SRF and K.P.R. Mill: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are SRF and K.P.R. Mill. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between February 3, 2025 and February 7, 2025.

SRF Limited

SRF share price is ₹2,809.55 (as on January 31, 2025) and its target price is set at ₹3,252 with an upside potential of 16%.

SRF Limited: Investment Rationale

• • SRF is a chemical-based multi-business entity engaged in the manufacturing of industrial and specialty intermediates. The company’s diversified business portfolio covers Fluorochemicals, Specialty Chemicals, Packaging Films, Technical Textiles, Coated and Laminated Fabrics.
  • As of 31 December 2024, the company has applied for a total of 469 patents. To date, the company has been granted 151 patents globally.

• In Q3 FY25, the Chemicals Business saw a 7% rise in revenue to ₹1,496 crores and a 13% increase in operating profit to ₹364 crores, driven by gradual demand improvement in Specialty Chemicals, strong domestic refrigerant demand in Fluorochemicals, and stable performance in Chloromethanes.
• Meanwhile, the Packaging Films Business reported a 27% revenue growth to ₹1,385 crores and a 100% jump in operating profit to ₹90 crores, with SRF maintaining a strong industry position. However, Aluminium Foil margins faced pressure due to lower-cost imports from China and Thailand.
• Furthermore, the Technical Textiles Business saw an 11% increase in revenue to ₹510 crores but experienced a 14% drop in operating profit to ₹59 crores, primarily due to lower demand and margins in the belting fabrics segment, though the polyester industrial yarn segment achieved full capacity utilization.

• On the development front, it has launched three new agro products and three new pharma products in H1 FY25, with partnerships with innovators for complex offerings. The board also approved a ₹1,100 crore capex project for the development of fourth-generation refrigerants with lower Global Warming Potential (GWP).
• Additionally, a new manufacturing facility for the BOPP-BOPE film line in Indore was approved, with an estimated cost of ₹445 crores. This facility is expected to commence operations in 25 months.
• The management of the company expects a strong recovery in Q4, driven by improved demand across both the specialty chemicals and fluorochemicals segments. While the specialty chemicals segment experienced some inventory overhang with agrochemical customers, a steady recovery in demand is already in progress.
• Moreover, the management remains cautiously optimistic about the packaging films business, anticipating a reduction in the demand-supply imbalance compared to previous quarters. While SRF continues to maintain a strong position in the packaging industry, margins for aluminum foil have been under pressure due to the influx of lower-cost imports from China and Thailand.

SRF Limited: Shareholding Pattern

The promoter’s shareholding is highest in SRF at 50.26%.

SRF Limited: Valuation

The management of the company anticipates robust agrochemical demand, marking a significant improvement over Q3, while its product pipeline remains strong. Additionally, the fluorochemicals segment is set to perform better, driven by higher hydrofluorocarbon volumes.

However, rising input costs and global economic uncertainties posed some challenges. Despite these headwinds, SRF maintained a strong balance sheet, and the outlook remains positive due to sustained demand and expansion plans in emerging markets. Thus, it is expected that the stock may see a price target of ₹3,252 in 8 to 10 months’ time frame on current P/BVx of 6.94x and FY26 BVPS of ₹468.60E.

SRF Limited: Risk

• Intense Competition
• Economic Slowdown

K.P.R. Mill Limited

K.P.R. Mill share price is ₹933.75 (as on January 31, 2025) and its target price is set at ₹1,146 with an upside potential of 23%.

K.P.R. Mill Limited: Investment Rationale

• • K.PR. Mill Limited is one of the leading vertically integrated apparel manufacturing Companies in India built on fabulous values with 12 hi-tech manufacturing facilities.
  • It has six state-of-the-art spinning Mills with a capacity to produce 1,00,000 MT of yarn and 4,000 MT of Vortex Viscose yarn, four state-of-the-art garment facilities capacity to produce 177 Million knitted Garments, and two state-of-the-art fabric processing facilities capacity to process 25,000 MT of fabrics, it has 20,000 TCD sugar capacity and 470 KLPD Ethanol Capacity in Karnataka.

• In Q2 FY2025, the EBITDA margin improved to 22.1% from 20.9% same period last year, as a result, EBITDA grew by 4.92% to ₹335.85 crores, even though revenue declined marginally by 2.05% to ₹1480.02 crores.
• PAT was up by 1.57% to ₹205 crores. The decline in revenue was led by a 61.5% fall in the Ethanol business which is partly offset by higher sales in the Yarn & Fabric, Garment, and Sugar businesses. In FY2025, the company reduced its net debt to zero thus making the balance sheet a stranger.

• Its revenue profile is well diversified, both in terms of the segment in which it operates and geography. The garment segment was the highest contributor in consolidated TOI contributing 47% followed by the yarn and fabric segment contributing 32.71% and the balance was contributed by the sugar, ethanol, and power division.
• It has over 1,300 regular domestic clients for yarn and fabric. It exports to leading brands in over 60 countries. To improve the quality and productivity further in spinning, it has modernized the Spinning Division with a total outlay of ₹150 Crores.
• To generate additional revenue, an exclusive vortex spinning mill at an outlay of ₹100 crores has been established at Sathyamangalam, considering its ability to produce yarn at a greater speed, low maintenance costs, and fully automated processing system.
• To strengthen renewable power resources an additional investment of ₹100 crores has been made in a Roof-top Solar Power Plant, With this investment the capacity of Solar Power has reached 37 M.W. This strategic investment reinforces the company’s leadership in renewable energy, significantly reducing its carbon footprint and contributing to a greener future.
• The expansion of Ethanol production capacity 240 KLPD with Zero Liquid Discharge System has been completed.

K.P.R. Mill Limited: Shareholding Pattern

In the overall shareholding of K.P.R. Mill, promoters have the highest shareholding of 70.68%.

K.P.R. Mill Limited: Valuation

KPR’s expansion in vortex spinning, strengthening of renewable power resources through a rooftop solar power plant, and modernization of the spinning division to improve quality and productivity further are expected to drive its growth level to the next stage.

Thus, it is expected that the stock may see a price target of ₹1,146 in 8 to 10 months’ time frame on target P/BV of 6.5x and FY26 BVPS of ₹176.27.

K.P.R. Mill Limited: Risk

• Economic Slowdown
• Fluctuations in cotton prices

Conclusion

These two stocks, one from the chemical sector and the other from the textile sector can reach their target price in the coming 8 to 10 months. However, it is always better if you do your analysis before investing and set a stop-loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.