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SRF: On a expansion mode - Views on News from Equitymaster
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SRF: On a expansion mode
Jul 29, 2011

SRF has announced first quarter results of financial year 2011-2012 (1QFY12). The company has reported 35.5% YoY and 51.2% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line registered a growth of 35.5% YoY during 1QFY12 led by strong performance from the Chemical & Polymers business.
  • Operating profits increase 27.2% YoY in 1QFY12, in line with healthy growth in top-line. However, operating margins decline to 19.6% during the quarter due to increase in raw material cost as a percentage of sales.
  • Net profits increase 51.2% YoY in 1QFY12 due to strong performance at the operating level coupled with rise in other income.
  • The company bought back approximately 493,000 shares totaling to Rs 150.3 m during the quarter. It may be noted that the buyback window is open until February 2012.

Standalone financial snapshot
(Rs m) 1QFY11 1QFY12 Change
Total income 6,190 8,388 35.5%
Expenditure 4,900 6,748 37.7%
Operating profit (EBDITA) 1,290 1,640 27.2%
Operating profit margin (%) 20.8% 19.6%  
Other income 58 91 57.5%
Interest 196 203 3.4%
Depreciation 366 385 5.2%
Profit before tax 785 1,143 45.7%
Exchange fluctuation Loss/ (Gain) (21) 0.6  
Tax 258 314 21.8%
Profit after tax/(loss) 548 828 51.2%
Net profit margin (%) 8.9% 9.9%  
No. of shares (m)   60.31  
Basic earnings per share (Rs)   13.73  
P/E ratio (x) *   3.8  
* On a trailing 12-months basis

What has driven performance in 1QFY12?
  • SRF's top line increased 35.5% YoY during 1QFY12 led by strong performance from the Chemical & Polymers Business (CPB) and Technical Textile Business (TTB). Revenues from the CPB and TTB segment increased 83.2% YoY and 24.0% YoY respectively. Even the Packaging Films Business (PFB) segment registered a decent growth of 20.7% YoY.

  • Operating margins declined to 19.6% in 1QFY12 due to increase in raw material expenses as a percentage of revenues. Raw material expenses as a percentage of revenues increased to 62.0% in 1QFY12 from 57.2% in 1QFY11. On a segmental basis, margins from the PFB declined substantially from 19.8% in 1QFY11 to 11.9% in 1QFY12 on account of Supreme Court's decision to ban plastic packaging for chewing tobacco. Even the TTB and CPB segment's faced margin pressures due to raw material price inflation.
  • Segment-wise performance (Standalone)
      1QFY11 1QFY12 Change
    Technical Textile
    Revenue (Rs m) 3,373 4,182 24.0%
    % share 54.4% 49.8%  
    PBIT margin 11.8% 9.4%  
    Chemicals & Polymers
    Revenue (Rs m) 1,281 2,347 83.2%
    % share 20.7% 28.0%  
    PBIT margin 38.4% 32.8%  
    Packaging Films
    Revenue (Rs m) 1,548 1,869 20.7%
    % share 25.0% 22.3%  
    PBIT margin 19.8% 11.9%  
    Total
    Revenue (Rs m)* 6,202 8,398 35.4%
    PBIT margin 19.3% 16.5%  
    *Excluding inter-segment revenues

  • The net profits of the company increased 51.2% YoY due to healthy performance at the operating level coupled with rise in other income. The tax rate for the quarter stood at 27.5% compared to 32.9% in 1QFY11.

  • The company has decided to set up a Biaxially Oriented Poly Ethylene Terephthalate (BOPET) line (capacity 28,500 TPA) and one metallizer (capacity of 7,050 TPA) in Thailand at an investment of Rs 2.9 bn. It has also decided to increase its capex outlay for the chemical plant at Dahej from Rs 970 m to Rs 1,320 m.

What to expect?
The company reported strong performance during the quarter on the back of healthy growth from CPB segment. However, raw material price inflation impacted the margin profile. Going forward, management expects the growth momentum to slowdown in light of weak macro-environment. However, capacity expansion plans and a niche product portfolio keep the long term growth prospects intact. Thus, we maintain our positive view on the stock from 2-3 year perspective.

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