Learnings from my investment in SRF Limited

March 31, 20187:44 pm

Hi there,

I would like to share my experience of investing in a company in my very early days.
I was just out of college(late 2012) and I personally had read a lot about value investing. Being inspired by it, and after doing lot of research I found SRF limited.

About the company

SRF is into Technical Textiles, Refrigerants, Engineering Plastics, and Industrial Yarns.

The company then had a major market share for many of its business. It had:
60% market share for belting fabric
40% market share for refrigerant gases
36% market share in Nylon6 Tyre cord market

Valuation

At that time I even used to do DCF analysis(which now don’t seem to be of much value). Through DCF the intrinsic value came to be around Rs 900 along with low P/E. Another trigger was share buyback by the company.

The company’s market capitalization was just Rs 1477 cr with a sales of about Rs 4200 cr with very healthy cash flow and profit margin(~9%)

I invested in the company at a price of around Rs 212 in December 2012 feeling highly confident by the conviction I had in the company’s prospects.

Even after things being so great about the company, the share prices didn’t budge and was almost at the same level for the next 1.5 years. As a matter of fact, it dropped. I was getting impatient looking at the other stocks going up. And finally, my emotions took over me and I got out before the bulls took over the stock.

Since it was my initial days, I got to learn a lot.

My learning:

1. Although the valuation and price mismatch seemed great but I missed to look at the Quarter on Quarter picture.
Company’s sales as well as profit was declining.

The prices started moving only from March 2014. As the company had started signs of turnaround from many quarters of declining sales & profit.

Attached the excel sheet with company’s  quarter on quarter performance.     srf-quarterly-numbers

2. Another learning from this was that even after identifying the company, you should tracking the company’s  quarterly result for at least 1 quarter.

3. Wrong time to enter- No point entering the company with great prospects at the time of temporary problems.
I very strongly believe you should enter the stock only if the numbers have started to reflect the turnaround ,no point waiting. Its just that you might have to pay a little higher than what you have paid earlier. Its better to pay a bit higher instead of missing out on other good opportunities.

srf-share-price-movement
From March 2014 to march 2016, the share price went from 250 to over 1250 that would mean 5X in 2 years.

If I had held the stock it would be a just one times higher at 6X. So it makes sense to track, observe the uptrend and then invest.

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

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