During Monday’s trading session, the shares of a chemical-based multi-business entity engaged in the manufacturing of industrial and specialty intermediates slumped by around 0.2 percent to Rs. 2,597.35 on BSE.
With a market cap of Rs. 74,728.7 crores, the shares of SRF Limited were opened in the red at Rs. 2,565.6, down by around 1.4 percent, as compared to its previous closing price of Rs. 2,602.95.
Market Leader
In the Technical Textiles business, the company is a domestic market leader in Tyre Cord manufacturing and Belting Fabrics. It holds nearly 40 percent share in India’s Nylon Tyre Cord market and is the 5th largest global player in this industry.
Additionally, SRF Limited is the second-largest manufacturer of Conveyor Belting Fabrics worldwide.
The company maintains its leadership in the Coated Fabrics segment within the domestic market, excelling in both volume and pricing. Its strategy focuses on sustaining profitability by boosting domestic volumes, prioritizing value-added products (VAPs), and new product offerings.
Capex
In Q2 FY25, the company’s Board approved a project to establish production facilities for fourth-generation refrigerants, which have a notably lower Global Warming Potential (GWP) and carbon footprint, at an estimated cost of Rs. 1,100 crores. The project is anticipated to be completed in about 30 months.
The Board has also approved a project to set up a manufacturing facility for the BOPP-BOPE film line in Indore, India. This project allows the company to expand its current existing BOPP substrate capacity while entering the new BOPE substrate market.
Additionally, the project aligns with the company’s sustainability agenda, as polyolefin substrates like BOPP/BOPE are considered more sustainable due to their mono-family composition and ease of recyclability. The project is estimated to cost Rs. 445 crore and is expected to become operational within approximately 25 months.
Financials
SRF Limited reported a marginal growth in revenue from operations, experiencing a year-on-year increase of nearly 7.8 percent, rising from Rs. 3,177.4 crores in Q2 FY24 to Rs. 3,424.3 crores in Q2 FY25.
However, during the same period, the company’s net profit decreased from Rs. 300.8 crores to Rs. 201.4 crores, representing a decline of around 33 percent YoY.
EBITDA for Q2 FY25 decreased by about 12 percent YoY to Rs. 594 crores, down from Rs. 674.4 crores in Q2 FY24, while the EBITDA margins fell to 17.3 percent, from 21.2 percent, over the same period.
Segmental Performance in Q2 FY25
Chemicals Business: reported a decrease of 5% YoY in its segment revenue to Rs. 1,358 crore, while the operating profit fell by 29% YoY to Rs. 246 crore in Q2 FY25.
(i) Specialty Chemicals: While there was traction for certain new products, the volumes of key products declined due to inventory challenges faced by customers.
(ii) Fluorochemicals: The domestic market performed well, supported by increased volumes. However, reduced export realizations exerted pressure on margins. Looking ahead, this segment is expected to perform better in the second half of FY25 as export volumes increase and the domestic season kicks in.
Packaging Films Business: reported a 27% YoY growth in revenue, reaching Rs. 1,421 crore, and operating profit rose 7% YoY to Rs. 83 crore in Q2 FY25.
(i) BOPET Films: Margins improved moderately in India, boosting overall results, although Thailand continued to face challenges due to Chinese dumping.
(ii) BOPP Films: The performance remained in line with expectations.
Technical Textiles Business: reported a 6% YoY increase in revenue to Rs. 536 crore. However, operating profit declined 5% YoY to Rs. 71 crore in Q2 FY25.
(i) Nylon Tyre Cord Fabric: Sales volumes improved, contributing positively to the segment’s performance.
(ii) Polyester Yarn: Witnessed strong demand, while the Belting Fabrics segment experienced weaker demand and lower margins, impacting overall performance.
Other Businesses: revenue declined 11% YoY to Rs. 113 crore, while operating profit dropped 48% YoY to Rs. 17 crore in Q2 FY25.
During the quarter, both the Coated and Laminated Fabrics segments performed in line with the expectations.
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Management Outlook
The management expects a turnaround starting in Q3 FY25, with further improvements and a stronger performance anticipated in Q4 FY25.
Agrochemicals Segment: A gradual recovery in demand is expected in the second half of FY25, supported by a robust order book. Growth will also be driven by the launch of new pharma intermediates and the scaling up of recently commissioned facilities.
Specialty Chemicals: The outlook remains positive, fueled by traction in new products and strategic partnerships with key customers.
Challenges
The company continues to face challenges, including ongoing price erosion in legacy products, which is putting pressure on margins.
High inventory levels at customers’ end, driven by demand contraction and competition from lower-priced Chinese imports, are also affecting performance. Additionally, cheaper agrochemicals from China is creating significant pricing pressures on certain products.
While finance costs have increased compared to the previous year, a reduction in borrowing costs is anticipated due to favourable global interest rate trends.
Stock Performance
The stock has delivered positive returns of nearly 13.6 percent in one year, as well as around 8.7 percent returns in the last six months. Likewise, the shares of SRF Limited have given positive returns of about 11.2 percent in the last one month.
About the Company
SRF Limited is primarily engaged in the business of manufacturing, purchasing and sale of technical textiles, chemicals, packaging films and other polymers. Its diversified business portfolio covers fluorochemicals, specialty chemicals, packaging films, technical textiles and coated and laminated fabrics.
Written by Shivani Singh
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