SRF Ltd 09/10/2009
BUY 6-Months Price Target: Rs. 240
Investment Highlights

Latest Quarterly performance: SRF Ltd stand alone net profit
increased by 102.60% (YoY) in Q1FY10, to Rs.92.57 crores from
Rs.45.69 crores for Q1FY09. Net sales also increased by 5.2% (YoY) in
Q1FY10 to Rs.495.02 crores from Rs.470.65 crores for Q1FY09.

Full Year performance: The company stand alone net profit increased
by 17.70% (YoY) in FY09, to Rs.163.27 crores from Rs.138.73 crores for
FY08. Net sales increased by 11.50% (YoY) in FY09 to Rs.1800.82
crores from Rs.1615.30 crores for FY08.

Increase in financial performance: The companies EBITDA margin
increased to 37% for Q1FY10 from 20% in Q1FY09. Further EPS for
Q1FY09 doubled to Rs.14.98 from Rs.7.39 for Q1FY08.

Buy back of shares: The company board has approved a buyback of
shares of up to Rs.65 crore from the open market, at a price not
exceeding Rs 160 a share. With this move we can expect that EPS will
improve in the future.

Increase in industry demand: Indian tyre sector is likely to see raise in
demand, as demand is expected to shift from china because of US
government`s decision to impose additional duties on Chinese-made
tyres. SRF is mainly into nylon tyre cord fabric and industrial yarns.

High dividend yield paying company: The Company declared Rs.10
dividend per share for FY09 and dividend yield per share is 5.32%,
which is higher than those given by the peer companies in the same
industry.

Commenced operation to boost top line: SRF Ltd’s project for
manufacturing Polyester Industrial Yarn at company`s plant at
Gummidipoondi (Tamil Nadu) with a capacity of 14,500 TPA has been
commissioned and capitalized at a cost of Rs. 186 Crores (approx).
These moves by the company will improve its top line in the long run.

Capex plan: It plans to spend about 10 billion rupees ($214 million) on a
new factory to make fluorine-based products for sales overseas. The
market for fluorine specialty chemicals is growing at about 10 percent a
year. This is going to be a higher-margin business.
Valuation
At the CMP of Rs.184, SRF Ltd is trading at just 4.58x of its TTM earnings. We
recommend a BUY on the stock with a 6 months price target of Rs.240.