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Exit SRF, lousy results

SRF has announced its first quarter FY08 results. They are lousy, with a 31% drop in profits. Even sales of CERs have shown a decline.

They COULD have done a lot better by selling CERs, but they chose not to do so, it seems. There’s a new 134-a refrigerant plant coming online but the power in that is the additional CERs it will give, not in the refrigerant itself (which is a low-margin business). They also see a turnaround in the packaging films business but I think that will take a few more quarters to show.

The price has dropped to 146 (from 161) since the results. Sell immediately. This stock will provide better buying opportunities later.

I’m terribly sorry for the delayed response – the results were out on friday – but I’ve been busy with creating a new company and haven’t had much time. (It’s a company that will provide content and information about the stock markets and investments. Most of it will be totally free. I’ll write more about it very soon.)

  • Jagdish says:

    >Hearty Wishes for your new Endeavour Deepak !

  • sushanth says:

    >Thanks for the info about SRF. Best wishes for your new venture, waiting eagerly to hear about it.

    -Sushanth

  • Uday says:

    >Hi Deepak,

    I am happy to know that your are going to start a new business related to investments. Hearty wishes to your new venture.

  • Ravi Sankar says:

    >All the best for your new business. It will help so many people.

  • Anonymous says:

    >All the best for your new business!!

    Regards
    Raj

  • Siva says:

    >< ---provide content and information about the stock markets and investments -->
    Great. Best wishes.
    Even I too wish to involve in that.This is just for experience, not for money or any gains. If you are interested in my involvemnet, pls send mail to sivaprakasam_p@yahoo.com.

  • Anonymous says:

    >Hey Deepak,
    Good luck with you new entrepeunerial venture. Btw, have you been by any chance tracking NTPC/Thermax? Some number crunching needed with the latest results..the sector as well as the companies potentially looks like good power plays to me… Any thoghts comments here could be very valuable to myself and other blog readers.

    Thanks in advance

    Arjun

  • TG says:

    >Deepak,

    Well all the best for the new venture.

    Sorry, but I would like to raise a question mark on the analysis for SRF. A few months you recommended a buy and now a sudden U turn?

    I do not mean to discourage/demean the analysis but the fact that the previous analysis did not even analyse the sharp fall in the SRF price last year was a little absurd to me.

    I just hope that people have gained from your advise and SRF was just one off misfire.

    Tarun

  • Deepak Shenoy says:

    >tarun: The last year’s price fall was not based on fundamentals – it was a pure price action and the turnaround in fundamentals was evident. The EPS grew more than 50% for over two years.

    But two things worked against it:
    1) it did not participate in the market rally recently. SRF is a trader’s stock, and if traders don’t like it when the fundamentals are strong, something might be wrong.
    2) This is the first “down” quarter. till now year-on-year growth has been good and strong. This time the fundamentals reversed to negative profit growth which is a bad thing.

    You can think this is a stock with a low P/E but if earnings growth is not consistent it’s better to work with other stocks. My funda is that you need to exit stocks that aren’t doing well – booking losses if it has to be. While conviction is good , you have to respect the market. SRF will come back to a buy level later – it may be best to re-enter at that time. Perhaps after the next quarter results.

    I don’t do things like talk to management or use any non-public information. My calls are purely on information everyone knows. I’m sorry to have to change my mind, but it’s not arbitrary; it’s based on new information.

  • nitin says:

    >Hi Deepak,

    Your blog is one of my favourite blog.I wish you best of luck for your new project.

  • Newbie_Blogger says:

    >hello Deepak,

    All the best on your planned venture.

    I had bought SRF at 165 following your call. I now have about 15% in it. Can I hold this share for a 6 mth to 1 year period, may be adding on dips? Or is it best to sell the whole lot now in anticipation of further declines?

  • Anonymous says:

    >hello Deepak,

    All the best on your new venture.

    I bought SRF at a price of 167. My loss is about 14 % now. Should I sell and re-enter on further lows? Or can I hold and add on declines? I am willing to hold this stock for long-term, 1 year plus for returns. Please suggest what I could do.

    thanks,
    Karthick.

  • Deepak Shenoy says:

    >Thanks to everyone for your comments and wishes!

    Newbie, Karthik: Although you have had losses, I would still recommend you sell. You should have an exit rule – a rule that you follow that ensures you sell when the market goes against you in a large way. SRF has no strength at the moment, and they let the results slide this quarter.

    Another long term fear is that this whole CER business is seeing a backlash in the west, and also a lot of players in India and China are gearing up to sell CERs – a glut means prices of CERs will be down. On the whole that income is a significantly huge part of SRFs income so life will get tough if CERs aren’t as realisable.

    Note however that this stock may perform later this year if they push the results in the next two quarters. But that is a different day, and I can’t put my money on hope. I would rather see and buy – sure, I may repurchase at a higher price, but at least I have the confidence when I buy.