Q3FY23 Review: SRF: Intensifying focus towards fluoropolymers

1 Feb 2023 , 11:00 AM

SRF’s Q3FY23 earnings were above expectations. The earnings beat was largely driven by strong momentum in Chemicals business (CB) and lower-than-expected tax rate. Packaging Films (PFB) and Technical Textiles business (TTB) margins remained soft in Q3. Expansion in margins is driven by improved product-mix within Specialty Chemical segment; management expects margin to remain steady for the next two quarters.

SRF announced capex worth ~Rs6bn towards specialty fluoropolymers, to be commissioned in 24 months. The project will be located at Dahej and comprise — PVDF, FEP and FKM — which find applications in Solar, Aerospace, Automotive and Battery Chemicals. Overall capacity of these polymers is ~4,500MT. PFB earnings remain under pressure, owing to oversupply in BOPET and BOPP. In addition to the demand-supply mismatch, the Hungary plant is also facing headwinds of elevated power costs (operating at 40-50% utilisation). 

Analysts at IIFL Capital Services raise FY23 EPS by 7%, given Q3 result beat and low tax rate. They trim FY24- 25 Ebitda by 2%, to reflect their cautious stance on CB margins (which are at highest-ever levels) and prolonged weakness in PFB.

Analysts at IIFL Capital Services maintain Add with target price of Rs 2530.