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SRF’s 1QFY25 consolidated EBITDA miss of 1%/5% on JMFe/consensus was on account of lower-than-expected chemicals EBIT offsetting the positive uptick in packaging films performance. Despite the weak chemicals performance in 1QFY25, the company remains confident of achieving ~20% chemicals sales growth in FY25. In our view, this is likely to be driven by i) ramp-up of two active ingredients (samples has been approved) in 2HFY25, ii) some pick-up in existing specialty products, and iii) >25% volume growth in ref gas given domestic volumes are offsetting US volumes. Moreover, on the chemicals margin front, we believe positive operating leverage should provide an uplift in the upcoming quarters. Basis 1QFY25 performance, we have cut our chemicals EBIT estimates by ~2% for FY25/26. We now bake in 19% chemicals sales growth and 24.5% chemicals EBIT margin in FY25. Factoring in the positive surprise in the packaging films business owing to higher volumes, our FY25-27 EBITDA estimates are revised downwards by 1% while EPS estimates are revised downwards by ~1-2%. We still recommend investors to BUY (click here) the stock as SRF stands to benefit from the potential agrochemicals cycle reversal. We maintain BUY with a revised SoTP-based Sep’25 TP of INR 2,780 (from INR 2,795 earlier).

* Chemicals EBIT 17% below our expectations: SRF’s 1QFY25 consolidated gross profit came in 3% above JMFe at INR 16.4bn (flat YoY but down 6% QoQ) as revenue was 5% above JMFe and stood at INR 34.6bn (up 4% YoY, down 3% QoQ) while gross margin was below our expectations at 47.3% (vs. JMFe of 48.1% and 48.6% in 4QFY24). Other expenses were higher at INR 7.6bn (vs. JMFe of INR 7.2bn). As a result EBITDA was ~1%/5% below JMFe/consensus and stood at INR 6.2bn (down 14%/13% YoY/QoQ) and PAT was INR 2.5bn (~3%/18% above JMFe/consensus) on account of higher tax rate. Chemicals EBIT was 17% below JMFe and came in at INR 3.1bn (vs. JMFe of INR 3.7bn, down 33%YoY) as EBIT margin was lower at 20.7% (vs. JMFe of 25.5% and 27.7% in 1QFY24) while chemicals revenue was 3% ahead of JMFe at INR 14.8bn ( (down 11%YoY) on account of strong domestic ref gas sales. During the quarter, chemicals EBIT margins was lower on account of i) ~1.5-1.7% impact on account of higher depreciation when compared to 1QFY24, and ii) price decline in various products in the fluorospecialty segment.

*  Packaging films margin better than anticipated: Packaging films EBIT was above our expectation and came in at INR 868mn (vs. JMFe of INR 492mn) as packaging films margin was higher at 6.5% (vs. JMFe of 4.0% and 2.8% in 4QFY24) and packaging films revenue was 9% higher than JMFe and stood at INR 13.3bn (up 22%/13% YoY/QoQ).

* Maintain BUY with Sep’25 TP of INR 2,780: To factor in weak chemicals performance, we cut our FY25/26/27 EBITDA/EPS estimates by ~1-2%. Our estimates for chemicals business EBIT has been lowered by ~2% for FY25/26. We expect SRF to register 22%/27% EBITDA/EPS CAGR over FY24-27E. We maintain BUY with a revised SoTP based Sep’25 TP of INR 2,780 (from INR 2,795 earlier) as we believe SRF would be the key beneficiary of the agrochemicals cycle reversal.

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