SRF hits 52-week low, slips 4% intra-day as Q1 PAT falls 41% from year ago

The management said the significant drop in profit was mainly due to the expected downcycle of the packaging films business and is expected to continue for the medium-term

Shares of SRF fell 4 per cent to hit a 52-week low of Rs 2,050 on the BSE in Tuesday’s intra-day trade after the company reported a 41 per cent decline in its consolidated net profit at Rs 359 crore in the June quarter (Q1FY24). The company had posted net profit of Rs 608 crore in the year ago quarter.

The stock has fallen below its previous low of Rs 2,082.15, touched on January 30, 2023. At 11:11 am; it was quoting 0.32 per cent higher at Rs 2,151 as compared to a 0.04 per cent decline in the S&P BSE Sensex. In the past one month, the stock has underperformed the market by falling 8 per cent as against a 5.4 per cent rally in the benchmark index.

In Q1FY24, SRF reported a consolidated revenue de-growth of 14.6 per cent year-on-year (YoY) to Rs 3,289 crore led by lower-than-expected performance from specialty chemical segment and packaging segment. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins for the quarter declined by 469bps YoY to 20.9 per cent.

The management said the significant drop in profit was mainly due to the expected downcycle of the packaging films business. This is expected to continue for the medium-term. The chemicals business has been affected by lower sales in fluorochemicals business due to a very mild summer and general weakness in the industrial chemicals segment, the management said.

There is a lot of inventory unwinding going on globally and this will have some impact on the business in the next couple of quarters. On the positive side, the longer-term projects remain on track, and the management expect to keep capex momentum intact.

According to ICICI Securities, the industry trend driven by sluggish global demand and inventory rationalization has impacted and is likely to impact the earnings in H1FY24 for chemicals companies.

For SRF, the performance of the fluorochemicals business was impacted due to mild summers in India, resulting in sluggish demand for refrigerant gases. In addition, stagnant pharmaceuticals and agrochemical industries adversely impacted the demand for some industrial chemicals. However, solid capex plans, strong consumer demand for new and flagship goods, opportunities across various chemistries in both agro and pharma verticals for fluorine compounds, and foray into the specialty fluoropolymers market are anticipated to drive growth momentum going forward, the brokerage firm said in a note.

The present quarter disappointment was all driven by refrigerant gas- whose prices are yet to revert to mean.  Added to it will be the impact of cyclical nature of the agrochemical revenue. High channel inventory in agrochemicals is key concern for global majors hence it will impact the intermediary business of SRF, the brokerage firm InCred Equities said.