Refer to important disclosures at the end of this report...
Transcript of Refer to important disclosures at the end of this report...
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.
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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
+91 22 6612 1306
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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
SRF (SRF IN) India Equity Research | Result Update
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.
June 7, 2020 | 2
Story in Charts
Exhibit 1: Revenue growth takes a back seat in challenging environment; Specialty plays savior
Source: Company, Emkay Research
Exhibit 2: EBITDA under pressure owing to weak sales base; gross margins up 400bps yoy
Source: Company, Emkay Research
Exhibit 3: Margins hold ground on operational efficiencies
Source: Company, Emkay Research
Exhibit 4: Technical Textiles slumps from automotive weakness, Chemical gains in FY20; revenue contribution
Source: Company, Emkay Research
Exhibit 5: Chemicals segment leads EBIT contribution
Source: Company, Emkay Research
Exhibit 6: On margins front, Packaging Films seals the deal in all 4 quarters of FY20, despite revenue fall; EBIT margin trend
Source: Company, Emkay Research
Exhibit 7: Chemical topline sees moderate uptick, owing to specialty demand and impacted by weak R-gas market
Source: Company, Emkay Research
Exhibit 8: PF margins steady owing to better product mix; however market oversupply may weigh on pricing power in near term
Source: Company, Emkay Research
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
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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%
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-40%
-20%
0%
20%
40%
60%
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120%
0.0
0.5
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Q3
FY
17
Q4
FY
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Q1
FY
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FY
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Q3
FY
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Q4
FY
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Q1
FY
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FY
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FY
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Q4
FY
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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
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Q1
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Q1
FY
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Q4
FY
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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
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Q1
FY
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Q2
FY
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FY
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Q4
FY
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Q1
FY
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Q2
FY
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Q3
FY
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Q4
FY
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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
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Q4
FY
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Q1
FY
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Q4
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Q1
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Technical Textiles Chemicals Packaging Films Others
0%
5%
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15%
20%
25%
Q3
FY
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Q1
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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%
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20%
25%
0123456789
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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
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6.4
6.0
14%
10%12% 12%
15% 14%15%
17%
13%
17%
21%20%
23%22%
0%
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0
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Revenue (Rs bn) EBIT Margin %
SRF (SRF IN) India Equity Research | Result Update
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.
June 7, 2020 | 3
Exhibit 9: Subdued demand in Tyre Fabric weighs on Technical Textiles performance, replacement market to revive in Q2FY21
Source: Company, Emkay Research
Exhibit 10: Others’ segment margins undergo normalization, on account of laminated and coated fabrics oversupply and pricing pressures
Source: Company, Emkay Research
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
Source: Company, Emkay Research
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
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6
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FY
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FY
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Revenue (Rs bn) EBIT Margin %
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%
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14%
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Revenue (Rs bn) EBIT Margin %
SRF (SRF IN) India Equity Research | Result Update
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.
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
Source: Company, Emkay Research
SRF (SRF IN) India Equity Research | Result Update
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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.
SRF (SRF IN) India Equity Research | Result Update
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.
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
Source: Company, Emkay Research
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
Source: Company, Emkay Research
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
Source: Company, Emkay Research
SRF (SRF IN) India Equity Research | Result Update
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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%
Source: Company, Emkay Research
Exhibit 17: PE (x) Band
Source: Company, Emkay Research
Exhibit 18: EV/EBITDA (x) Band
Source: Company, Emkay Research
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
Source: Company, Emkay Research
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
SRF (SRF IN) India Equity Research | Result Update
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.
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
Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E
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
Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E
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
Source: Company, Emkay Research
SRF (SRF IN) India Equity Research | Result Update
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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
Source: Company, Emkay Research
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
SRF (SRF IN) India Equity Research | Result Update
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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
Source: Company, Emkay Research
RECOMMENDATION HISTORY CHART
Source: Bloomberg, Company, Emkay Research
1430
1984
2538
3092
3646
4200
09
-Ju
n-1
7
07
-De
c-1
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n-1
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04
-De
c-1
8
03
-Ju
n-1
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-De
c-1
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-Ma
y-2
0
BUY Hold Sell Accumulate
Reduce Price Target Price
SRF (SRF IN) India Equity Research | Result Update
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.
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
Source: Emkay Research
NAV chart
Source: Emkay Research
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
+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.
SRF (SRF IN) India Equity Research | Result Update
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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.
GENERAL DISCLOSURE/DISCLAIMER BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL): Emkay Global Financial Services Limited (CIN-L67120MH1995PLC084899) and its affiliates are a full-service, brokerage, investment banking, investment management and financing group. Emkay Global Financial Services Limited (EGFSL) along with its affiliates are participants in virtually all securities trading markets in India. EGFSL was established in 1995 and is one of India's leading brokerage and distribution house. EGFSL is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), MCX Stock Exchange Limited (MCX-SX). EGFSL along with its subsidiaries offers the most comprehensive avenues for investments and is engaged in the businesses including stock broking (Institutional and retail), merchant banking, commodity broking, depository participant, portfolio management, insurance broking and services rendered in connection with distribution of primary market issues and financial products like mutual funds, fixed deposits. Details of associates are available on our website i.e. www.emkayglobal.com EGFSL is registered as Research Analyst with SEBI bearing registration Number INH000000354 as per SEBI (Research Analysts) Regulations, 2014. EGFSL hereby declares that it has not defaulted with any stock exchange nor its activities were suspended by any stock exchange with whom it is registered in last five years, except that NSE had disabled EGFSL from trading on October 05, October 08 and October 09, 2012 for a manifest error resulting into a bonafide erroneous trade on October 05, 2012. However, SEBI and Stock Exchanges have conducted the routine inspection and based on their observations have issued advice letters or levied minor penalty on EGFSL for certain operational deviations in ordinary/routine course of business. EGFSL has not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has its certificate of registration been cancelled by SEBI at any point of time. EGFSL offers research services to clients as well as prospects. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. 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All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of EGFSL . All trademarks, service marks and logos used in this report are trademarks or registered trademarks of EGFSL or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. 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This publication has not been reviewed or authorized by any regulatory authority. There is no planned schedule or frequency for updating research publication relating to any issuer.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets Disclaimer for U.S. persons only: This research report is a product of Emkay Global Financial Services Limited (Emkay), which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of Financial Institutions Regulatory Authority (FINRA) or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors.
SRF (SRF IN) India Equity Research | Result Update
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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.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL):
Disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject company(s) covered in this report-: 1. EGFSL, its subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of June 7, 2020 2. EGFSL, and/or Research Analyst does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report Disclosure of previous investment recommendation produced: 3. EGFSL may have published other investment recommendations in respect of the same securities / instruments recommended in this research
report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by EGFSL in the preceding 12 months.
4. EGFSL , its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have any material conflict of interest in the securities recommended in this report as of June 7, 2020.
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6. EGFSL, its subsidiaries and/or other affiliates and Research Analyst have not received any compensation in whatever form including compensation for investment banking or merchant banking or brokerage services or for products or services other than investment banking or merchant banking or brokerage services from securities recommended in this report (subject company) in the past 12 months.
7. EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst have not received any compensation or other benefits from securities recommended in this report (subject company) or third party in connection with the research report.
8. Securities recommended in this report (Subject Company) has not been client of EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst during twelve months preceding the June 7, 2020
SRF (SRF IN) India Equity Research | Result Update
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June 7, 2020| 14
RESTRICTIONS ON DISTRIBUTION
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