SRF Ltd Quarterly Results Q4 FY 25 stock analysis

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Sector Outlook: Netural

Steady quarterly performance amid market challenges

The company reported a revenue increase of 20.8% YoY / up 23.5% QoQ to Rs. 4,313 crores, above our expectations. The Chemicals and Performance Films & Foil Business saw a 30% and 19% annual increase in revenue, respectively. While Technical Textiles saw a marginal decline annually. During the quarter, The Specialty Chemicals business demonstrated strong performance, driven by positive momentum in recently launched products and a pick-up in demand for certain key agrochemical intermediates. EBITDA increased 37.6% YoY / up 54.5% QoQ to Rs. 957 crores, while EBITDA margin stood at 22.2% (up 270bps YoY / up 445bps QoQ) in Q4FY25. Profit after Tax stood at Rs. 526 crores (up 24.6% YoY / up 94.1% QoQ) in Q4FY25, above our expectations of Rs. 435 crores. PAT margin came at 12.2% versus 7.8% in the previous quarter. The company has reported a strong recovery in H2FY25, following a weak H1FY25 hurt by destocking and sluggish demand. Despite rising challenges due to competitive pricing from China, the company managed to expand its market share across key verticals. While management acknowledged that FY26 may remain challenging due to global demand softness and overcapacities in China, it expressed confidence in aiming to expand the chemicals business by 20%.

Key Concall Highlights

Specialty Chemicals Business:

The company is positive and growth-oriented, driven by strategic investments, strong customer relationships, and a robust product pipeline. The business has benefited from launching five new agrochemical and three pharmaceutical products during the year and enhanced operational efficiencies at its Dahej and Bhiwadi facilities. The company has significantly expanded capacity through debottlenecking, enabling it to cater to rising demand. Export contribution remains high at over 70%, with growing interest from global agrochemical and pharmaceutical companies shifting supply chains away from China. Looking into FY26, SRF anticipates double-digit revenue growth of around 20%, aided by the ramp-up of newly commercialized molecules and continued traction from recent product launches.

Fluorochemicals Business:

The Fluorochemicals business reported a strong performance in the quarter, led by higher volumes and realizations of HFC refrigerants across the domestic and export markets. The company witnessed record domestic sales of refrigerant gases, driven by the highest-ever R32 production and offtake. The company maintained its dominant market share in the domestic room air conditioners and mobile air conditioner markets. Overall, the company has witnessed a mixed performance in FY25, but the outlook for FY26 and beyond remains moderately positive, backed by volume growth and strategic investments in next-generation technologies.

Performance Films & Foil Business Outlook:

The company has changed the business unit’s name to reflect business diversification and expansion beyond packaging films. The business is shifting towards value-led growth, driven by high-impact value-added products, sustainability, and downstream expansion. FY25 saw strong revenue growth, backed by improved capacity utilization. For FY26, SRF focuses on premium categories, commissioning new downstream assets, and investing in a BOPP-BOPET line in Indore to advance sustainable packaging. It further strengthens its portfolio by scaling its aluminum foil business and developing capacitor-grade BOPP films. Despite near-term pricing challenges, product innovation and rising demand are expected to boost margins and revenue growth.

Technical Textiles Business Outlook:

The business was negatively impacted due to weak demand and increased competition from low-cost Chinese imports of belting fabrics. Despite the challenges, SRF managed to maintain its market share and customer base, particularly in the Belting Fabrics and Nylon segments. The company expects belting fabrics demand to improve with increased government spending and a rebound in cement, steel and coal production, though near-term guidance was not provided.

Capex Plan:

The company’s capex for FY25 was Rs. 12.3bn, primarily directed towards debottlenecking, resulting in 30% capacity expansion. The company has guided for Rs. 22bn in capex for FY26, signalling increased investment intensity.

Other Key Highlights:

The company has launched five new products catering to the agrochemical industry and three new products for the pharma industry in the Specialty Chemical business.
Management highlighted that India and the Middle East will likely drive future growth for refrigerant gases, as the company attempts to maximize its quota allocation in this region.
The company plans to scale its aluminum foil operations following the anti-dumping duty on Chinese imports, which should allow for domestic price improvement and export growth.

Valuation and Outlook

SRF has reported strong operating performance in Q4Y25 due to improved performance in the Chemicals and Packaging Films businesses. Despite a challenging start to FY25 due to subdued demand and pricing pressures, especially in the Fluorochemicals segment, the company witnessed a significant recovery in H2FY25, driven by improved traction in newly launched agrochemical and pharmaceutical intermediates. The Specialty Chemicals business, aided by a high share of exports and healthy customer engagement, is expected to be the primary growth driver. The company Performance Films & Foil business has ventured into newer segments such as aluminum foil and capacitor-grade BOPP films. The business commercialized new value-added products in both BOPP and BOPET segments. The Technical Textiles segment is expected to maintain a stable performance, with full capacity utilization and continued focus on cost efficiencies. While short-term headwinds in global demand, tariff uncertainties, and pricing pressures from Chinese competition may pose risks. SRF Ltd remains well-positioned for long-term growth, supported by its diversified business model, strong R&D capabilities, and strategic capacity expansions, particularly in the Specialty Chemicals segment. Looking ahead, management has guided for a 20% growth in the Chemicals segment in FY26, underpinned by a robust pipeline of active ingredients, ramp-up of debottlenecked capacities and strong export order visibility. Thus, we expect SRF to generate stable revenues over the long term and is trading at a PE of 66.8x/93.4x on FY26e/27e EPS estimates. We value the company at 36x FY26e EPS and have revised the target price of SRF to Rs 3,363 (implying an upside of 17%).