Rs 390 To Rs 2324: Kotak Securities Sees Substantial Growth In Large Cap Stock, Recommends Buy

Kotak Securities has assigned buy rating to large cap Diversified sector stock, SRF Ltd with a target price of Rs 2830 apiece implying an upside of 22%.

According to the analyst, "the Specialty Chemicals Business (SCB) continues to grow rapidly with good multi-year order visibility, while the Fluorochemicals Business (FCB) is well-placed to benefit from an expected tightening in world demand-supply in the years to come. The new business area of fluoropolymers is also seen holding substantial growth potential." Check details below:

1. SRF Ltd Stock Performance & Return

The last trading price of the stock is Rs 2324 apiece with an intraday decline of 3%. The stock's 52-week high is Rs 2864 apiece and 52-week low is Rs 2002 apiece, respectively.

The stock has given multibagger returns to investors over the years with last 5-years return at 520%. The stock has rallied 255% in last 3-years and 5% in last 1-year.

The stock was priced Rs 390 on January 8, 2018 and as of December 16, 2022, it has surged to Rs 2324 apiece, implying an upside of 495%.

The company has a market capitalisation of Rs 68,899.50 crore.

2. SCB Continues To Grow Strongly With Good Visibility

The SCB unit has now grown to the scale of 14 dedicated plants, along with 5 multi-purpose plants (MPPs). Reflecting how rapidly the business is growing, the unit is working on commissioning 5 more dedicated plants within the next year, along with one Pharma Intermediate Plant (PIP).

Around 6-7 years ago, SCB used to produce only 6-7 products; this has now scaled up to 40-45 products (some of the dedicated plants produce more than one product). All the capacities are backed by clear visibility provided by customers: SRF sets up capacities only when there are firm commitments from customers, and these agreements can span 3-5 years in duration.

3. Valuation

According to Kotak Securities, "We believe SRF's Chemicals segment should benefit in the coming years from continued growth in the SCB, expected price increases in the coming years in HFC refrigerants, and expansion into fluoropolymers. Separately, in the Packaging Films Business (PFB), management is bullish on the opportunity in the aluminum foils business - a new area for the company. Overall, we retain a constructive stance for the medium-to-longer term, considering SRF's growth potential and proven track record, but acknowledge nearterm risks."

On the other hand, short-term risks include: (1) a global economic slowdown that could dampen demand for refrigerants, fluoropolymers and packaging films; and (2) a possible cyclical downturn in the global agrochemical industry if high channel inventories and potentially a correction in crop prices off cyclical highs slows down buying from global agrochemical innovators.

4. About SRF Ltd

Since SRF's incorporation in 1970 and the subsequent establishment of its first plant in Manali, near Chennai, India in 1974, it has grown from being a single unit tyre cord manufacturer into a leading, professionally-managed, diversified chemicals conglomerate. Its core strength lies in its ability to diversify.

Disclaimer

The stock has been picked from the brokerage report of Kotak Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.