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SRF gets carbon credits; a huge inventory now

Interesting carbon credit news: SRF has been issued 7.72 lakh carbon credit units (CERs) by UNFCCC, the issuing agency. Till now SRF has been issued about 86.5 lakh CERs (see full list).

Carbon Credits (or CERs) are being traded on the European Climate Exchange, at the current price is 22 Euro per CER.

SRF, in its various quarterly reports, have announced sales of CERs either as amount recovered or sales made. Assuming about 20 euros per CER and a conversion rate of 55, I calculated that SRF has sold about 51 lakh CERs to date. They still have 35.6 lakh CERs available to sell, and with prices looking up the current stock should yield about Rs. 392 cr. in the market.

Given that they are looking at being issued about 38 lakh CERs every year, they should have an inventory of about 74 lakh CERs, which can yield about 830 cr. as revenue – for this, we can assume around 40% margin (giving 60% to costs for future CER generation) – meaning that additions to profits would be 332 cr, or Rs. 49 per share.

They made Rs. 43.2 EPS in FY 2007, and going forward just the CER inventory looks good generate a good growth. Now I don’t know if SRF will continue to sell CERs and generate revenue, or if the CER market will remain this buoyant. But SRF looks poised to earn bumper profits from just CER sales, apart from its regular belting, refrigerant gases and technical textile business (where it is a major player in India and the world).

The current price (which shot up today to Rs. 171) gives SRF a trailing P/E of 4, and the growth prospects look good enough to move the EPS to beyond 50 at least. The current spike in the price is not on very big volumes, but the stock moved in the later half of the day and is worth looking at.

SRF gets carbon credits; a huge inventory now

There are some negative stories about the management of this stock which portray them as not the nicest to other shareholders. I don’t know if there is any truth in them. But the stock seems to be showing some momentum, which I believe should lead to a target of Rs. 300 in a year.

I must present a more detailed study, but at least the carbon credit story is a start.

Disclosure: I hold this stock.

  • Shankar says:


    Am not sure this is right way for SRF to operate their business .. trading carbon credits. What do you think? Is this core-business?

    Warm Rgds

  • Deepak Shenoy says:

    >It’s part of their core business according to their results – it’s listed as a core element as part of their chemical business segment.

    The CER bit looks set till 2020 – they are due to receive 3.8 million credits a year till 2015 at least.

    If trading carbon credits is a good business, and they don’t harm their refrigerant gas business in the process (they have been #1 in india and growing in the world numbers too) it’s fine. It’s not for me to say what they should do as long as they are generating revenue. Otherwise I would have to question why reliance is in retail, kingfisher in airlines and so on.

  • TG says:


    I have been reading your blog for a few weeks now and must say that it does seem helpful.

    As for SRF why did plunge from peaks of INR 260? What was the reason that the stock took such a beating? If the CER story were true, I guess they were benefiting from that last year as well, when the stock plunged? Or was it a stock split that I am missing here?


  • Deepak Shenoy says:

    >Good point – there was no reason there and I also found that fall dramatic. I picked it back up when it declared a Rs. 4 dividend when it was at 117 or so and then it’s been doing well….

    No splits or bonuses recently, so that’s not the reason. I think this price is reasonably low compared to potential earnings…

  • TG says:


    What is your profile? Are you a finance expert or just a hobbyist? I am inclinde to invest in SRF based on your recommendation but am not sure based on the fact that you made a recommendation without examining the previous year performance.

    Are there any good long term picks in your mind? I am looking to drop INR 100,000 for 3-5 years in some good stocks.



  • Deepak Shenoy says:

    >Tarun: Consider me a hobbyist please – I am no finance expert. In the previous year SRF has gone down from 250 to 117 (!!) but with almost no fundamental change – they continue to get carbon credits at a fast clip, they have big plans, decent cash etc. There’s very little reason to believe that the fundamentals will not continue to grow; and the market seems to be ignoring this story for now.

    While the stock was a good value buy at 120 it is a reasonable mover now and has some momentum behind it. I think it will consolidate here for a few weeks and then should break out to higher levels, especially when Q1 2008 results are in.

    Long term picks: For a 5 year story, you could take BHEL, L&T, Moser Baer, Ashok Leyland or M&M. They’re strong fundamental stories which have tremendous growth potential.

  • global warming says:

    >It is interesting carbon credit news that carbon credits are being traded om the European Climate Exchange.

  • Scoremore says:

    >very interesting post about carbon credits.CER made an inventory every year to check additional profits.thanks for sharing this.