Date of report Tuesday, April 29, 2008

Company SRF Limited - Quick & Dirty Analysis

Analyst Dhananjayan J

Contact dhanan12@yahoo.com
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Fact Sheet

SRF LIMITED
SRF Ltd. is a leading Indian player in Technical Textiles, Refrigerant Gases and having operating interests in
Packaging Films and Pharma Intermediates sectors. The company comprises a group of different businesses like
Technical Textile Business, Chemical Business and Packaging Films Business. With seven production units in
India and one overseas in Dubai under its fold, the company exports its products to over 60 countries.

Website http://www.srf.com/

Special situation Buyback

Pro forma valuation

Price ratio
Price to earnings 6.3
Price to free cash flow 9.3
Price to tangible book value 0.9

Enterprise value ratio

EV / Sales 0.8
EV / EBITDA 3.9
EV / EBIT 5.7
EV / (EBITDA-Capex) 6.9

Debt and interest coverage

Net Debt / EBITDA 1.6
EBIT / Interest expense 5.8

Yield Ratio
Dividend yield 3.9%
Earnings yield 15.9%
FCF1 yield 10.7%

Return on Assets
Return on operating assets 14.0%
Return on capital invested 17.9%

Operating margins
EBITDA 20.2%
EBIT 14.0%
Net income 7.5%

Depreciation Vs. Capex Capex

The above valuation ratios are computed after assuming buyback announced in the LTM financial numbers published by
the company. (Refer QAD sheet)

Conclusion
Valuation ratios and operating margins are attractive. Though capex is more than depreciation, price to notional FCF1 is below
diversified portfolio of business but still some synergies in operating it as a group. Moreover, the operating leverage as well
covered. We believe that the stock can be interesting for long term investment with the latest announcement of buyback at maxi
Our Verdict: Interesting - undervalued.
 240

190

140

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e to notional FCF1 is below 10x. Company is operating a

operating leverage as well as the capital leverage is well
cement of buyback at maximum price of Rs. 160.
QUICK & DIRTY ANALYSIS
(Amt in lakhs)
Pro forma
FY 3/08 Buyback
3/08
Sales 168,353.00 168,353.00
Total growth -10.8% -10.8%
Changes in inventories 870.00 870.00
Consumption of raw materials 94,560.00 94,560.00
Purchase of traded goods 208.00 208.00
Power and fuel 14,705.00 14,705.00
Gross profit 58,010.00 58,010.00
Margin 34.5% 34.5%
Other income 1,879.00 1,879.00
Forex (gain)/loss 2,100.00 2,100.00
Employee costs 8,696.00 8,696.00
Other expenditure 15,088.00 15,088.00
EBITDA 34,005.00 34,005.00
Margin 20.2% 20.2%
Depreciation 10,455.00 10,455.00
EBIT 23,550.00 23,550.00
Margin 14.0% 14.0%
Interest expenses 3,572.00 511.02 4,083.02
Rate of interest 7.3% 7.3% 7.3%
EBT 19,978.00 19,466.98
Tax @ 35% 6,992.30 6,813.44
Net income 12,985.70 12,653.54
Margin 7.7% 7.5%
Shares outstanding - as reported 678.85 54.99 623.86
EPS INR 19.13 INR 20.28

Total assets - FY 3/07 173,842.74 173,842.74

Investments 869.15 869.15
Cash 2,043.67 2,043.67
Goodwill 581.56 581.56
Adv recoverable in cash or in kind 2,468.56 2,468.56
Operating assets 167,879.80 167,879.80
Return on operating assets 14.0% 14.0%

Fixed assets excluding Goodwill 118,379.73 118,379.73

Current current excl cash 41,602.55 41,602.55
Current liabilities excl debt 28,709.49 28,709.49
Capital invested 131,272.79 131,272.79
Return on capital invested 17.9% 17.9%

Cash 2,043.67 2,043.67

Debt 48,929.87 7,000.00 55,929.87
Shareholders equity - book value 93,072.27 93,072.27
Tangible Book Value (TBV) 90,022.15 89,511.13
TBV/share INR 132.61 INR 143.48
Gross capex - FY 3/07 14,612.52 14,612.52
Sale of Fixed Assets 30.98 30.98
Net capex 14,581.54 14,581.54
Notional FCF1 8,859.16 8,527.00
FCF1/share INR 13.05 INR 13.67
Price INR 127.30 INR 127.30
Mcap 86,417.31 79,417.31
EV 133,303.51 133,303.51

EV/Sales 0.8 0.8

EV/EBITDA 3.9 3.9
EV/EBIT 5.7 5.7
EV/(EBITDA-Net Capex) 6.9 6.9

PE 6.7 6.3
P/FCF1 9.8 9.3
P/TBV 1.0 0.9

Net debt / EBITDA 1.4 1.6

EBIT / Interest expenses 6.6 5.8

Dividend per share INR 5.00 INR 5.00

Dividend yield 3.9% 3.9%
Earnings yield 15.0% 15.9%
Notional FCF1 yield 10.3% 10.7%

NOTE 1 - BUYBACK
Amount allocated for buyback 7,000.00
Segment - unconsolidated
(Amt in lakhs)
FY 3/06 FY 3/07 FY 3/08
REVENUE
Technical textiles business 79,532.00 86,999.00 90,880.00
Growth 9.4% 4.5%
% on total sales 61.5% 48.3% 56.3%
Chemicals business 34,905.00 72,944.00 47,894.00
Growth 109.0% -34.3%
% on total sales 27.0% 40.5% 29.7%
Packing films buiness 14,801.00 20,310.00 22,757.00
Growth 37.2% 12.0%
% on total sales 11.5% 11.3% 14.1%
Intersegment -9.00 -8.00 -1.00
Total revenue 129,229.00 180,245.00 161,530.00
Total growth 39.5% -10.4%

EBIT
Technical textiles business 7,518.00 4,668.00 1,991.00
Growth -37.9% -57.3%
Margin 9.5% 5.4% 2.2%
Chemicals business 15,466.00 48,342.00 25,528.00
Growth 212.6% -47.2%
Margin 44.3% 66.3% 53.3%
Packing films buiness -1,932.00 -534.00 2,136.00
Growth -72.4% -500.0%
Margin -13.1% -2.6% 9.4%
Overheads expenses -1,443.00 -4,614.00 -5,653.00
Total 19,609.00 47,862.00 24,002.00
Total growth 144.1% -49.9%
Margin 15.2% 26.6% 14.9%

Capital employed
Technical textiles business 75,509.00 90,902.00 91,037.00
Chemicals business 24,503.00 24,600.00 29,052.00
Packing films buiness 18,050.00 19,130.00 18,154.00
Corporate assets/(liabilities) 6,993.00 7,940.00 17,813.00
Total 125,055.00 142,572.00 156,056.00
Disclaimer

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