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FY24 ARA: Focus on ramp up of new specialty chemicals plants

In its FY24 annual report, SRF’s management has outlined i) higher chemicals capex intensity from 2HFY25; ii) signs of pick up in the agrochemicals industry, iii) higher ref gas demand from domestic and Middle East markets to offset weakness in US market; iv) positive outlook for the pharma business; v) ramp-up of nine dedicated facilities commissioned in FY24, and vi) shift towards new PTFE grades and ambition to venture into new fluoropolymers. On the back of this, company expects chemicals business to register a ~20% growth in FY25 and a strong momentum beyond FY25. Apart from this, company is working on its cost structures in order to maximise the plant efficiency. On the packaging films, company indicated challenges to persist (especially on the BOPET side) on account of supply outweighing demand. However, commissioning of the aluminium foil should bode well. We maintain BUY (click here for deep dive report) with unchanged estimates and Sep’25 TP of INR 2,795.

* Chemicals capex intensity to pick up pace from 2HFY25: After having faced multiple challenges in specialty chemicals business in FY24, company expects growth momentum to pick up in FY25 owing to the strong pipeline of active ingredients coming on stream. Company would be looking to ramp up its nine dedicated facilities which got commissioned at Dahej in FY24. Moreover, company wants to go to back to higher capex intensity from 2HFY25 after spending INR 17bn in the chemicals business in FY24. Besides, company has started seeing progress in its pharma segment. (During FY24, INR 30bn worth of plants got capitalised of which INR 18bn was for specialty chemical plants while INR 12bn was for PTFE and R32 plants along with capacity expansion of AHCl plant).

* Higher ref gas demand from domestic and Middle East markets to offset weakness in US: In FY25, for refrigerant gases, SRF expects increased domestic as well Middle East demand while a subdued demand from US market. Moreover, management expects pricing pressure on refrigerant gases to be down. Further, on PTFE, company is ramping up new grades (free flow and fine cuts). Management believes this will help the company to venture out into new fluoropolymers at a faster pace. Altogether, company expects overall chemicals business to register ~20% sales growth in FY25 and a strong momentum beyond FY25.

* Maintain BUY with Sep’25 TP of INR 2,795: In the packaging business, management expects challenges to persist on account of demand-supply imbalances, especially on BOPET side. However, it expects a better performance from Hungary plant owing to energy price stabilisation. Further, commissioning of aluminium plant should bode well. In the technical textiles business, company expects an improved performance in FY25 on account of higher utilisation, lower costs, and value added products in belting fabrics and polyester industrial yarn. On the operational front, company has implemented energy efficiency initiatives leading to energy savings of ~12,243 MWh in FY24. We continue to maintain BUY with unchanged estimates and SoTP based Sep’25 TP of INR 2,795.

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SEBI Registration Number is INM000010361