Motilal Oswal has recommended a Neutral rating on SRF, setting a target price of Rs 2140, according to their report dated June 19, 2024.
Summary of SRF Report by Motilal Oswal
SRF faced a challenging year with a decline of approximately 12% in revenue and 27% in EBITDA year-on-year. The chemicals and packaging segments posed significant challenges, while the technical textiles business remained stagnant. These factors contributed to reduced capex intensity in FY24. However, SRF anticipates recovery across its businesses in the upcoming periods, particularly with expected increased capex in FY25.
In FY24, the chemicals and packaging segments saw declines of 15% and 13% respectively due to weak demand, excess inventory, heightened competition, and surplus capacity. These conditions led to severe margin impacts from adverse operating leverage and initial inefficiencies in newly commissioned facilities. As a result, capex was reduced by 17% year-on-year to conserve cash during these difficult conditions, with the chemicals segment continuing to dominate investment plans (~70% of total capex).
Future Outlook
Motilal Oswal reiterates a Neutral rating on SRF with a sum-of-the-parts-based target price of INR 2140, citing concerns about its current valuation. They acknowledge potential for recovery but maintain a cautious stance due to ongoing market challenges and past performance trends.
This approach reflects Motilal Oswal’s analytical view on SRF’s prospects amidst prevailing market conditions and financial performance.
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