SRVI continues on a robust growth trajectory

Insight Research has just released an update on its coverage of SRVI stock. The research house has raised its Dec 24 SRVI target price to Rs. 1438 per share.

Here are the key points from the report:

Stock Performance and Growth

SRVI’s stock has significantly outperformed the KSE100 index, delivering a fiscal year-to-date (FYTD) return of 3.6x compared to KSE-100’s 1.8x. This remarkable performance is driven by strong profitability, largely due to the impressive performance of SLM. In CY23, SRVI’s consolidated topline reached PKR 97 billion, up from PKR 62 billion in CY22, marking a growth of approximately 57% year-over-year (YoY).

Revenue Breakdown

• Tyre & Tube Segment: 76% growth, driven by the start of commercial production from SLM.
• Footwear Segment: 32% growth, supported by an expanded retail network.

Future Projections

SRVI’s revenue is projected to grow at a 5-year compound annual growth rate (CAGR) of approximately 23%.

Financial Highlights

Revenue and Profit

• Consolidated Revenue (CY23): PKR 97 billion
• Consolidated Bottom-line (CY23): PKR 4.3 billion, a significant turnaround from a loss of PKR 1.1 billion in CY22.
• SLM Performance (CY24): Posted a profit after tax (PAT) of approximately PKR 1.9 billion in 1QCY24, with full-year PAT expected to reach PKR 7.1 billion.

Earnings and Dividends

• Earnings per Share (EPS): Projected at PKR 134.2 for CY24 and PKR 187.5 for CY25.
• Dividends per Share (DPS): PKR 20.0 for CY24 and PKR 50.0 for CY25.

Valuation and Investment Stance

Insight Research maintains a “BUY” stance on SRVI with a June 2025 discounted cash flow (DCF) based target price of PKR 1,438 per share, providing an expected capital upside of approximately 51%.

Key Growth Drivers

1. Export Market Opportunities
2. Expected Interest Rate Cuts
3. Strong Contributions from SLM
4. Diversified Product Portfolio

Key Risks

1. Economic Slowdown Impacting Sales
2. Increase in Raw Material Prices
3. Competition from Smuggled tyres/Imports
4. Higher Energy Costs
5. Delays in Project Commissioning
6. Changes in Regulatory Regimes

SLM: A Key Contributor to Growth

SLM is the only TBR tyre producer in the country, catering to both local and international markets. The company started with an initial capacity of 0.6 million tyres per annum, with plans to increase it to 1.2 million tyres in phase II and 2.4 million tyres in phase III. Currently, SLM has a production capacity of 0.74 million tyres per annum, operating at optimal utilization.

Expansion Plans

• Phase II: Expected to start commercial production in CY25, with an estimated capex of PKR 8.0 billion.
• Future Investments: Plans to invest PKR 30 billion to start exporting specialized tyres to the EU and USA.

Recent Performance

• Topline: PKR 33.1 billion over the last four quarters.
• PAT: PKR 4.4 billion over the last four quarters, depicting a net margin of 13%.

Tyre Segment: Strengthening Market Position

SRVI’s tyre division remains a major growth driver, with unconsolidated revenue of PKR 36 billion in CY23, up by approximately 29% YoY.

Market Share

• Domestic Market: Holds over 50% market share in motorcycle tyres and tubes, 20% in agricultural tyres, and 25% in TBR tyres.
• Exports: Constitutes around 31% of the country’s total tyre and tube exports.

Capacity Expansion

To meet rising demand in the agricultural division, SRVI is increasing its capacity by 10%, with an estimated capex of PKR 0.6 billion, expected to come online by the end of CY24.

Footwear Segment: Retail Network Expansion

SRVI’s footwear segment saw a 45% increase in CY23, driven by a 56% YoY growth in local sales, supported by the expansion of its retail network from 152 stores in Dec 22 to 232 stores in Dec 23.

Future Plans

The company aims to increase the number of retail stores to 300 by the end of CY24 and 350 by the end of CY25.

Financial Outlook and Strategic Moves

SRVI’s debt-to-asset ratio stands at 49% as of 1QCY24, with finance costs comprising 52% of operating profit. With expected reductions in interest rates, the financial burden is likely to decrease, enhancing profitability. In CY23, finance costs were PKR 3.2 billion, up by 35% YoY. A 1% reduction in interest rates could have an after-tax impact of PKR 2.71 per share.

Exploring New Segments

• Motorcycle Chains and Sprockets: The segment posted revenue of PKR 3.2 billion in CY23.
• Apparel Range: Initial positive response from selected stores in Lahore, with plans to expand to 11 additional cities.

Transition to Normal Tax Regime

The proposed federal budget for 2024-25 includes a shift to a normal tax regime for exporters, with minimal impact on SRVI due to SLM’s tax exemption.

Current Market Data

Metric	Value
Current Price	PKR 950
Market Cap (PKR billion)	44.6
Market Cap (USD million)	159
Free Float Market Cap	USD 79.7 million
30-day Avg. Turnover	0.03 million shares
52-week Range	PKR 248-1,038
Shares Outstanding	47 million
Free Float Percentage	50%

Financial Projections

Financial (PKR million)	CY23	CY24F	CY25F	CY26F
Sales	96,521	117,592	146,330	166,043
Cost of Sales	74,670	88,974	111,017	125,664
Gross Profit	21,850	28,618	35,312	40,379
Finance Cost	7,547	5,634	4,910	4,788
PBT	5,742	11,416	15,289	17,606
PAT	4,298	10,103	14,229	16,095

Key Ratios	CY23	CY24F	CY25F	CY26F
EPS (PKR)	60.5	134.2	187.5	204.7
DPS (PKR)	10.0	20.0	50.0	72.0
Dividend Yield	2%	2%	5%	8%
P/E	9.8	7.1	5.1	4.6
P/BV	1.5	1.6	1.1	0.8
ROE	23%	36%	36%	31%

Disclaimer:

The information in this article is based on research by Insight Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.