Motilal Oswal: SRF - Investing Heavily In Chemicals; Returns To Accrue Going Forward 

Motilal Oswal Report

SRF Ltd. incurred total capex of Rs 84 billion over the last 10 years, of which 57% was deployed toward the chemicals segment. Of the total capex, 63% was incurred in the past five years itself.

Additionally, on August 31, 2020, the SRF board approved fund raise of Rs 7.5 billion through qualified institutional placement and Rs 2.5 billion through issuance of listed redeemable secured non-convertible debentures, by way of private placement.

In this report, we analyse SRF’s capex over the past decade and the company’s plans in the future.

Capex in technical textiles/packaging largely self-sustainable. According to our observations in the past – for the packaging segment – whenever Ebitda performance improved substantially, it was followed by higher capex in the following years.

For instance, in FY11 when the segment’s Ebitda increased 6.2 times YoY to Rs 3.8 billion, the company incurred capex of Rs 7 billion over FY13-14.

The same was witnessed in FY20 – on the back of 47% Ebitda compound annual growth rate over FY18-20 to Rs 6.4 billion in FY20 – the company incurred capex of Rs 11 billion (in FY20).

Against this backdrop, the segment’s Ebitda less capex for the last 10/5 years is negative at Rs 3.4 billion/Rs 1.1 billion.

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