ICICI Securities bullish on this multibagger specialty chemical stock

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SRF’s share price has grown at 76% CAGR over the past three years. With sustained visibility capex, brokerage and research firm ICICI Securities believes that the company is well poised to expand into newer and more complex areas (such fluoro-chemicals) by leveraging on its strong pedigree.

The brokerage has Buy rating on the multibagger stock with a target price of 3,065 per share. The specialty chemical stock has rallied over 144% in a year’s period, whereas it is up about 10% in 2022 (year-to-date or YTD) so far.

“Focused capex towards speciality chemicals keeping in mind higher consumption of fluoro-compounds across agrochemical and pharma besides general themes of vertical integration and higher operating leverage,” the note stated.

Further, maiden foray into polytetrafluoroethylene (PTFE) through backward integration of R22 to diversify business risk, to a certain extent, prudent and measured strategy to increase presence across other fluoropolymers is likely to enhance revenue visibility over the medium to long run, it added.

In packaging, the company has earmarked a capex of 425 crore towards aluminium foils to tap the import substitution theme (domestic import of aluminium foil | ~4500 crore) with an expected asset turn of 1.75-2x. The company is targeting import market share of mid-teens initially, which could act as key triggers for future stock price performance. 

“Going ahead, we expect strong incremental traction from existing customers. Control over working capital along with better operational performance to improve FCF generation. Prudent capital allocation towards high RoCE generating businesses to improve return ratios further,” ICICI Securities’ note said.

Incorporated in 1970, SRF started with nylon cord tyre and thereafter diversified into other areas such as refrigerant gases, speciality chemicals and packaging film among others. The chemical division accounts for 43% of overall revenues followed by packaging film (39%), technical textile (15%) and others (3%).

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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