REDUCE SRF Ltd For Target Rs.2,579 by Prabhudas Liladhar Capital Ltd
Agrochemical uncertainty persists
Quick Pointers
* Capex for the new refrigerant project has been increased from Rs11bn to Rs22.9bn
* Management Guided Chemical business is expected to grow 15%–20% in FY27
We downgrade SRF to ‘REDUCE’ due to continued pricing pressure and demand uncertainty across the specialty chemical portfolio. SRF reported consolidated revenue of Rs46bn in Q4FY26, registering a growth of 7% YoY and 24.3% QoQ. The Chemicals segment remained the primary growth driver, delivering a strong 34% QoQ increase (+4% YoY). Within this, the Fluorochemicals business witnessed robust performance, led by higher volumes and improved realizations, while pricing pressure across the specialty chemicals portfolio persists. The Performance Films & Foil segment also posted a healthy growth of 13% YoY and 19% QoQ, with margins expanding by 250bps sequentially, supported by China’s anti-involution measures. The aluminum foil business saw a pickup in exports during the quarter and is expected to further ramp up, backed by customer approvals. The Technical Textiles segment, which remained under pressure through most of the year, is now showing early signs of recovery, with EBIT margins improving by 360bps QoQ. On the capex front, the company has revised its HFO investment upward from INR11bn to INR22.9bn and is also undertaking debottlenecking of its HFC capacity, taking total capacity to ~65,000mtpa. While the company continues to benefit from current strong realizations in the refrigerants segment, subdued demand in agrochemicals and persistent oversupply from Chinese players remain key concerns. We maintain a cautious stance on the stock and downgrade to REDUCE rating, with an SOTP-based target price of INR2,579.
Performance Films & Foil Business grew 13% QoQ and 19% YoY: Consolidated revenue increased 7% YoY and 24% QoQ to INR46.2bn (PLe: INR39.3bn; Consensus: INR43.3bn), driven by a 13% QoQ and 19% YoY growth in the Performance Films & Foil (PFB) segment. EBIT margin expanded 220bps YoY, with EBIT rising 47% YoY. The Technical Textiles segment reported a 5% YoY increase in revenue, along with a 480bps YoY expansion in EBIT margin.
For FY26, revenue grew 7.4% YoY, led by the Chemicals segment. Segment-wise, revenues increased 16.3% in Chemicals, 4% in PFB, and 3% in Technical Textiles compared to FY25.
Technical Textiles segment margins expand sharply YoY: Gross margin stood at 51%, up from 48% in Q4FY25, due to slight decrease in raw material prices. EBITDA stood at INR10.3bn (PLe: INR8.4bn, Consensus: INR9.9bn;7.1% YoY,31.5% QoQ).). EBITDAM stood at 22.2% in Q4FY26 vs 21% in Q3FY26 and 22.2% in Q4FY25. FY26 EBITDA increased by 25.4% vs. FY25, led by margin expansion in the technical textiles business. EBIT for the segment increased by 47% YoY and 62% QoQ, while EBIT margin increased by 220bps YoY to9.6%.
Key concall takeaways: (1) Capex for the new refrigerant project has been increased from INR11bn to INR22.85bn, with completion targeted by Feb’28. (2) HFC capacity will increase to ~65,000mtpa after the debottlenecking project, expected to be completed in next 8 months with a total capex of INR880mn. (3) 20,000mtpa HFO (4th-generation refrigerants) plant, with three HFO variants planned to be commissioned in parallel. (4) 30,000mtpa AHF plant, with forward integration into VHF products. (5) The chemical business is expected to grow 15%–20% in FY27, driven by refrigerant gases, fluoropolymers, and specialty chemicals, with pricing anticipated to improve. (6) In Specialty Chemical Pricing pressure was seen across portfolio due to Chinese competition. (7) The new pharma products showing traction volumes expected to ramp up going ahead. (8) Pricing pressure in specialty chemicals has largely stabilized, with prices expected to improve going forward. (9) In Fluorochemicals business Plant utilization remained optimal during the year. (10) Middle east sales were impacted in Q4FY26, some impact in Q1FY27 expected. (11) Strong demand in fluorochemicals from clients is expected in H2FY27, in line with the debottlenecking project. (12) In Packaging Film Business BOPET and BOPP margins improved in Q4FY26, supported by pricing recovery driven by China’s anti-involution measures. (13) Aluminium foil plant ramping up well with more focus on exports as customers approvals are in place. (14) BOPP plant with a capex of INR4.9bn at Indore deferred. (15) In Technical Textile Business Belting Fabrics saw signs of recovery in Q4FY26, gradual recovery in margin expected.
