 "SRF up 5% post Q3 results; rallies 25% so far in January, nears record high")
SRF share price: Shares of SRF hit a 52-week high of Rs 2,789.10, as they rallied 5 per cent on the BSE in Thursday’s intra-day trade. The run-up in the company's stock came after it reported an improvement in earnings with a 7 per cent year-on-year (YoY) rise in consolidated profit after tax (PAT) at Rs 270 crore for the quarter ended December 2024 (Q3FY25). The company had posted PAT of Rs 253 crore in the year-ago quarter (Q3FY24).
Thus far in the month of January, SRF has outperformed the market by surging 25 per cent, compared to the 2 per cent decline in the BSE Sensex. Today, the stock surpassed its previous high of Rs 2,697.45 touched on May 3, 2024. It is now inching towards its all-time high level of Rs 2,864.35 hit on September 14, 2022.
The consolidated revenue of the company increased 14 per cent to Rs 3,491 crore in Q3FY25, from Rs 3,053 crore in the year-ago period. Its earnings before interest and tax (EBIT) increased 16 per cent to Rs 529 crore in Q3FY25, from Rs 457 crore in Q3FY24. The company's Ebitda margin improved to 19.9 per cent in Q3FY24, from 19.7 per cent in Q3FY24.
The management said the company has seen a decent recovery this quarter. Building on the momentum, they expect to finish the year on a reasonably strong footing. "The quarter experienced significant strength of the dollar against major currency pairs, which negatively affected the results due to exchange currency fluctuations. On the other hand, a weaker rupee is favorable for the company over the long-term," the management said.
During the quarter, the company's specialty chemicals business continued to experience some overhang of inventory buildup among agrochemical customers. However, there appears to be a gradual increase in demand. The packaging films business demonstrated satisfactory performance. SRF maintained a strong position within the industry, although margins in aluminium foil experienced pressure due to lower-cost imports from China and Thailand.
However, its technical textiles business underperformed due to lower demand and margins in the Belting Fabrics segment. On the positive side, the polyester industrial yarn segment reached full capacity utilisation, SRF said. The coated fabrics segment experienced slower performance due to weak demand in the domestic market. The laminated fabrics segment performed in line with expectations, it added.
According to ICICI Securities, for SRF, the performance and investor sentiment hinges upon the performance of Chemicals business, the other two being commoditised segments. The margin profile for the chemical business is still below par due to pressure in the agrochemicals business. In Fluorochemicals on the other hand the pricing scenario for refrigerant gases, R-22 and R-32, is improving and the company is also expected to benefit from a shortage in the US, especially in R-32 and R-125. Margin profile for other segments that is packaging and technical textiles continue to remain lumpy, the brokerage firm said in a note.
As SRF has previously guided, it expects to launch 7–8 active Ingredients (AIs) to support the next leg of growth in specialty chemicals. The company would begin to realise sales from a few of the aforesaid AIs, from FY26 onwards. It will also backward-integrate a few AIs, which would aid in a better margin profile. Management mentioned that the AIs are patented and growing molecules with substantial global sales.
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SRF’s growth story extends beyond CDMO opportunities in agrochemicals. Even as its management sees agro-chemicals to continue to be a growing area, they see opportunities in pharmaceuticals burgeoning. The ambition is to derive ~25 per cent sales from pharmaceutical intermediates, ~65 per cent from agrochemicals, and ~10 per cent from others in the specialty chemical business mix over the next five years, analysts at Nuvama Institutional Equities said in its December 2024 management meet report.
SRF’s entry into material sciences through fluoropolymers is also backed by growing demand in battery chemicals, semiconductors and renewable energy. SRF is now in the process of installing 10,000TPA capacity in HFO (4th generation refrigerant gases). The company's management also believes in playing the growth story embedded via ancillaries in sunrise sectors such as battery chemicals, electronics and renewable energy, the brokerage firm said. The stock achieved analysts target price of Rs 2,672 per share.