Accumulate SRF Ltd for the Target Rs. 3,258 By Elara Capital
Refrigerants deliver, specialty drags
SRF (SRF IN) has corrected 9% in the past three months, and underperformed the benchmark Nifty Index ( down 2 %) due to overall weakness in the chemicals sector amid trade war , continued Chinese oversupply, and demand softness in the EU. Fluorochemicals delivered a record quarter, despite a seasonally weak period due to strong global refrigerant prices (especially R32) given China’s quota -led supply restrictions and domestic refrigerant demand recovering after weak H1.
However, Specialty Chemicals (SC) was muted due to aggressive Chinese pricing and deferred offtake by agro majors . So, SRF chose to defend volume and market share, accepting near -term margin strain . However , agrochemical demand is showing early signs of revival, and Q4 may benefit from deferred orders. China’s anti -involution policy (discouraging uneconomic overproduction) reportedly mandated ~20% capacity curtailment , which would aid margin of Performance F ilms & Foils (PFF) over time. Based on weak demand environment for SC in 9M FY26, we cut EBITDA for FY26E by 1 4%,for FY27E by 13% and FY28E by 10%. So , we lower our DCF -TP to INR 3, 258 (from INR 3, 423 ). We reiterate Accumulate.
Fluorochemicals offset weak PFF and Technical Textiles: EBITDA was INR 7. 8bn in Q 3 (Elara estimates: INR 8.5bn), up 26% YoY ( up 1% QoQ). The YoY growth came from Chemicals ( mainly refrige rants). So , adjusted PAT was up 50% YoY ( up 5% QoQ) to INR 4.1bn (Elara estimates: INR 4.4bn). SRF reported exceptional loss of INR 732mn from new labour code , offset by INR 991mn exceptional gain from writ e-back of tax prov isions .
Refrigerants drive Fluorochemicals growth: Revenue from the Fluoroc hemicals segment (comprising 4 9% of revenue and 7 6% of EBIT) grew 2 2% YoY ( up 9 % QoQ) to INR 1 8.2bn due to strong refrigerant volume led by higher R32 prices. SC saw pricing pressure due to Chinese competition . Segmental EBIT margin was at 2 7.2% (24.3% in Q 3FY25 ; 28.9% in Q 2FY26 ).
PFF – Domestic volume hit: EBIT margin for Packaging Films & Foil (comprising 36% of revenue and 1 5% of EBIT) expanded by 54bps YoY (down 1 39bps QoQ) to 7.1%. However, t he company saw some disruption post GST rate cut , while packaging films prices in C hina have seen some recovery pos t capacity rationalization in the country .
Capex guidance intact: F Y26 -27 capex is planned at INR 20 -23bn. Moreover, Odisha site Phase -1 for next -generation refrigerants would cost INR 15 -20bn. New pharma intermediates plant at Dahej would cost INR 1.8bn , with commissioning in eight months. SRF would continue to invest in specialty intermediates and complex chemistry CDMO .
Reiterate Accumulate; TP cut to INR 3,258: Based on weak demand environment for SC segment in 9MFY26, we cut EBITDA for FY26E by 14%, for FY27E by 13% and for FY28E by 10%. So , we lower our DCF -TP to INR 3,258 (from INR 3,423). We reiterate Accumulate due to resilient refrigerant demand . We value SRF on DCF, assuming a 5.0% terminal growth rate (unchanged), a 9.8% WACC (unchanged), and average EBITDA margin of 23. 5% (from 23.7%) in FY26E -28E.
Please refer disclaimer at Report
SEBI Registration number is INH000000933.
