Add SRF ltd For Target Rs. 3,000 By Emkay Global Financial Services Ltd
SRF’s Q4 EBITDA at Rs10bn (+7% YoY/+32% QoQ) was in line with consensus/our estimates. Chemicals business EBIT margin remained strong at 32%, led by strong volumes/realizations in refrigerant gases and operating leverage, partially offset by pricing pressure in specialty chemicals due to aggressive participation from Chinese players. Performance films reported better performance, led by improved volumes and product mix, while technical textiles reported a stable quarter. The management guided for 15-20% revenue growth in chemicals business for FY27. SRF announced new capex of Rs0.9bn for debottlenecking and increasing HFC capacity beyond 65,000 MTPA. It improved the scope of capex in Odisha to Rs23bn (Rs11bn earlier), covering 20,000 MTPA HFO plant and 30,000 MTPA new HF plant. We cut FY27/FY28E EBITDA by 5-7% to factor in lower pricing environment in refrigerant gases in CY27. We retain ADD while cutting our TP by ~8% to Rs3,000 from Rs3,250.
Chemicals business (CB) growth guidance maintained at 20% for FY27
CB revenue grew ~4% YoY to Rs24.5bn in Q4 (EBIT margin flat YoY at 32%), led by higher HFC volumes and realizations, partly offsetting the weaker performance in specialty chemical business (SCB). Although SCB numbers improved sequentially, the segment remained under pressure, due to slower customer offtake and Chinese pricing pressure. Owing to strong demand for ref gas, SRF has announced capacity addition: i) debottlenecking of Dahej plant to take total HFC capacity to ~65kt at capex of Rs0.9bn; ii) increasing capex by Rs12bn for setting up HFO (20ktpa) and HF (30ktpa) plants. For FY27, the management has guided for 15-20% revenue growth, which should be driven by higher ref gas volumes, ramp up in fluoropolymers, and its pipeline molecules.
Performance films and foil business (PFB) witnessing improved performance
PFB reported revenue of Rs13.4bn (+13% YoY), with strong improvement in EBIT margin at 9.6% vs 7.1% in Q3. This strong performance has come on the back of higher volumes/realizations in BOPP and BOPET films and due to an increase in share of valueadded products, led by higher exports in the aluminum foil business. While competitive pressure remains, industry cycle seems to have bottomed out in the packaging film business. SRF expects Chinese anti-involution to aid prices going forward, with an uptick in prices already visible in Southeast Asia. In view of the current operating environment, SRF has indefinitely deferred the BOPP film capex of Rs5bn and, in its place, announced capex of Rs1.8bn for the polyamide plant – expected to be commissioned by Sep-27.
Technical textile business (TTB) reports a steady quarter
SRF’s TTB revenue improved by ~5% YoY (+6% QoQ) to Rs4.8bn in Q4, with strong sequential improvement in EBIT margin (13.5% vs 9.9% in Q3). Belting fabrics (BF) business has started showing early signs of recovery, led by rationalization of US customs duties. NTCF demand remains resilient, aided by growth in PV and CV segments.
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