🔺 What to do when markets are at an all-time high? Find smart bargains, like these.See Undervalued Stocks

Investec bearish on SRF stock as chemicals weakness drags growth outlook

EditorEmilio Ghigini
Published 25-10-2024, 12:42 pm
SRFL
-

On Friday, Investec has revised its price target for SRF (NS:SRFL) Ltd (SRF:IN), a chemical manufacturing company, to INR1,500.00 from the previous INR1,900.00. Despite this reduction, the firm maintains a Sell rating on the stock. The adjustment follows a review of the company's future earnings potential and current business challenges.

The analyst from Investec provided insights into the rationale behind the decision, noting that the uncertainty surrounding SRF's recovery remains consistent with the previous few quarters. The firm had anticipated downward revisions to both its own below-consensus estimates and the broader market's expectations following the first-quarter review for the fiscal year 2025. After the second-quarter results for fiscal year 2025, Investec proceeded to downgrade its earnings per share (EPS) estimates for SRF for fiscal years 2025 and 2026 by more than 20% each.

Investec also highlighted concerns about SRF's management guidance for a recovery in the second half of the year, stating that the blueprint for this recovery is not clear. A significant contraction in the EBITDA of the company's Chemicals business was observed, which fell to 18% compared to over 32% in fiscal year 2023 and 26% in the second quarter of fiscal year 2024. This decline is seen as a factor contributing to the devaluation of the company's specialized chemicals segment.

The sales growth in the Specialized Chemicals division, which was previously guided to be 20% in the first quarter of fiscal year 2025, was notably weak, with a 4% year-over-year decrease in the first half of fiscal year 2025. No specific growth guidance was provided subsequently. Further adding to the uncertainty, SRF has reduced its capital expenditure plans, cutting the budget to INR 15 billion for fiscal year 2025 from the previously guided range of INR 25-30 billion.

The revised price target is based on a roll-forward to September 2026, valuing SRF Ltd at 40 times the projected EPS for September of fiscal year 2026.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.