SRF – Buy at Declines for Decent Returns

Arun Bharat Ram's interview

Share price movement of SRF

Share price movement of SRF
Share price movement of SRF | Source

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Stock Market position of SRF

� Quantity Traded
Deliverable Quantity (gross across client level)
% of Deliverable Quantity to Traded Quantity
148914
59434
39.91

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SRF is expanding


Decline in Profit Due To Foreign Exchange Loss

For the second quarter ended 30.09.11, SRF’s net profit has declined by 12% to Rs.107 crore as compared to the corresponding period of the previous year. The reason for the decline in profit was the depreciating rupee against the dollar. SRF is a chemical-based industrial intermediate producer. During Q2, the company encountered a foreign exchange loss of Rs.34 crore which contributed to the decline in profit. But its revenue increased by 22% to Rs.914 crore from Rs.748 crore in the corresponding period of the previous year. Ashish Bharat Ram is the Managing Director of the company. He has already stated that the effect of the slowdown of the economy is taking a toll of the company, which is expected to show up in its results for the next quarter. The shares of SRF are traded in the Indian stock markets at Rs.291 now (NSE 17.02.12). The face value of the company’s shares is Rs.10. The highest and the lowest price recorded by the shares of SRF in the last one year are Rs.367 and Rs.230 respectively.

Coating a Non-Metal with a Metal

During the first quarter of the current financial year, SRF reported a robust 51% increase in its net profit to Rs.83 crore over the corresponding period of the previous year. It achieved a 35% increase in its net sales to Rs.835crore. SRF has obtained its Board permission for setting up a polyester line of biaxially oriented polyethylene terephthalate (BOPET). This plant will have a capacity of 28500 tonnes per annum and will be set up in Bangladesh. SRF is also setting up a metalliser plant in Thailand with a capacity of 7050 tonnes per annum. The metalliser will enable metal coating on the surface of non-metallic objects. For example you can coat wood with iron with this facility. The total investment involved in both these facilities will be around Rs.300 crore.

Joint Venture in Bangladesh

SRF is also planning to set up a film plant in Bangladesh through a 80-20 joint venture with Nitol Niloy group. The company is also planning to set up a multipurpose chemical factory at Dalhej. The initial investment cost for this plant was estimated at Rs.97 crore. But now the project cost has shot up to Rs.132 crore. Arun Bharat Ram, Chairman of SRF was once a part of Delhi Cloth Mills. The company split in 1989 due to family division into four separate companies. The second time it split in 1999 saw SRF breaking away.

Japanese 5S Principles

The office of SRF is kept very neat and tidy. Everything from stapler to pen is placed at the right place in each employee’s table. The company is following meticulously the Japanese 5S principles of clearing up, arranging, cleaning, maintaining cleanliness and discipline. The company was the first to follow these principles imbibed in the Japanese 5S formula in India.

Reducing Dependence on Nylon Tyre Cord

SRF board last year approved setting up of a plant in South Africa. The packaging film plant manufacturing BOPP (Biaxially Oriented Poly Propylene) film will have a capacity of 5400 tonnes per annum and involves an investment of Rs.25 crore. SRF also planned to produce through its second HFC-134 plant chemicals with capacity of 15000 tonnes per annum at its chemicals complex in Dahej. This second plant will have higher capacity than its existing plant with a capacity of 5000 tonnes per annum at Bhiwadi. This second plant will involve an investment of Rs.365 crore. The new HFC manufacturing facility will become operational in the beginning of 2013. The expansion in the packaging films and chemicals businesses will fit with the company’s overall strategy of reducing its dependence on nylon tyre cord.

Buy At Declines

SRF board approved last year, the buy-back of its shares upto Rs.380 per share at an expense of Rs.90 crore in the secondary market. Considering the future plans of the company and its managerial calibre, investors can purchase the shares of the company at every decline and accumulate them for medium and long term holding to get decent returns. Investors should remember that the next two quarters may not produce inspiring results for the company and there is every chance for the company’s shares to come down steeply. Buying at declines will be a prudent strategy as far as SRF is concerned.

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