SRF Ltd. saw a significant drop in its share price after UBS downgraded the stock from 'Buy' to 'Sell'. The target price was also reduced. UBS believes that the stock is currently overvalued compared to its historical P/E ratio.
UBS's downgrade is due to concerns about the expected recovery in demand for SRF's chemical segment, which is facing challenges in the export market. The chemical segment is crucial for SRF, contributing a significant portion of its EBITDA and valuation. Indian manufacturers are losing market share to Chinese suppliers in the U.S. export market. SRF is also facing difficulties in exporting refrigerant gas to the U.S. due to weak demand and competition from Chinese manufacturers.
The performance of SRF shares has been lackluster compared to the BSE Sensex. UBS's report highlights the potential for a disappointing recovery in the agrochemical and refrigerant gas segments, which could lead to downward revisions in earnings estimates. The current trading multiple reflects market expectations that may not materialize. The future trajectory of SRF will be influenced by the performance of the chemical sector and global supply chain shifts.
In summary, SRF Ltd. has experienced a drop in share price following UBS's downgrade. The concerns about the demand for the chemical segment and potential downward revisions in earnings estimates have impacted the stock's valuation. The performance of the chemical sector and global supply chain shifts will play a significant role in determining the future trajectory of SRF.