Hold SRF Ltd for Target Rs.2,994 by Prabhudas Lilladher Ltd
Chemicals segment drives overall performance
SRF reported consolidated revenue of Rs37.1bn in Q3FY26, up 6.3% YoY and 2% QoQ. The Chemicals segment remained the key growth driver, posting a robust 22% YoY rise (+9% QoQ). The Fluorochemicals business also delivered strong growth, supported by higher volumes and improved realizations. However, the Performance Films segment declined 3% YoY and 5% QoQ, with margins contracting by 130bps sequentially, due to reduced volumes and range-bound pricing in BOPET and BOPP amid continued competitive pressure from low-cost imports and temporary disruptions related to GST 2.0. The Technical Textiles business also came under pressure impacted by margin stress in Belting Fabric due to continued influx of cheaper Chinese imports and US tariffs affecting export volumes.
The company is investing Rs15–20bn in Odisha for establishing nextgeneration refrigerant facilities. Additionally, subdued agrochemical demand and persistent oversupply from Chinese producers remain key concerns. We remain cautious on the stock, maintaining a ‘HOLD’ rating with an SOTP-based TP of Rs2,994.
* Chemicals business grew 22% YoY: Consolidated revenue increased 6.3% YoY and 2% QoQ to Rs37.1bn (PLe: Rs37bn; Consensus: Rs38bn), driven by a 22% YoY increase in the Chemicals segment, with EBIT margin expanding 290bps YoY. However, the Technical Textiles segment reported an 11% YoY decline in revenue, alongside a 170bps YoY contraction in EBIT margin. 9MFY26 revenue increased by 7.6%, driven by the Chemicals segment.
* Chemicals segment margins expand sharply YoY: Gross margin stood at 51%, up from 48% in Q3FY25, due to slight decrease in raw material prices. EBITDA stood at Rs7.8bn (PLe: Rs7.9bn, Consensus: Rs8.2bn; 25.9% YoY, 0.8% QoQ). EBITDA margin increased to 21% vs. 17.7% in Q3FY25 and remained flat QoQ. 9MFY26 EBITDA increased by 35% vs. 9MFY25, led by margin expansion in the Chemicals business. EBIT for the segment increased by 3% QoQ and 36% YoY, but EBIT margin increased by 290bps YoY to 27.8%.
* Key concall takeaways: (1) FY26 capex is expected to be Rs20-23bn. (2) The Specialty Chemicals segment is seeing pricing pressure from Chinese competitors. (3) In the Specialty Chemicals segment, order deferments in Q2– Q3 have led to pent-up demand, which is expected to support stronger Q4 performance. (4) Land has been acquired in Odisha for the establishment of next-generation refrigerant facilities. (5) In the Chemicals segment, exports to Southeast Asia and the Middle East helped offset volatility seen in the US market. (6) Pharma Intermediates contributes to 10% of Specialty Chemicals, with the long-term target set at 20%. (7) Second pharma intermediates plant has been approved with a capex of Rs1.8bn and is expected to be commissioned in 8 months. (8) In the Performance Films segment, South Africa aluminum foil business performed strongly, while Thailand and Hungary remained under pressure. (9) GST reforms led to short-term volume impact on the Performance Films business. (10) Chinese dumping continues to impact Belting Fabric and Nylon Cord segment.
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