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PFF and TTB drive operating performance

Operating performance below our estimate

* SRF delivered a healthy performance in 2Q, with EBIT growing 30% YoY, led by a 73%/71%/10% YoY jump in EBIT in the technical textiles business (TTB)/ performance films and foil (PFF)/chemicals business. However, it faced margin pressure due to higher raw material prices and notably elevated freight and logistics costs in the chemicals segment, resulting in a 60bp dip in EBIT margin.

* SRF’s overall business is expected to perform well, aided by cost optimization and improved pass-through of input costs, capacity ramp-up, diversified revenue streams and a strong capex pipeline. Growth in FY27 is likely to be fueled by refrigerant gases, the ramp-up of fluoropolymers, and the PFF business.

* Factoring in the weaker-than-expected 2Q performance and lower margin expectations for the chemicals business, we broadly maintain our FY27 EBITDA estimates while cutting our FY28E EBITDA estimates by 6%. We reiterate our BUY rating with an SoTP-based TP of INR3,000

Elevated raw material prices result in margin contraction

* SRF reported an overall revenue of IN49.0b (est. INR46.0b) in 2QFY27, up ~35% YoY. Revenue for Chemical/Packaging film/Technical textile businesses grew 25%/51%/25% YoY to ~INR20.8b/INR21.2b/INR5.9b

* SRF’s EBITDA margin dipped 150bp YoY to 20.6% (est. of 23.2%). Gross margin was 47% in 2QFY27 vs. 51% in 2QFY26, employee costs were 6.4% vs. 7.6%, power costs were 8.3% vs. 9.4%, and other expenses were 11.7% vs. 12.3%. ? EBITDA was INR10.1b (est. of INR10.7b), up 25% YoY. Adj. PAT grew 35% YoY to INR5.6b (est. of INR5.8b), after adjusting for the forex loss impact of INR631m.

* For 1HFY27, its revenue/EBITDA/Adj PAT grew 33%/44%/66% to INR99b/ INR23b/INR13b. Gross debt stood at INR52b vs INR50b as of Mar’26. CFO stood at INR7.9b against INR11b as of Sep’25.

* Chemical business revenue (42%/65% of total sales/EBIT in 2QFY27) grew 25% YoY to INR20.8b, EBIT grew 10% YoY to INR5.3b, and EBIT margin was 25.4% (vs. 28.9% in 2QFY26). The company faced margin pressure due to higher raw material prices and significantly elevated freight and logistics costs The Fluorochemicals Business delivered robust refrigerant sales volumes, supported by positive pricing momentum across key products, while maintaining its leadership position across primary markets. The Specialty Chemicals Business navigated a dynamic operating environment shaped by evolving global pricing trends, industry overcapacity in China and ongoing geopolitical developments.

* PFF revenue (43%/25% of total sales/EBIT in 2QFY27) grew 51% YoY to INR21.2b, EBIT jumped 73% YoY to INR2.1b, and margin expanded ~130bp YoY to 9.7%. PFF business the Business achieved its highest-ever packed production of films. However, 2Q demand was moderated by inventory build-up following heightened buying activity amid the volatility witnessed in 1Q. Demand for Aluminum foil, meanwhile, remained healthy during the quarter

* Technical textiles revenue (12%/9% of total sales/EBIT in 2QFY27) was up 25% YoY at INR5.9b, EBIT surged 71% YoY to INR723m, and EBIT margin expanded 320pp YoY to 12.2%. The Business delivered a steady performance during the quarter, supported by healthy demand and improved margins.

Highlights from the management commentary

* HFO: The hydrofluoroolefins (HFO) project at Gopalpur, Odisha, is targeted for commissioning in 4QFY28. The company aims to rank among the top three to four global refrigerant gas manufacturers, initially targeting Western markets through its established distribution network. SRF has developed proprietary, non-infringing technology and expects HFOs to command a significant premium over conventional HFC refrigerants, with meaningful revenue contributions expected 10–12 months after commissioning.

* PFF: Capacitor-grade films received key customer approvals and commercial sales progressed ahead of expectations. Commercial sales of aluminum foil for capacitors are expected to commence in 3QFY27, while the hybrid BOPP/BOPPE film line is also expected to commercialize in 3QFY27. SRF has commercialized 16 products across BOPET, BOPP and CPP (Cast Polypropylene), with over 35 products under development. Its aluminum foil business is expanding into high-end aseptic packaging and battery applications.

* Capex: SRF is investing across battery-grade aluminum foils, hydrofluoroolefins (HFOs) and fluoropolymers, including polyvinylidene fluoride (PVDF), fluorinated ethylene propylene (FEP) and fluoroelastomers (FKM). The INR6b aluminum foil project will be implemented in two phases, while the HFO project targets commissioning in Q4FY28. Future investments will depend on customer offtake, product qualification and commercialization timelines.

Valuation and view

* We expect SRF to maintain the growth momentum in FY27, fueled by:

1) a recovery in specialty chemicals

2) a favorable pricing and volume environment for refrigerant

3) the addition of value-added fluoropolymer grades, and 4) the ramp-up of capacities in PFF business.

* We build in a 19/16%/16% CAGR in revenue/EBITDA/adj. PAT over FY26-28E. We reiterate our BUY rating and value the stock on an SoTP basis to arrive at our TP of INR3,000.

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