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Chemicals business: Many levers at play

We recently met SRF’s president and CFO for insights on the company’s growth plans and long-term opportunities. The key takeaways are: i) Domestic demand for HFCs will continue to rise, especially for R-134a and R32, ii) Over the next 8-10 years, India will become one of the largest consumers of HFCs, iii) Revenue contribution from HFO will be meaningful from FY28, iv) In FY26, overall volume of specialty chemicals (including new and legacy products) is likely to be better than in FY25, v) Pricing in specialty chemicals has stabilised, vi) Import tariffs by the US (if any) will have to be looked at in tandem with China; and vii) Packaging films margins are likely to be similar or better than what they have been over the last 2-3 quarters. We remain constructive on the company’s long-term plans. We maintain BUY with an unchanged SoTP-based Mar’26 TP of INR 3,115/share.

* HFC demand outlook robust: Due to the government’s mandate to have air-conditioned cabins in all new manufactured medium and heavy trucks, starting Oct’25 (click here), there is likely to be pick up of domestic HFC-134a demand. In our view, this regulation could result in additional domestic demand of ~200-400MT of R-134a (considering ~0.5- 1kg charge and domestic MHCV industry size of ~375K units). HFC-32 is anyway getting good demand traction in split air conditioners due to its low global warming potential. Further, over the next 8-10 years, as India phases out hydrochlorofluorocarbons (HCFCs) and completely transitions to HFCs (hydrofluorocarbons), it will become one of the largest consumers of HFCs. On the pricing front, it was indicated that the overall HFC pricing environment has been buoyant. Moreover, the company highlighted that since HFOs will not require stringent approvals, sales contribution could be swift from FY28.

* Stable pricing with volume growth bodes well for specialty chemicals: The management indicated that, over the last couple of months, normalcy has returned in specialty chemicals pricing of Chinese players. The company remains confident of sales contribution from 2-3 active ingredients in FY26 and additional 2-3 active ingredients in FY27. Further, on overall basis (new and legacy products), volumes are likely to be better in FY26 compared to FY25. Moreover, since the company manufactures some of the raw materials in-house, margins on active ingredients are likely to be higher compared to that on legacy products. On pharma sales, the company maintained its target of ~15-20% of specialty chemicals from the pharma division, over the next 2-3 years.

* Maintain BUY with Mar’26 TP of INR 3,115: The management believes that there will be positive demand traction for its PTFE grades in FY26. It has received product approvals from domestic and international customers for two specialty and one commodity grades, which it believes will drive volume pick-up in FY26. On packaging films, it indicated that margins were likely to be similar or better than those reported over the last 2-3 quarters with some positive traction from aluminium foil ramp-up. Our estimates are unchanged, and we expect ~30%/50% EBITDA/EPS CAGR over FY25E-27E. We maintain BUY with an unchanged SoTP-based Mar’26 TP of INR 3,115 as we see multiple positives lying ahead.

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