SRF: Growth prospects intact amid concerns

27 Mar 2023 , 10:14 AM

Recommendation: Add

Target Price: Rs 2,530

The elevated pricing for Refrigerants has not yet seen any meaningful correction. In India, R32 is seen to go up by ~30Ktpa (of which SRF is adding 15Kt), to be absorbed in domestic market.

Positive outlook on Fluorospecialties

Fluorospecialties business continues to experience strong traction and would be driven by investments into new projects, for the next three to four years. SRF is on track to outperform its guidance of 20% for FY23. Although there are concerns around El Nino and inventory the order book remains strong. Further, new enquiries remain strong and continue to provide enough growth visibility. The company has announced capex plans totaling to ~Rs10 billion over the last two quarters, which are expected to be commissioned over the next 10-12 months. Thus, revenue contribution from these plans is expected to drive growth from H2FY24 onwards.

No meaningful correction in Refrigerant prices yet

The elevated pricing for Refrigerants has not yet seen any meaningful correction. Management expects global regulations around phase down of Refrigerants to help in firm pricing, as supplies get curtailed. Work is ongoing to expand refrigerants capacities from 78.5Ktpa to 101Ktpa. Besides, capex of Rs5.5 billion incurred for 15Ktpa R32 also includes investments towards new AHF capacity and is on track to get commissioned by July 2023.

PFB and TTB to remain sideways

PFB margins will remain under pressure, owing to oversupply in BOPET and BOPP. Nevertheless, SRF is likely to do better than the industry, thanks to its higher exposure towards value added products. Within TTB, SRF has no plans as yet to make investments towards setting up of new capacities, unlike peers such as Century Enka (adding 8Ktpa NTCF capacity by Q4FY23). SRF’s strategy has been largely towards modernization of plants.