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Diversification, strategic investments drive growth

FY26 was characterized by a volatile and uncertain global environment, with the geopolitical tensions in the Middle East disrupting trade flows and supply chains. These challenges impacted SRF's logistics network, supply chain operations, and access to key markets. Despite these macroeconomic headwinds, the company successfully navigated the environment through disciplined execution, operational excellence and continued strategic investments across its businesses.

* The Fluorochemical segment delivered a record performance in FY26, driven by strong demand, improved realizations, and high-capacity utilization. SRF continued to invest in next-generation refrigerants, capacity expansions, and specialty polymers to strengthen its product portfolio and integration. Growth is expected to be supported by rising AC demand, PTFE ramp-up, higher HFC capacities, and the commissioning of the specialty polymer plant.

* The Specialty Chemicals segment faced a challenging FY26 as revenue was impacted by weakness in the agrochemical sector and global pricing pressure. SRF maintained its competitive position through cost discipline, operational improvements, capacity expansions, and continued investment in new product development. The company remains focused on expanding its presence in agrochemicals, pharmaceuticals, and other high-value specialty molecules, supporting a positive growth outlook.

* FY26 was a recovery year for the Performance Films & Foil (PFB) business, driven by operational efficiencies and a higher share of value-added products, resulting in revenue growth and strong margin expansion. The business strengthened its portfolio through expansion into high-value technical films, including the upcoming Capacitor Grade BOPP film line. Going ahead, growth is expected to be supported by technical film ramp-ups, improving aluminum foil profitability, and continued productivity gains.

* Capex intensity increased significantly in FY26, with SRF incurring ~INR17.2b of capex (+57% YoY), primarily directed toward expansion initiatives.

* SRF remains well positioned to deliver healthy growth, supported by its diversified portfolio, capacity expansion initiatives, and innovation-led strategy. While the Chemicals business is expected to remain the primary growth driver, the improving industry conditions in Technical Textiles (TTB) and a constructive outlook for Packaging Films are expected to support further growth in FY27.

* We expect SRF to clock a CAGR of 14%/20%/22% in revenue/EBITDA/adj. PAT over FY26-28. We reiterate our BUY rating on the stock with our SoTP-based TP of INR3,350.

Fluorochemicals drive earnings as capacity expansion accelerates

* Chemical business continued its growth momentum in FY26 and accounted for 49%/75% of consolidated sales/EBIT. Revenue/EBITDA grew 16%/30% YoY, while EBITDA margin expanded by ~380bp YoY to 35.7%, driven by growth in fluorochemicals.

* Fluorochemicals delivered a record performance, with revenue rising 60% YoY to ~INR36b, driven by strong global demand, improved realizations, and optimal capacity utilization. Despite some regional disruptions in the Middle East, the company has successfully diversified into alternate markets, sustaining volumes and growth momentum.

* SRF is strengthening its presence in next-generation refrigerants through a planned capex of ~INR23b over the next two years, including a 20,000-TPA Hydrofluoroolefins (HFO) facility, a 30,000-TPA HF plant, and downstream HF derivative capacities. The investment is expected to enhance value-chain integration, strengthen manufacturing capabilities, and expand the portfolio of high-value specialty products.

* The company is also undertaking a debottlenecking capex of ~INR880m at Dahej to strengthen its market position in line with the potential HCFC quota under the Montreal Protocol. With the necessary environmental clearances already in place, the project is expected to increase HFC capacity beyond 65,000 TPA.

* Fluoropolymer’s business delivered a strong all-round performance, with improvements in costs, sales, and customer approvals, including key global account wins. Operational stability continued to strengthen, supported by the addition of new grades and enhanced market acceptance.

* The specialty polymers project remains on track for commissioning in early FY27, while the partnership with Chemours achieved significant milestones and is progressing as planned. Looking ahead, the successful commissioning of the new specialty polymer plant and further enhancement of application development capabilities will be key focus areas in FY27.

* Fluorochemicals business has demonstrated a strong growth trajectory, with 60% growth in FY26 and a 23% revenue CAGR over FY16-FY26. With multiple growth levers in place, including expanding AC demand, PTFE ramp-up, and higher HFC capacities, we expect a 19% CAGR in revenue over FY26-28.

* Specialty Chemicals business faced a challenging environment, with revenue declining 7% YoY to INR35.4b amid agrochemical sector weakness and global pricing pressure. However, effective cost control and operational efficiency supported its competitive position.

* During FY26, SRF continued to strengthen its Specialty Chemicals business through targeted capacity expansions at recently commissioned facilities and enhanced operational efficiency at its Bhiwadi and Dahej plants. These efforts supported the scale-up of a growing portfolio of high-value products, deepened customer engagement and accelerated new product development.

* Specialty Chemicals business has delivered a healthy 17% revenue CAGR during FY16-FY26. While FY26 was impacted by a weak macro environment, the outlook remains intact. The company continues to strengthen its presence in agrochemicals and pharmaceuticals while expanding capabilities in complex, high-value molecules. We expect the segment to deliver a revenue CAGR of 18% over FY26-28.

TTB poised for recovery as market conditions improve

* TTB (12%/6% of consolidated revenue/EBIT) reported a 7.5% YoY decline in revenue to ~INR18.7b, while EBITDA fell 14% YoY to INR2.5b, impacted by a challenging operating environment, competitive pricing pressures (particularly from imports) and fluctuating demand across certain end-use segments.

* During the year, SRF continued to strengthen its presence across key segments. The business maintained strong sales momentum in non-N6 Tyre Cord Fabric (TCF) products while successfully expanding its customer base in Belting Fabrics (BF) and Polyester Industrial Yarn (PIY).

* The TCF segment maintained its presence in both Nylon 66 TCF and Polyester Tyre Cord Fabric (PTCF) during the year. Despite margin pressures from low-cost imports and volatility in lactam prices, the business sustained its market share in the Nylon 6 TCF segment through improved operational efficiencies and strong customer relationships.

* Demand in the Belting Fabrics segment remained largely flat during the year and was impacted by the imposition of reciprocal US tariffs and continued pressure from low-cost Chinese imports.

* Meanwhile, demand in the Polyester Industrial Yarn (PIY) segment was marginally lower than the previous year. The withdrawal of the PIY quality control order led to higher imports from China, resulting in margin pressure; however, the segment operated at full capacity utilization and delivered a stable performance.

* We expect the TTB segment to recover in FY27, supported by improving market conditions. Further growth is likely to be driven by a higher share of dipped fabric in non-N6 TCF, market share gains in Nylon 66 and PTCF, and improved capacity utilization, export growth, and value-added product expansion in Belting Fabrics. Accordingly, we model a CAGR of 8%/16% in revenue/EBITDA over FY26-28.

Valuation and view

* Building on its strong FY26 performance, SRF is well positioned to sustain growth in FY27, supported by ongoing capacity expansions, ramp-up of recently commissioned plants, strategic investments, continued focus on innovation and market recovery.

* SRF remains well positioned to deliver healthy growth, aided by its diversified portfolio, ongoing capacity expansions, and innovation-led strategy. Growth is likely to be driven by robust demand for refrigerant gases, PTFE ramp-up, higher HFC production, and a gradual recovery in Specialty Chemicals. Improving market conditions, a richer product mix, and better capacity utilization should aid the TTB and PFF businesses.

* We expect SRF to clock a CAGR of 14%/20%/22% in revenue/EBITDA/adj. PAT over FY26-28. We reiterate our BUY rating on the stock with our SoTP-based TP of INR3,350.

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