SRF Limited – A Good Value Pick

Through various articles in this (Stock Tips) category we are trying to answer one simple question – Where should you invest?

Our expert Rahul Sonthalia gives you a sound suggestion with strong background investment research for Value Investing

Growing at a 5 years CAGR of 22 per cent, huge capex lined up, 17 year dividend track record, high

dividend yield, and EV/EBITDA of mere 4x makes the company an attractive bet.The three business segments contribute the following amount to the total revenue:

  • Technical textile business: 50 per cent
  • Chemicals and polymers business: 34 per cent
  • Packaging film business: 16 per cent

The company has chalked out an impressive plan for future growth earmarking a capex of Rs 1,400

crore for expansion and backward integration which will be under the following heads

  • Setting up a 14,500 TPA polyester yarn at a cost of Rs 184 crore
  • Investing Rs 257 crore towards capacity enhancement
  • Investing Rs 40 crore for a dipping tyre cord plant
  • Investing Rs 92 crore for wind power project and Rs 60 crore for laminates

Apart from organic growth the company also isn’t shy of treading the inorganic route and has

recently completed major acquisitions and will look for further opportunities as well as a result of the acquisitions the company has become the 2nd largest player in the nylon tyre cord fabric (NTCF) segment which has good prospects considering the revival of the auto sector and the anti dumping duty imposed on NTCF being dumped in from China
What’s more to the company is the sale of carbon credits which is estimated to earn around Rs

271- 338 crore until 2014 which is an added bonus
Considering the financials the company trades at a P/E of 4.8x nd compared to Century Enka which

trades at a P/E of 6x and has given an interim dividend of Rs 7 having a dividend yield of around 7

per cent and thus makes it a good value buy.

Author: Rahul Sonthalia, Research Head, Kredent

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One Response to “SRF Limited – A Good Value Pick”

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