 22% 24%

36%

29%

20%

10%

-1%2%

-4%

-10%-5%0%5%10%15%20%25%30%35%40%

0

5

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15

20

25

Q3

FY

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Q3

FY

20

Q4

FY

20

Revenue (Rs bn) Growth % yoy

1.5

1.4

1.1

2.1

2.5

2.8

2.3

3.0

3.2

3.7

3.6

3.3

4.0

3.6

-2%

-37%-46%

25%

64%

94% 98%

42%28% 33%

59%

10%25%

-3%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Q3

FY

17

Q4

FY

17

Q1

FY

18

Q2

FY

18

Q3

FY

18

Q4

FY

18

Q1

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Q4

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FY

20

Q2

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20

Q3

FY

20

Q4

FY

20

EBITDA (Rs Bn) Growth % YoY

13.6%

10.8%8.8%

16.4%18.1%17.3%

14.2%

17.1%17.8%19.2%

20.4%19.0%

21.8%19.4%

3.2%2.9%0.6%

8.0%9.4%

7.7%

3.2%

8.6%9.2%9.9%10.7%

17.3%18.5%

10.0%

0%

5%

10%

15%

20%

25%

Q3

FY

17

Q4

FY

17

Q1

FY

18

Q2

FY

18

Q3

FY

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Q4

FY

18

Q1

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19

Q4

FY

19

Q1

FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20

EBITDA Margin % PAT Margin

32% 29% 26% 26% 25% 21% 22% 19% 18% 17%

29% 31% 30% 31% 32% 43% 34% 39% 44% 47%

31% 33% 39% 40% 39% 32%40% 38% 34% 32%

8% 7% 4% 4% 4% 4% 4% 4% 4% 3%

0%10%20%30%40%50%60%70%80%90%

100%

Q3

FY

18

Q4

FY

18

Q1

FY

19

Q2

FY

19

Q3

FY

19

Q4

FY

19

Q1

FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20

Technical Textiles Chemicals Packaging Films Others

34%

28%

26%

27%

32%

15%

20%

7%

11%

11%

33%

38%

32%

24% 30%

51%

27%

45%

42%

48%

28%

30%

40%

47%

35%

33%

50%

45%

44%

39%

5% 4% 2% 2% 2% 2% 3% 3% 2% 2%

0%10%20%30%40%50%60%70%80%90%

100%

Q3

FY

18

Q4

FY

18

Q1

FY

19

Q2

FY

19

Q3

FY

19

Q4

FY

19

Q1

FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20

Technical Textiles Chemicals Packaging Films Others

0%

5%

10%

15%

20%

25%

Q3

FY

18

Q4

FY

18

Q1

FY

19

Q2

FY

19

Q3

FY

19

Q4

FY

19

Q1

FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20

Technical Textiles ChemicalsPackaging Films Others

3.8

5.1

3.3

3.5

4.0

5.1

4.8

5.4

5.9

8.4

6.0

6.8

8.1

8.8

16% 17%18%

13%

18% 18%16%

12%13%

20%

13%

19%18% 18%

0%

5%

10%

15%

20%

25%

0123456789

10

Q3

FY

17

Q4

FY

17

Q1

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18

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19

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19

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FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20

Revenue (Rs bn) EBIT Margin %

3.4

3.8

3.9

4.1

4.3

5.3

6.3

7.0

7.0

6.2

7.0

6.6

6.4

6.0

14%

10%12% 12%

15% 14%15%

17%

13%

17%

21%20%

23%22%

0%

5%

10%

15%

20%

25%

0

1

2

3

4

5

6

7

8

Q3

FY

17

Q4

FY

17

Q1

FY

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Q2

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20

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20

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20





June 7, 2020 | 3

Exhibit 9: Subdued demand in Tyre Fabric weighs on Technical Textiles performance, replacement market to revive in Q2FY21


Exhibit 10: Others’ segment margins undergo normalization, on account of laminated and coated fabrics oversupply and pricing pressures


Exhibit 11: Actual vs. Estimates (Q4FY20)

(in Rs Mn) Actual Estimates % Variation

Comment Emkay Consensus Emkay Consensus

Sales 18,578 17,205 19,326 8.0 -3.9 Above our estimates due to better than expected performance in Chemicals owing to specialty demand

EBITDA 3,613 3,679 3,966 -1.8 -8.9 EBITDA marginally in line with our estimates

EBITDA margin % 19.4 21.4 20.5 -193.5bps -107.4bps

APAT 1,858 1,716 2,012 8.2 -7.7 Ahead of estimate on lower interest expense and usage of tax credits


4.9

5.3

5.1

4.2

4.5

4.6

4.2

4.5

4.5

4.0

3.8

3.2

3.4

3.2

13%

10%12% 12%

17%

14% 15% 15%

18%

12%

15%

6%

11% 12%

0%2%4%6%8%10%12%14%16%18%20%

0

1

2

3

4

5

6

Q3

FY

17

Q4

FY

17

Q1

FY

18

Q2

FY

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19

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20

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FY

20

Q4

FY

20


1.1 1.2 0.7 0.7 0.7 0.7 0.8 0.7 0.7 0.6

11%

9%8% 8%

9% 8%

13%

11%12%

9%

0%

2%

4%

6%

8%

10%

12%

14%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Q3

FY

18

Q4

FY

18

Q1

FY

19

Q2

FY

19

Q3

FY

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FY

19

Q1

FY

20

Q2

FY

20

Q3

FY

20

Q4

FY

20





June 7, 2020 | 4

Exhibit 12: Quarterly Performance (Consolidated)

Rs Mn Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 YoY (%) QoQ (%) FY20 FY19 YoY %

Revenue 19,370 17,633 17,378 18,505 18,578 (4.1) 0.4 72,094 70,990 1.6

CoGS 12,166 11,087 10,469 11,148 10,891 (10.5) (2.3) 43,595 46,092 -5.4

Gross Profit 7,204 6,546 6,909 7,357 7,688 6.7 4.5 28,499 24,898 14.5

as % of sales 37.2 37.1 39.8 39.8 41.4 40 35

SG&A expenses 3,480 2,948 3,599 3,328 4,075 17.1 22.4 13,949 12,685 10.0

as % of sales 18.0 16.7 20.7 18.0 21.9 19 18

EBITDA 3,724 3,598 3,310 4,029 3,613 (3.0) (10.3) 14,550 12,213 19.1

Depreciation 949 925 929 1,019 1,014 6.8 (0.5) 3,886 3,615 7.5

EBIT 2,774 2,673 2,381 3,010 2,599 (6.3) (13.6) 10,664 8,599 24.0

Other Income 161 152 220 56 63 (60.8) 13.7 491 294 67.1

Interest Expenses 524 515 550 475 466 (11.0) (1.9) 2,007 1,990 0.8

PBT 2,412 2,310 2,051 2,591 2,196 (8.9) (15.2) 9,148 6,902 32.5

Total Tax 619 556 41 (864) 255 (58.8) NA (11) 1,768 NA

Reported PAT 1,793 1,754 2,009 3,454 1,942 8.3 (43.8) 9,159 5,134 78.4

Profit from discontinued business 116 (139) (1,002) (25) (84) 1,032 462 123.4

Adjusted PAT 1,910 1,893 3,011 3,429 1,858 (2.7) (45.8) 8,127 4,673 73.9

Reported EPS 33.2 32.9 52.4 59.7 32.3 (2.7) (45.8) 145 63 129.8

Margins (%) (bps) (bps) (bps)

EBITDA 19.2 20.4 19.0 21.8 19.4 22 -232 20.2 17.2 298

EBIT 14.3 15.2 13.7 16.3 14.0 -33 -228 14.8 12.1 268

EBT 12.5 13.1 11.8 14.0 11.8 -63 -218 12.7 9.7 297

PAT 9.9 10.7 17.3 18.5 10.0 14 -853 11.3 6.6 469

Effective Tax Rate 25.7 24.1 2.0 -33.3 11.6 -1,407 4,494 -0.1 25.6 -2,575

Segment Revenue Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 YoY (%) QoQ (%) FY20 FY19 YoY %

Technical Textiles 4,042 3,820 3,230 3,357 3,168 (21.6) (5.6) 10,407 13,302 -21.8

Chemicals 8,400 6,032 6,780 8,119 8,819 5.0 8.6 20,931 16,055 30.4

Packaging Films 6,231 7,017 6,627 6,382 6,015 (3.5) (5.7) 20,025 20,303 -1.4

Others 709 772 744 691 577 (18.6) (16.5) 2,207 2,007 9.9

EBIT Segment wise Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 YoY (%) QoQ (%) FY20 FY19 YoY %

Technical Textiles 475 568 209 365 372 (21.7) 1.9 1142 2137 -46.6

Chemicals 1660 787 1308 1431 1589 (4.3) 11.1 3526 2183 62

Packaging Films 1057 1456 1299 1494 1307 23.7 (12.5) 4249 3058 39

Others 57 101 81 83 53 (7.5) (36.2) 265 161 64

EBIT Margin % (bps) (bps) (bps)

Technical Textiles 11.8 14.9 6.5 10.9 11.7 -1 87 11.0 16.1 -509

Chemicals 19.8 13.0 19.3 17.6 18.0 -174 40 16.8 13.6 325

Packaging Films 17.0 20.7 19.6 23.4 21.7 477 -168 21.2 15.1 616

Others 8.1 13.1 10.9 12.0 9.2 110 -282 12.0 8.0 397





June 7, 2020 | 5

Conference call highlights

Specialty Chemicals

Management remains optimistic on Specialty Chemical (20-25% FY21E growth) to be the

growth driver, backed by a strong pipeline of innovative products for international markets.

In FY20, Specialty Chemicals revenue was Rs16bn (54% of total Chemical sales) and the

rest was from the Fluorochemicals business.

R-gas

On the Fluorochemicals front, it expects muteness in the near term from the slowdown in

the automotive sector. However, this shall be mitigated by expanding into newer export

markets such as Europe, given the relative low-cost base for Indian goods, as well change

in white goods dynamics. The trade wars between US and China may be beneficial too.

For R-gas, OEM is 40-45% of the business and the rest 55-60% is replacement market. It

expects much faster consumption of additional capacities (earlier guidance was 3 years).

Current capacity utilization was 70-75% for all HFC capacities.

R134a has 100% auto application, while other R-gas products have blended applications.

Packaging Film

In Packaging Films business, company sees volume growth and value-added products to

play key role. Hungary plant commercialization has been deferred to Q2FY21. 4 to 5 lines

to be commissioned in next 3 to 5 quarters (1 already commissioned, 1- Pakistan, 1-Poland

and some other regions, 28-40k per line)

Technical Textiles

For Technical Textiles, the bottom line would be maintained by cost-control efficiencies.

Management sees faster recovery in the replacement market (by Q2FY21) than the OEM

segment. Inventory revaluation impacts Rs30-40mn in the TT business in Q4. SRF sees

3.5k – 4k tons per month is doable in such scenario in upcoming quarters. (stable)

Others

In Others segment, several new products have been launched in coated and laminated

fabrics. However, oversupply in the market weighs on performance.

Export profile for various segments: Specialty Chemical – 80%/90%, Fluorochemical –

Balanced, Technical Textiles – Majority is domestic, Packaging Films – 50%/60%.

Debt reduction in the range of Rs2-3bn is expected, subject to capex announcements.

Crude oil volatility will always have an effect on Technical Textiles and Packaging Films

businesses. Realizations would move in tandem with oil prices, however, EBIT margins

and profitability are a function of conversion margins for key raw materials.

Blended cost of debt stands in the range of 3.5% to 3.75% in FY20 (on global basis).

Capex

Capex guidance for FY21 stands at Rs12-13bn (Rs8bn for Thailand & Hungary lines,

Rs2.5bn spec chemical to add new products, capex rolled forward earlier periods, Rs1bn

unbudgeted), depending how the situation evolves.




June 7, 2020 | 6

Exhibit 13: Recent capex announcements

Date Segment Description Amt

(Rs mn)

August 8, 2016 Chemicals Expanding Chloromethane capacity by 40,000TPA (existing capacity is 40,000TPA) 1650

August 8, 2016 Chemicals Setting up a Multi-Purpose Plant 1800

August 8, 2016 Chemicals ‘Electrochemical Research Facility’ at Bhiwadi, Rajasthan 70

Nov 11, 2016 Chemicals New facilities and production of new products in existing multi-purpose plant and setting up of cGMP plant 1280

May 22, 2107 Chemicals 250MTPA joint agrochemical plant for production of active ingredients 1800

Aug 08, 2017 Chemicals Setting up 800-1000TPA plant for producing specialty chemical for agrochemical industry 850

Nov 02, 2017 Chemicals Acquisition of HFC 125 asset from global major: Mexichem 650

Nov 10, 2017 Chemicals Setting up new facility for R125 1250

Nov 10, 2017 Chemicals New R32 capacity, R134a (debottlenecking), R32 conversion to R134a (Bhiwadi), AHF capacity expansion 2250

Feb 07, 2018 Packaging BOPET film line and a Metallizer in Eastern Europe 4570

Feb 07, 2018 Chemicals Augmenting existing product lines and cost management measures 810

Feb 07, 2018 Textile Installation of a dipping line brought over from SRF’s Overseas 320

July 09, 2018 Packaging BoPET film line at Thailand subsidiary with 40000MTPA capacity 4100

Feb 05, 2019 Chemicals Debottlenecking - Speciality Chemical products (at Dahej) and Technical Textile (at Manali and Gwalior) 2200

Aug 06, 2019 Chemicals PTFE plant of 5000MTPA and R-gas Plant 4240

Oct 31, 2019 Chemicals 1600MTPA capacity addition in Specialty chem (for agro, pharma & Others) 400

Oct 31, 2019 Packaging 45,000 MTPA BOPP film line in Thailand 3500

Oct 31, 2019 Textile Capacity expansion cum modernization of TCF value chain 1250

Feb 4, 2020 Chemicals HFC Phase 1 for future incremental capacities 655

Feb 4, 2020 Chemicals Specialty Chemical plant in Dahej (capacity - 2150 MTPA) 2380


Exhibit 14: Key segment wise assumptions

Key Assumptions FY19 FY20 FY21E FY22E FY23E

Technical Textile Revenue 17,344 13,575 12,587 14,475 16,212

Revenue Growth -6% -22% -7% 15% 12%

EBIT Margins 14% 11% 11% 14% 15%

Chemicals Revenue 24,454 29,750 36,315 46,170 53,894

Revenue Growth 60% 22% 22% 27% 17%

EBIT Margins 16% 17% 19% 20% 20%

Packaging Films Revenue 26,533 26,040 31,118 37,642 39,047

Revenue Growth 49% -2% 20% 21% 4%

EBIT Margins 15.0% 21.3% 15.8% 16.0% 17.0%

Others 2,716 2,783 2,934 3,374 3,880

Revenue Growth -41% 2% 5% 15% 15%

EBIT Margins 17.2% 11.4% 8.5% 9.2% 10.0%

Total Sales 71,047 72,148 82,954 1,01,662 1,13,034


Exhibit 15: Change in estimates

All fig in Rs mn (Ex Margin/EPS)

FY21E FY22E FY23E

Old New % Change Old New % Change Introduced

Revenues 80,386 82,954 3.2 1,00,395 1,01,662 1.3 1,13,034

EBITDA 16,475 17,495 6.2 21,701 22,882 5.4 26,443

EBITDA margins % 20.5 21.1 2.9 21.6 22.5 4.1 23.4

Net profits 8,795 8,650 -1.6 12,332 12,095 -1.9 14,437

EPS 150.3 150.5 0.1 210.8 210.4 -0.2 251.2





June 7, 2020 | 7

Exhibit 16: SoTP valuation June’ 22E earnings

Segments EV/EBITDA FY22E EBITDA (Rs Mn) EV (Rs Mn)

Chemicals Revenue 12.7x 12,738 1,61,344

R-Gas 12.0x 3,428 41,131

Speciality Chemicals 18.0x 9,015 1,62,270

Clorinated Chemicals 8.0x 295 2,361

Total Chemicals 16.2x 12,738 2,05,762

Technical Textile 5.0x 2,897 14,483

Packaging 6.0x 8,326 49,957

Others 5.0x 442 2,208

Total 11.2x 24,402 2,72,410

Debt (net) 33,550

Mcap 2,38,860

TP 4,156

Upside 13.9%


Exhibit 17: PE (x) Band


Exhibit 18: EV/EBITDA (x) Band


Exhibit 19: Peer comparison

Company Name Price

(Rs)

Mkt Cap

(Rs bn) Reco

TP

(Rs)

PE PB (x) EV/EBITDA

FY20e FY21e FY22e FY20e FY21e FY22e FY20e FY21e FY22e

Advanced Enzyme Tech 156 17 Buy 214 12.7 11.5 9.8 2.1 1.8 1.5 7.9 6.9 5.7

Apcotex Industries 107 6 Buy 120 33.8 27.6 17.3 2.2 2.2 2.0 17.8 14.3 10.3

BASF India 1,151 50 Hold 1,185 94.1 33.9 23.3 3.5 3.2 2.8 19.9 14.0 11.4

Camlin Fine Sciences 44 5 Buy 70 16.5 9.3 7.1 1.8 1.5 1.3 8.0 5.5 4.6

GHCL 129 12 Buy 155 2.7 3.5 2.7 0.5 0.4 0.4 2.8 3.1 2.2

Navin Fluorine 1,618 80 Buy 1,600 47.3 37.1 30.3 6.5 5.7 4.9 31.8 28.1 22.9

SRF 3,650 210 Buy 4,156 22.9 24.3 17.3 4.3 3.7 3.1 16.6 13.9 10.5

Tata Chemicals 318 81 Hold 302 1.1 11.4 8.7 0.6 0.6 0.6 6.8 7.2 6.0

Vinati Organics 1,038 107 Hold 915 34.3 37.5 28.5 8.2 7.0 5.8 26.1 27.6 20.9


0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Ap

r-06

Jan

-07

Se

p-0

7

Jun

-08

Fe

b-0

9

Oct-

09

Jul-1

0

Ma

r-11

Dec-1

1

Au

g-1

2

May-1

3

Jan

-14

Se

p-1

4

Jun

-15

Fe

b-1

6

Nov-1

6

Jul-1

7

Ma

r-18

Dec-1

8

Au

g-1

9

Ma

y-2

0

6x

12x

18x

24x

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Ap

r-06

Jan

-07

Oct-

07

Jul-0

8

Ap

r-09

Jan

-10

Oct-

10

Jul-1

1

Ma

r-12

Dec-1

2

Se

p-1

3

Jun

-14

Ma

r-15

Dec-1

5

Se

p-1

6

Jun

-17

Fe

b-1

8

Nov-1

8

Au

g-1

9

Ma

y-2

0

4x

7x

10x

13x




June 7, 2020 | 8

Key Financials (Consolidated)

Income Statement

Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E

Revenue 70,996 72,094 82,954 1,01,662 1,13,034

Expenditure 58,026 57,545 65,459 78,780 86,591

EBITDA 12,970 14,549 17,495 22,882 26,443

Depreciation 3,582 3,886 4,599 5,538 6,158

EBIT 9,388 10,663 12,896 17,344 20,285

Other Income 280 491 240 240 240

Interest expenses 1,984 2,007 2,046 2,077 2,016

PBT 7,684 9,147 11,089 15,507 18,509

Tax 1,769 (12) 2,440 3,411 4,072

Extraordinary Items 0 0 0 0 0

Minority Int./Income from Assoc. 0 0 0 0 0

Reported Net Income 5,916 9,159 8,650 12,095 14,437

Adjusted PAT 5,916 9,159 8,650 12,095 14,437

Balance Sheet


Equity share capital 585 585 585 585 585

Reserves & surplus 40,708 48,748 56,708 68,114 81,861

Net worth 41,293 49,333 57,293 68,699 82,446

Minority Interest 0 0 0 0 0

Loan Funds 33,454 33,916 34,416 33,416 29,416

Net deferred tax liability 0 0 0 0 0

Total Liabilities 74,746 83,250 91,709 1,02,115 1,11,862

Net block 63,630 77,608 84,509 93,970 1,01,432

Investment 8,222 7,990 7,990 7,990 7,990

Current Assets 27,027 23,027 27,628 34,517 40,417

Cash & bank balance 1,989 1,506 1,254 2,196 4,480

Other Current Assets 0 0 0 0 0

Current liabilities & Provision 24,133 25,376 28,418 34,363 37,977

Net current assets 2,894 (2,349) (789) 154 2,440

Misc. exp 0 0 0 0 0

Total Assets 74,746 83,250 91,709 1,02,115 1,11,862

Cash Flow


PBT (Ex-Other income) (NI+Dep) 7,405 8,656 10,849 15,267 18,269

Other Non-Cash items 0 0 0 0 0

Chg in working cap (2,310) 4,761 (1,812) (2) (1)

Operating Cashflow 7,609 17,492 11,437 17,631 20,594

Capital expenditure (10,408) (17,864) (11,500) (15,000) (13,620)

Free Cash Flow (2,799) (373) (63) 2,631 6,974

Investments (687) 233 0 0 0

Other Investing Cash Flow 0 0 0 0 0

Investing Cashflow (11,095) (17,632) (11,500) (15,000) (13,620)

Equity Capital Raised 1 0 0 0 0

Loans Taken / (Repaid) 5,197 463 500 (1,000) (4,000)

Dividend paid (incl tax) 690 805 690 690 690

Other Financing Cash Flow 3,818 (1,147) (880) (2,380) (5,380)

Financing Cashflow 4,508 (342) (190) (1,690) (4,690)

Net chg in cash 1,022 (482) (252) 941 2,284

Opening cash position 967 1,989 1,506 1,254 2,196

Closing cash position 1,989 1,507 1,254 2,196 4,480





June 7, 2020 | 9

Key Ratios

Profitability (%) FY19 FY20 FY21E FY22E FY23E

EBITDA Margin 18.3 20.2 21.1 22.5 23.4

EBIT Margin 13.2 14.8 15.5 17.1 17.9

Effective Tax Rate 23.0 (0.1) 22.0 22.0 22.0

Net Margin 8.3 12.7 10.4 11.9 12.8

ROCE 13.9 14.1 15.0 18.1 19.2

ROE 15.4 20.2 16.2 19.2 19.1

RoIC 15.7 15.4 16.5 19.9 21.2

Per Share Data (Rs) FY19 FY20 FY21E FY22E FY23E

EPS 102.9 159.3 150.5 210.4 251.2

CEPS 165.2 227.0 230.5 306.8 358.3

BVPS 718.4 858.3 996.7 1,195.2 1,434.3

DPS 12.0 14.0 12.0 12.0 12.0

Valuations (x) FY19 FY20 FY21E FY22E FY23E

PER 35.5 22.9 24.3 17.3 14.5

P/CEPS 22.1 16.1 15.8 11.9 10.2

P/BV 5.1 4.3 3.7 3.1 2.5

EV / Sales 3.4 3.4 2.9 2.4 2.1

EV / EBITDA 18.6 16.6 13.9 10.5 8.9

Dividend Yield (%) 0.3 0.4 0.3 0.3 0.3

Gearing Ratio (x) FY19 FY20 FY21E FY22E FY23E

Net Debt/ Equity 0.8 0.7 0.6 0.5 0.3

Net Debt/EBIDTA 2.4 2.2 1.9 1.4 0.9

Working Cap Cycle (days) 4.7 (19.5) (9.0) (7.3) (6.6)

Growth (%) FY19 FY20 FY21E FY22E FY23E

Revenue 27.0 1.5 15.1 22.6 11.2

EBITDA 36.2 12.2 20.2 30.8 15.6

EBIT 47.4 13.6 20.9 34.5 17.0

PAT 28.1 54.8 (5.6) 39.8 19.4

Quarterly (Rs mn) Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Revenue 19,370 17,633 17,378 18,505 18,578

EBITDA 3,724 3,598 3,310 4,029 3,613

EBITDA Margin (%) 19.2 20.4 19.0 21.8 19.4

PAT 1,909 1,893 3,011 3,405 1,773

EPS (Rs) 33.2 32.9 52.4 59.2 30.9


Shareholding Pattern (%) Mar-19 Jun-19 Sep-19 Dec-19 Mar-20

Promoters 52.3 52.3 52.3 52.3 52.3

FIIs 17.1 18.2 18.5 18.4 18.3

DIIs 11.6 11.4 11.9 11.6 11.3

Public and Others 19.0 18.2 17.3 17.7 18.1

Source: Capitaline




June 7, 2020| 10

RECOMMENDATION HISTORY TABLE

Date Closing

Price TP

Period (months)

Rating Analyst

16-Apr-20 3,414 3,860 12m Buy Rohit Sinha

07-Feb-20 4,110 4,122 12m Buy Rohit Sinha

05-Feb-20 3,987 4,122 12m Buy Rohit Sinha

06-Jan-20 3,409 3,558 12m Buy Rohit Sinha

06-Nov-19 3,067 3,558 12m Buy Rohit Sinha

23-Sep-19 2,949 3,210 12m Buy Rohit Sinha

18-Sep-19 2,740 3,210 12m Buy Rohit Sinha

06-Aug-19 2,981 3,210 12m Buy Amar Mourya

17-Jun-19 2,863 3,367 12m Buy Amar Mourya

14-May-19 2,600 3,008 12m Buy Amar Mourya

01-Apr-19 2,361 2,464 12m Buy Amar Mourya

06-Feb-19 2,223 2,464 12m Buy Amar Mourya

02-Nov-18 1,959 2,409 12m Buy Amar Mourya

08-Aug-18 1,853 2,305 12m Buy Amar Mourya

09-Jul-18 1,727 2,305 12m Buy Amar Mourya

18-May-18 1,924 2,305 12m Buy Amar Mourya

07-Feb-18 1,776 1,978 12m Buy Amar Mourya

10-Nov-17 1,733 1,978 12m Accumulate Amar Mourya

09-Aug-17 1,435 1,665 12m Accumulate Amar Mourya


RECOMMENDATION HISTORY CHART

Source: Bloomberg, Company, Emkay Research

1430

1984

2538

3092

3646

4200

09

-Ju

n-1

7

07

-De

c-1

7

06

-Ju

n-1

8

04

-De

c-1

8

03

-Ju

n-1

9

01

-De

c-1

9

30

-Ma

y-2

0

BUY Hold Sell Accumulate

Reduce Price Target Price




June 7, 2020| 11

Emkay Alpha Portfolio – Speciality Chemicals

EAP sector portfolio

Company Name BSE200 Weight

EAP Weight

OW/UW (%)

OW/UW (bps)

EAP Weight (Normalised)

Speciality Chemicals 0.19 0.18 -10% -2 100.00

Advanced Enzyme Tech 0.00 0.00 NA 0 1.97

Apcotex Industries 0.00 0.00 NA 0 1.81

BASF India 0.00 0.00 NA 0 1.46

Camlin Fine Sciences 0.00 0.00 NA 0 1.94

GHCL 0.00 0.00 NA 0 2.18

Navin Fluorine 0.00 0.04 NA 4 22.66

Orient Refractories 0.00 0.01 NA 1 2.99

SRF 0.19 0.09 -53% -10 47.32

Tata Chemicals 0.00 0.01 NA 1 5.84

Vinati Organics 0.00 0.00 NA 0 1.90

Cash 0.00 0.02 NA 2 9.93

Source: Emkay Research

* Not under coverage: Equal Weight

High Conviction/Strong Over Weight High Conviction/Strong Under Weight

Sector portfolio NAV

Base Latest

01-Apr-19 03-Sep-19 05-Dec-19 05-Mar-20 06-May-20 04-Jun-20

EAP - Speciality Chemicals 100.0 105.3 119.5 141.4 125.3 131.1

BSE200 Neutral Weighted Portfolio (ETF) 100.0 105.9 123.2 139.5 129.8 134.8

*Performance measurement base date 1st April 2019


NAV chart


Please see our model portfolio (Emkay Alpha Portfolio): SMID

Please see our model portfolio (Emkay Alpha Portfolio): Nifty

“Emkay Alpha Portfolio – SMID and Nifty are a supporting document to the Emkay Alpha

Portfolios Report and is updated on regular intervals”

90

103

116

129

142

155

Apr-19 May-19 Jul-19 Sep-19 Oct-19 Dec-19 Feb-20 Apr-20 May-20

NAV

EAP - Speciality Chemicals BSE200 Neutral Weighted Portfolio (ETF)

Analyst: Rohit Sinha

Contact Details

[email protected]

+91 22 6612 1306

Sector

Speciality Chemicals

Analyst bio

Rohit Sinha holds a CFA degree and

comes with total four years of experience

in the Specialty Chemicals sector. He

currently covers nine stocks in the

Specialty Chemicals space.


https://web3.emkayglobal.com/ResearchAccess/Upload/SMID_Jun20.pdf

https://web3.emkayglobal.com/ResearchAccess/Upload/Nifty_Jun20.pdf

mailto:[email protected]



June 7, 2020| 12

Emkay Rating Distribution

Ratings Expected Return within the next 12-18 months.

BUY Over 15%

HOLD Between -5% to 15%

SELL Below -5%

Completed Date: 07 Jun 2020 21:57:55 (SGT) Dissemination Date: 07 Jun 2020 21:58:55 (SGT)

Sources for all charts and tables are Emkay Research unless otherwise specified.

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June 7, 2020| 13

ANALYST CERTIFICATION BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL) The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible of the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer, director or employee of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant). The research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. EGFSL has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the EGFSL and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of EGFSL compensation to any specific investment banking function of the EGFSL. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interest that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at the arm’s length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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June 7, 2020| 14

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Documents

Refer to important disclosures at the end of this report ...images.moneycontrol.com/static-mcnews/2020/06/SRF-08062020.pdf · India Equity Research | Speciality Chemicals June 7,