Hold SRF Ltd for the Target Rs. 3,123 By Prabhudas Liladhar Capital Ltd
Ref gas drives growth amid Agro weakness
SRF reported consolidated revenue of Rs36.4bn, registering a 6.3% YoY increase but a 4.7% sequential decline. The Chemicals segment remained the key growth driver, posting a robust 23% YoY rise; however, it declined by 9% QoQ due to deferred sales by major agrochemical customers. The Fluorochemicals business delivered strong growth, supported by higher volumes and improved realizations. The Performance Films segment declined 1% YoY and QoQ, with margins contracting by 150bps sequentially, impacted by an influx of low-cost imports from China and temporary disruptions linked to GST 2.0. The Technical Textiles business also came under pressure from cheap imports and US tariff-related challenges.
Rising refrigerant prices, particularly for R32, driven by the ongoing consumer trade-in program in China, have supported near-term performance. However, we do not expect this program to continue, which could lead to a moderation in R32 prices going forward. Additionally, subdued agrochemical demand and persistent oversupply from Chinese producers remain key concerns. We remain cautious on the stock maintaining ‘HOLD’ rating on stock with a SOTP-based target price of Rs3,123.
* Chemicals business grew 23%YoY: Consolidated revenue increases 6.3% YoY but declined 4.7% QoQ to Rs36.4bn (PLe: Rs40.4bn; Consensus: Rs38.4bn), driven by a 23% YoY increase in the Chemicals segment, with EBIT margins expanding 1080bps YoY. However, the technical textile segment reported a 41% YoY decline in revenue, alongside a 440bps YoY contraction in EBIT margin. H1FY26 revenue increased by 8.3%, driven by 23% growth in the Chemicals segment, Technical Textile business remained subdued in H1FY26.
* Chemical segment margins expand sharply YoY: Gross margin stood at 51.4%, increased from 46.4% in Q2FY25 and 50% in Q1FY26, due to slight decrease in raw material prices. EBITDA stood at Rs8bn (PLe: Rs8.9bn, Consensus: Rs8.2bn; 43.9% YoY, -6.7% QoQ). EBITDAM increased to 22.1% vs. 16.4% in Q2FY25 but decreased sequentially by 60bps. H1FY26 EBITDA increased by 37.6% vs H1FY25, led by margin expansion in the Chemicals business. EBIT in chemicals segment was down 4% QoQ but increased 96% YoY, however EBIT Margin for the segment increased by 1080bps YoY to 28.9%.
* Key concall takeaways: (1) FY26 capex is expected to be around Rs22-23bn. (2) In the Specialty Chemicals segment recently launched products showed strong traction. (3) The company launched one new active Ingredient (AI), three new Agro and one new Pharma product during H1FY26. (4) New land purchased in Odisha for setting up new chemical facility. (5) Specialty Chemical Domestic: Exports mix – 43%: 66%. (6) With the agreement with Chemours in place, capex for the fluoropolymers project has been revised upward from Rs5.95bn to Rs7.45bn. The project will be executed in phases and is expected to be completed by Dec’ 26. (7) H2FY26 is expected to have better steady pricing for Ref gas. (8) Fluorochemicals Domestic: Exports mix – 40%:60%. (9) GST reforms led to short-term volume impact on Performance film business.(10) China dumping continue to impact Belting Fabric and Nylon cord segment.
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