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Spec-chem outlook could improve over next 6-9 months

Our recent interaction with SRF’s management during its analyst day gave us insights on the progress of company’s on-going growth plans along with long-term opportunities in various sub-segments the company operates in. Key takeaways – 1) sequential growth in specialty chemicals majorly driven by ramp-up of new products rather than a seasonal uptick; 2) for specialty chemicals, kept target of single digit growth in FY24 intact and indicated aspiration of ~15-20% growth in FY25 and beyond; 3) ref gas prices are likely to improve from current levels and demand-supply situation to remain tight with a possibility of R32 shortages over medium term; 4) looking to enter the HFO market over the next 2-3 years; and 5) aluminium foil capacity likely to get commissioned in Jan’24. We remain constructive on the company’s long term plans. We maintain BUY with an unchanged Dec’24 TP of INR 3,040 (SoTP based).

? Specialty chemicals business – aspiration of 15-20% growth in FY25 and beyond: Similar to what we have highlighted (click here and here), SRF’s management has also pointed out robust crop pricing would lead to higher acreages. As a result, once the excess agchem inventory situation subsides, offtake normalisation should follow. According to the management, although the recovery timelines continue to remain uncertain, things could improve over the next 6-9 months. It was indicated that large part of growth in 2HFY24 and in FY25 is likely to be on account of new product launches while ramp-up in existing products could be on top of this. Further, plans of launch of 6-7 active ingredients remain intact with some of the products having a potential to touch a USD 100mn mark. We had highlighted some of the possible products in our detailed thematic report (click here).

? Ref gas business – medium term outlook remains positive: Management indicated that demand for R32 is likely to pick up significantly over the next few years as it is getting pushed currently across the globe. Besides, there are numerous HFO blends where R-32 would be used significantly. R-452a and R-452b, are blends of R-32, R-125 and HFO1234yf, R-452c and R-454a, are blends of R-32 and HFO-1234yf, and R-448 is a blend of R-32, R-134a, HFO1234yf and HFO1234ze. (click here for our report whereby we had indicated that R-32 demand is likely to peak around CY35-37 and here for our report where we had discussed various details of HFOs). Moreover, it was highlighted that China dumped HFCs at lower prices to get higher quota as their baseline was CY21-23. This is unlikely to be the case starting CY24 given China indigenous consumption would also increase amid no possibility of production increase. Besides this, SRF is also eager to enter into the HFO space once the patents of various HFOs (especially of 1234yf) expire over the next 2-3 years.

? PTFE plant likely to achieve optimum utilisation over next one year; maintain BUY: SRF has started commercial sales of PTFE in the domestic market and has begun supplying samples to Europe. Management expects to start sampling of value added grades (except modified) to start over the next 5-6 month and achieve optimum utilisation in a years’ time. We retain our estimates and maintain BUY as we believe SRF remains at the forefront of capturing growth in the fluorochemicals space.

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