SRF: Recovery in sight

30 Nov 2023 , 11:06 AM

Recommendation: Add; Target price: Rs 2330

 

SRF management team led by MD Ashish Bharat Ram, along with the CEOs of respective businesses, sounded very confident on medium-to-long-term growth prospects. While there are near-term challenges because of the destocking and price corrections, management believes that these things are transient in nature and that normalcy will resume soon. Mgmt remained committed on multi-year capex of Rs120bn for the next four years (unveiled last year) and does not foresee much delay on execution. The company has enough levers to grow business 15-20% p.a., for the next five years and intends to spend the bulk of its capex on fluoropolymers (beyond PTFE), hydrofluoroolefin (HFO), active ingredients (AIs) and intermediates in Agrochemicals, Pharma and Specialty Films viz aluminium foil and capacitor grade BOPP film. Retain ADD. 

Fluorospecialties-normalcy to resume soon: 

Global destocking in agrochemicals has been due to the easing supplies and a shift towards justin-time inventory, resulting in order deferment for SRF. While it is difficult to predict timelines, management believes that the industry has seen the worst and that normalcy would resume soon. Mgmt believes that the recovery would be visible from Q4’24 onwards, as enquires on the new products are very encouraging. While SRF only has one active ingredient (AI) from non-fluorine chemistry, six to seven agchem AIs are in the pipeline in the next three to four years. Mgmt also remained committed to ramp up the share of Pharma business from 15% to 25% in five years. 

HFCs and HFOs will drive growth in fluorochemicals: 

While capex in HFCs is largely behind, the company will now focus on monetising the same by selling HFCs across India, Thailand, the Middle East and US. It continues to believe that while the developed economies are transitioning towards 4 th-generation refrigerants – HFOs – there will be a sizeable share of replacement demand that will require HFCs. Incremental growth in the medium term will also be driven by capacity additions in HFOs, as patents will start expiring by the end of 2026/early 2027. 

Strong prospects in capacitor grade BOPP film: 

SRF is gradually derisking from conventional packaging and moving into technical grade films. Aluminium foil capacity is undergoing final trials and has recently announced Rs2.7bn capex for setting up the facility for capacitor grade BOPP film, which is targeted towards electronic manufacturing.