Earnings Outlook
SRF's Jul-Sept show seen muted; profit to fall for 6th qtr
This story was originally published at 18:16 IST on 21 October 2024
Register to read our real-time news.Informist, Monday, Oct. 21, 2024
By Apoorva Choubey
MUMBAI - SRF Ltd is expected to report weak earnings for the sixth quarter in a row during Jul-Sept, due to sustained demand and pricing pressures in its largest vertical of chemicals. However, the recovery being seen in the packaging films vertical is expected to boost the sales growth to a six-quarter high and lower the pace of decline in the bottom line.
The company's consolidated net profit is seen falling over 1% on year to INR 2.97 billion, according to the average of estimates from 11 brokerage houses. The projections for the company's net profit ranged from INR 2.6 billion to INR 3.5 billion.
Jul-Sept is likely to be the sixth straight quarter during which SRF reports a fall in profit after tax. The company has seen its bottom line fall over 30% on year for each of the past five quarters, due to all three of its verticals--chemicals, packaging films and technical textiles--facing severe demand pressure amid inventory reduction by customers and evolving global supply chains.
During the September quarter, the pace of decline in the bottom line will be lower than that seen over the past few quarters because of strong sales growth and some recovery in volumes, even in some divisions of the chemicals business, said analysts. SRF's consolidated net sales are likely to grow 13% on year to INR 35.3 billion for Jul-Sept, the estimates showed. The company's sales had risen 4% in Apr-Jun, after having fallen for four quarters in a row.
The chemical, packaging film, and technical textile maker's operating margin is seen falling over 100-220 basis points during the quarter. The company's earnings before interest, taxes, depreciation and amortisation margin was 19.7% in the year-ago period.
"Slower sales of agrochemical intermediate under specialty chemicals and, lower volumes and prices of refrigerants in the US have likely dented SRF's chemical business EBIT (earnings before interest and taxes)," said brokerage ICICI Securities in a preview report. Moreover, Jul-Sept is a seasonally weak quarter for domestic refrigerant gas operations, which has been a bright spot over the past few months, the brokerage said.
However, a jump in export volumes could lead to single-digit rise in sales of the chemicals vertical, even if lower product prices continue to weigh on profitability, said analysts. The company's chemicals business accounts for 45% of the total sales.
The packaging films vertical, which makes up for around 35% of the revenue pie, is seen reporting an over 20% surge in sales due to higher product prices and recovery in demand. However, the problem of oversupply in the packaging films industry persists, noted brokerage Emkay Global Financial Services.
SRF's technical textiles segment could witness a 10% on-year rise in revenues, brokerage Motilal Oswal Financial Services said in a report. The division accounts for the remainder 20% to the overall sales pie of the company.
On a quarter-on-quarter basis, the net profit is seen jumping 18%, while net sales are expected to rise 4%. The sequential improvement in the earnings would be driven entirely by the packaging films segment, according to brokerage Elara Securities. Operating profit is seen improving quarter-on-quarter also because of higher export demand.
Monday, shares of SRF closed at INR 2,277.95, down 2% on the National Stock Exchange. The company is set to report results late Tuesday. When SRF hosts a conference call with investors and analysts on Wednesday, the company's outlook for demand in the chemicals business, trends in the agrochemical industry and update on destocking by clients in various segments will be monitored.
Realisations for key chemicals will also be a monitorable, as will be the update on the demand-supply scenario of technical textile and packaging businesses, brokerage Motilal Oswal said. "While this has been a weak quarter, it is on expected lines. We remain confident of a revival in the second half of this year," SRF's Chairman and Managing Director Ashish Bharat Ram had said in a press release at the time of detailing Apr-Jun earnings.
Following are the Jul-Sept earnings estimates for SRF based on reports from 11 brokerages:
| Brokerage Name | Net Sales (INR million) | Net Profit (INR million) | EBITDA (INR million) |
| Elara Securities (India) Pvt Ltd | 36,638.00 | 3,124.00 | 6,612.00 |
| Emkay Global Financial Services Ltd | 35,600.00 | 2,600.00 | 6,200.00 |
| ICICI Securities Ltd | 34,088.00 | 2,610.00 | 6,078.00 |
| IDBI Capital Market Services Ltd | 35,020.00 | 2,925.00 | 6,385.00 |
| Kotak Institutional Equities | 36,189.00 | 3,113.00 | 6,773.00 |
| Motilal Oswal Financial Services Ltd | 35,841.00 | 3,100.00 | 6,526.00 |
| Nirmal Bang Equities Pvt Ltd | 35,154.00 | 2,965.00 | 6,571.00 |
| Nuvama Wealth Management Ltd | 34,057.00 | 2,818.00 | 6,524.00 |
| PhillipCapital (India) Pvt Ltd | 35,187.00 | 3,168.00 | 6,704.00 |
| Prabhudas Lilladher Pvt Ltd | 35,096.00 | 3,456.00 | 6,800.00 |
| Sharekhan Ltd | 35,040.00 | 2,800.00 | |
| Average | 35,264.55 | 2,970.82 | 6,517.30 |
End
Edited by Vandana Hingorani
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