SRF Ltd Quarterly Results Q3 FY 25 stock analysis

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Sector Outlook: Netural

Steady quarterly performance despite macro challenges

The company reported a 14.3% increase in revenue compared to last year, reaching Rs. 3,491 crores, which was higher than expected. Compared to the last quarter, revenue grew by 2%. The Chemicals, Technical Textiles, and Packaging Films businesses saw yearly revenue growth of 7%, 11%, and 27%, respectively. During the quarter, the Specialty Chemicals business faced some challenges due to high inventory levels among agrochemical customers, but demand is slowly improving. EBITDA rose by 9.4% YoY and 15.2% QoQ to Rs. 620 crores, with an EBITDA margin of 17.7% (slightly lower YoY but improved QoQ).

Profit after tax (PAT) was Rs. 271 crores, up 6.9% YoY and 34.6% QoQ, exceeding expectations of Rs. 235 crores. The PAT margin improved to 7.8% from 5.9% in the last quarter. Management expects the Fluorochemicals business, especially HFC chemicals, to drive revenue growth in FY26, with strong demand in domestic markets. The Specialty Chemicals segment is also expected to see better pricing. The company’s order book remains strong, and better performance is expected in the future. The Board approved a second interim dividend of Rs. 3.6 per share, consistent with the previous dividend announcement.

Key Concall Highlights

Specialty Chemicals Business:

The company expects growth in new product launches, a gradual recovery in the agrochemicals segment, and better export performance starting Q4FY25 into FY26.
Management has received positive registrations for new agrochemical Active Ingredients (AIs) and expects volume growth from FY26.
Most AIs are patented, with some generics. If demand improves, full-scale volume growth may take 12-18 months.
Cost-effective pricing and strong export markets have supported revenue growth.
With continued demand from agrochemical customers, performance is expected to improve further in FY26.

Fluorochemicals Business:

High domestic demand for refrigerants, especially for room air conditioners, boosted refrigerant sales to their highest-ever levels.
Export prices for some refrigerant gases were low, but stronger sales and better pricing are expected in Q4FY25.
The Chloromethane segment remained stable during the quarter.
The company is focusing on increasing sales of PTFE, expecting positive growth from FY26 onwards.

Packaging Films Business:

SRF had a steady quarter despite a weak market.
Margins improved slightly, supported by higher sales of value-added products in BOPET and BOPP segments.
BOPET demand and prices remained stable in India, while BOPP saw demand growth.
Exports of aluminium foil to the US and Europe are gaining traction, though the domestic market faces pricing pressure from cheaper Chinese imports.
The company is seeking approvals from Europe, expecting business growth in FY26.

Technical Textiles Business:

Some segments saw steady demand, while others faced margin pressure and weak market conditions.
Polyester industrial yarn remained stable, while polyester tyre cord fabric showed good demand.
Belting fabrics struggled due to low demand and weak margins, impacting overall performance.
The company is focusing on cost control, product innovation, and efficiency improvements to maintain profitability.
Market conditions remain challenging, but investments and demand recovery should drive long-term growth.

Others Segment:

Coated fabric sales slowed in the domestic market, but the company retains a strong position.
Laminated fabrics performed as expected with stable demand.
The company is installing a new hot lamination machine, which will help improve profit margins.

Capex Plan:

The company is investing heavily in expansion, with several projects on track.
Rs. 15 billion spent on capex in FY25 and Rs. 15-20 billion planned for FY26.
These investments will support the company’s future growth.

Valuation and Outlook

SRF reported stable performance in Q3FY25, with strong results in Chemicals, Technical Textiles, and Packaging Films businesses. The Specialty Chemicals segment remains the company’s key growth driver, with Q4FY25 expected to perform better than Q3FY25, helped by new product launches, rising refrigerant gas demand, and improved margins. While chemical prices remain under pressure, a positive pricing trend is expected in FY26.

The Packaging Films business remained steady, but pricing pressures and supply-demand imbalances in BOPET continue to be a challenge. Despite this, the company is optimistic about long-term growth through efficiency improvements and a strong market position.

The Technical Textiles segment benefited from steady demand, record-high capacity utilization in polyester industrial yarn, and strong traction in polyester tyre cord fabric. However, lower demand and weak margins in belting fabrics affected overall performance. To address this, SRF is expanding its Value-Added Products (VAP) sales and investing in new technologies like melting fabric and dipping machines, which are progressing well.

Looking ahead, SRF expects better capacity utilization in FY26, which could lead to new product launches and plant expansions. The company acknowledges that the 20% growth target for FY25 is not achievable but is hopeful of meeting it in FY26. Overall, SRF has seen a strong recovery this quarter and aims to end the year on a solid note with a positive outlook for FY26. The company expects stable revenue growth over the long term and is currently trading at a PE ratio of 62.7x for FY25 and 37.0x for FY26. The target price has been revised to Rs 3,245, indicating a 16% potential upside