Topic: Relationship of SRF Ltd with Nifty 50
Author: Shreejit Nair (Roll No. 0222101)
Introduction: Established in 1970, SRF Ltd is a chemical-based multi-business entity engaged in the manufacturing of industrial and specialty intermediates. The company’s diversified business portfolio covers technical textiles, chemicals (fluorochemicals and specialty chemicals), and packaging films. The company has 11 manufacturing plants in India, two in Thailand, one in South Africa, and an upcoming facility in Hungary. The company exports to more than 75 countries.
Objective: To calculate the beta of SRF Ltd and find out its significance.
Views and reviews
SRF CMD Ashish Bharat Ram’s comments post Q4FY23 earnings (May 10, 2023): I believe that SRF’s chemicals business will continue to do well and become a bigger part of the pie. In that sense, we are becoming more of a chemical company. Our packaging films business is expected to have a tough year, but we will find countermeasures as we go along. This is part and parcel of business cycles. With a strong balance sheet, we will continue to invest aggressively in our chemicals business and work towards capitalizing the many attractive growth opportunities we see in this business. Overall, we are optimistic about the future growth opportunities and of our capabilities to deliver a solid performance and drive returns for our shareholders.
SRF President and CFO Rahul Jain’s comments post Q1FY24 earnings (July 25, 2023): We reported a decline in our profitability during the quarter, primarily due to the expected down cycle witnessed in the Packaging Films business. Additionally, the Chemicals business saw lower sales within the Fluorochemicals business. Multiple ongoing projects are on track and are anticipated to be operational in the upcoming quarters, further enhancing the prospects of the Specialty Chemicals business.
Data Collection
The data for the period July 1, 2022 to June 30, 2023 has been downloaded from NSE’s website and Friday’s closing price was found out. The weekly returns of Nifty 50 are represented as X and that of SRF Ltd as Y.
Data Analysis
Y = -0.0011 + 0.6764X
tstat = (2.574)
N = 50
R2 = 0.121
F = 6.627
The above equation shows the relationship between Nifty 50 (X) and SRF Ltd (Y). The positive sign means there is a positive relationship, that is if X rises, Y also rises and vice-versa. If Nifty 50 (X) rises by 1 unit, SRF Ltd (Y) rises by 0.6764 units. N means there are 50 observations. The t-stat for b is 2.574, which means b is statistically significant at 5% level. R2 = 0.121 means that 12.1% of SRF Ltd (Y) is explained by Nifty 50 (X) and the balance 87.9% is error due to the variables which are not in the model.
Since the F = 6.627 is more than the tabulated F value (F 0.05,1DF,48DF = 4.043), the overall model is statistically significant at 5% level.
Conclusion
Since the beta of SRF Ltd is 0.676, the shares of the company are good for a long-term investment.