Recent financial report of SRF ltd focusing on financial performance of the company
Table of Contents
Sector Outlook: Netural
Subdued quarterly performance; Better recovery expected ahead
The company reported a 7.8% year-on-year increase in revenue to ₹3,424 crore, though it fell 1.1% from the previous quarter and slightly missed expectations. Revenue was impacted by a 5% year-on-year decline in the Chemicals segment, mainly due to lower sales in fluoro-specialty and refrigerant gas. However, the Technical Textiles and Packaging Films segments grew 6% and 27% year-on-year, respectively. Specialty Chemicals saw some new product traction, though inventory issues at customers’ end led to lower demand for key products. While domestic Fluorochemicals performed well with higher volumes, lower export prices affected margins. EBITDA fell 14.1% year-on-year to ₹538 crore, with a margin of 15.7%. Profit after tax dropped to ₹201 crore, below expectations. Management expects Fluorochemicals to perform better in the second half as export volumes pick up and the domestic season begins, with a strong order book supporting Chemicals.
Key Concall Highlights
Specialty Chemicals Business:
The company has withdrawn FY25 growth guidance, citing the volatile environment, lasting Chinese overcapacity and inventory destocking in certain essential legacy products. However, management offered a positive outlook for H2FY25, guiding to a gradual recovery starting Q2FY25. The company expects at least 2- 3 of the seven new active ingredients in the company’s pipeline to contribute to FY25 revenue. Customers have delayed the registration of these active ingredients in their target markets. Overall, the company focuses on ramping up the projects, cost optimization, and efficiency improvements.
Fluorochemicals Business:
The Fluorochemicals business witnessed volume growth in the domestic market. Export realizations came under pressure due to seasonality and inventory extension in the US market. The US market is experiencing a decline in HFC consumption due to regulatory constraints. The company believes that this will be more than offset by an increase in demand from India, the Middle East, and Southeast Asia. SRF has also announced a capex of Rs11 bn to manufacture two HFO refrigerants.
Packaging Films Business Outlook:
The India business performed well during the quarter, while the Thailand business was impacted by stiff Chinese competition. The company’s recent capex announcement toward BOPP-BOPET films is in line with its strategy of moving into value-added and sustainable products. Management expects the cycle to turn favorable when the project starts commercial production.
Technical Textiles Business Outlook:
We reported a healthy performance during the period, with NTCF recorded its highest-ever quarterly sales volumes. Belting fabrics witnessed healthy sales volumes, but margins were impacted due to pricing pressures. Management provided a positive demand outlook for NTCF and polyester industrial yarn. Overall, management expects a stable performance from this segment going forward as well.
Others Segment:
SRF recorded its highest-ever domestic sales of coated fabrics in H1FY25. Laminated fabrics are running at full capacity.
Capex Plan:
The company’s capex momentum will likely remain strong, with multiple ongoing projects on track and anticipated operational in the upcoming quarters. The capex guidance for FY25 is Rs. 1,600 – 1,800 crores, with most capex expected to be geared towards the chemicals business segment. This capex would be funded through a mix of debt and internal accruals. These investments shall aid SRF growth going ahead.
Other Key Highlights:
- Domestic sales account for 25-30% of Specialty Chemicals business revenues.
- Capacity utilization for refrigerants currently stands at 75-80% and is ramping up to full levels in CY25.
- The company expects the imposition of anti-dumping duty on aluminium foil to help the business recover from Q4FY25.
Valuation and Outlook
SRF had a challenging Q2FY25, with weak performance in its Chemicals segment, which offset gains in Technical Textiles and Packaging Films. The Packaging Films business saw solid growth in domestic markets, though competition from Chinese imports and logistics issues affected its Thailand operations. SRF expects a recovery in H2FY25, helped by potential U.S. anti-dumping duties on Chinese imports and growth in Technical Textiles. Despite global uncertainties, inventory pressure, and Chinese pricing competition, management is optimistic about a strong Q4FY25, driven by domestic growth, new product launches, and stabilizing refrigerant prices. SRF plans significant capital expenditures of ₹160-180 billion over the coming years, focusing mainly on Chemicals. With new plants ramping up, SRF anticipates broad recovery from H2FY25, improving margins and revenue. The stock is trading at a PE of 49.8x FY25 EPS, and the target price has been revised to ₹2,626, implying a 16% upside.
