Shares of SRF are in focus heading into Wednesday’s trade after Investec came up with a fresh note on the chemical company, issuing a major target price cut in the wake of earnings momentum that is getting ‘vulnerable’.
In its latest note, Investec maintained a ‘sell’ rating on SRF while cutting the target price from Rs 2,480 to Rs 1,500. This implies a downside of about 45% from Tuesday’s closing price of Rs 2,685.
The brokerage firm noted that the SRF earnings momentum is becoming increasingly vulnerable beyond its core refrigerants business. This doesn’t bode well for the company, especially considering the fact that key segments are facing sustained pricing pressure.
The firm added that SRF’s Speciality Chemicals and the Technical Textiles Business (TTB) are both facing sustained pricing pressure from Chinese competitors. While Investec noted that the core refrigerants business has remained robust, there is cause for concern in other segments, where growth has been uneven.
Investec believes there is limited near-term visibility for the Speciality Chemicals business, which has served as a key growth driver for the company in recent years. While the Technical Textile Business was described as range-bound, it has struggled to gain any traction amid the influx of lower-priced imports.
Other than these factors, Investec also highlighted potential risks related to the elevated capital expenditure and early stage of its pharmaceutical scale-up, which could further cloud the earnings outlook going forward.
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