Q1FY24 Review: SRF: Weak results, guidance under review

26 Jul 2023 , 03:36 PM

SRF’s Q1FY24 earnings were dragged by weak performance in the Chemicals and Packaging Films business. Chemicals segment was under pressure due to weak Refrigerants, while Specialty Chemicals posted ~10% YoY growth. Packaging Films is in the midst of cyclical slowdown and will take time to recover. Given the volatile demand environment across business segments, management remained non-committal on its full-year guidance and intends to wait it out till Q2FY24. While remaining positive on the medium-term growth prospects, analysts of IIFL Securities expect near term to remain challenging. Therefore, analysts of IIFL Securities cut their FY24-25 EPS estimates by 11-8%, on the back of headwinds in the Chemicals and PFB segments. Analysts of IIFL Securities revised SOTP-based TP, rolled over from Jun’25 to Sept’25, comes down to Rs2,490 (from Rs2,625). They will wait on the sideline for a better entry point.

Weak performance by Fluorochemicals: 

Chemicals business revenue declined 3.6% YoY, due to weak performance in the Fluorochemicals business. Weak demand in domestic market and excessive dumping from China created headwinds for both volume and price. However, management was confident of volume recovery in 2H’24, mainly led by USA. The Specialty Chemicals business performed well and grew by ~10% with healthy margin. This was despite inventory rationalisation by customers and some orders getting rescheduled. Current inventory rationalisation is expected to last for the next 2 quarters. 

Packaging Films continue to remain under pressure: 

PFB profitability remain under pressure due to significant supply glut in both BOPP and BOPET. Falling commodity prices have led to inventory corrections. Management expects the down-cycle to continue over the medium term, until demand-supply situation normalises. 

Growth guidance under review: 

Chemicals business — the core earnings and value driver for SRF to face challenges, on inventory rationalisation and orders getting deferred in the near term. Management too remained non-committal on full-year guidance of ~20% growth for the Chemicals segment and intends to wait it out till Q2FY24. Though TTB is steady, prospects for PFB remain weak at present.