More Stories

Informist, Tuesday, Oct. 22, 2024

By Apoorva Choubey 

MUMBAI – SRF Ltd. reported an year-on-year fall in its consolidated net profit for the seventh quarter in a row, as sustained pricing pressures and muted demand continued to hurt the company's largest vertical of chemicals during Jul-Sept. The company's bottom line and revenue belied the Street's expectations, as the sales growth in all three segments of chemicals, packaging films and textiles lagged projections, at a time when raw material costs shot up. 

The company's consolidated net profit fell 33% on year to INR 2 billion, missing the average expectation of INR 2.97 billion. The company has seen its bottom line fall between 25% and 50% 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, SRF's consolidated net sales rose 8% on year to INR 34.2 billion. Analysts had projected a topline of INR 35.3 billion for Jul-Sept.

Even as the sales growth was lower than expectations, it was the sharpest in eight quarters. The company's sales had grown 3% in Apr-Jun, after having fallen for four quarters in a row, which had been preceded by two quarters of single-digit growth.  

SRF's Chairman and Managing Director Ashish Bharat Ram believes the worst is behind for the company. "While the performance this quarter has been expectedly subdued, I believe the worst is now behind us. We will start seeing an improvement from this quarter onwards with a likelihood of a strong finish to the year," he said in a press release. 

Shares of SRF extended losses after the company's weak earnings. The stock closed 4% lower at INR 2,178.10 on the National Stock Exchange Tuesday.  

VERTICALS 

SRF's biggest vertical, chemicals, saw revenues slide 5% on year to INR 13.58 billion for Jul-Sept, while the operating profit of the segment tanked 29% to INR 2.5 billion. Analysts had expected a rise in sales of the high-margin chemical business. The segment accounted for 40% of SRF's total sales compared with around 45% in the previous few quarters. 

During the quarter, the specialty chemicals business experienced traction in certain new products, while volumes of some key products witnessed lower offtake due to inventory reduction by clients. The fluorochemicals business saw healthy performance in the domestic market, with an increase in overall volumes. However, lower export realisations put pressure on margins.

Overall, the order book remains strong for Oct-Mar, and a better performance is anticipated in the second half of the financial year, compared with the first half, the company said. The Oct-Mar performance of the fluorochemicals business is also expected to be better as volumes in export markets ramp-up and the domestic season kicks in.

The other key vertical, of packaging films, witnessed a jump of 27% in revenues to INR 14.2 billion, while operating profit rose 7% to INR 830 million. Some analysts had expected the segment to report an even better performance in Jul-Sept. 

The packaging films vertical made up over 41% of SRF's sales, compared with 35% typically. The segment was impacted due to dumping in Thailand by China, even as some film margins improved somewhat in India. The problem of oversupply in the packaging films industry persists, some brokerages had noted recently, including Emkay Global Financial Services.  

The technical textiles business reported a 6% rise in segment revenue to INR 5.4 billion for the September quarter while its operating profit fell 5% on year to INR 710 mln. The Street had expected a 10% rise in sales from this segment. 

The division performed well owing to higher sales volume of its flagship nylon tyre cord fabric. Additionally, the segment witnessed healthy demand for its polyester yarn segment, while the belting fabrics segment witnessed low demand and margins, which had some impact on the overall performance, SRF said.   

The other businesses reported an 11% fall in revenue to INR 1.1 billion while the operating profit of the segment crashed 48% on year to 170 million. During the September quarter, the coated and laminated fabrics segments performed in line with expectations, the company said. 

OTHER METRICS 

The chemical, packaging film, and technical textile maker's operating profit, defined as earnings before interest and taxes, fell 22% on year to INR 4.2 billion. The surge in raw material costs, which account for 60% of total expenses, weighed on the operating profit for Jul-Sept.

SRF recorded the sharpest rise in raw material costs in nine quarters during the September quarter. The company shelled out INR 18.9 billion towards raw materials, 22% higher than a year ago. Total expenses surged 14% from a year ago to INR 31.7 billion, while tax outgo fell 28% to 822.4 million. Employee costs increased 12% to INR 2.5 billion. 

On a quarter-on-quarter basis, the net profit fell 20%, while net sales declined 1%. The sequential improvement in packaging films segment was not enough to offset the weakness in the chemicals segment. 

For Apr-Sept, SRF's consolidated net profit fell over 31% from a year ago to INR 4.54 billion. Revenue rose nearly 6% on year to INR 68.88 billion.

The company's board has approved the establishment of production facilities at Dahej for fourth-generation refrigerants, which have a notably lower global warming potential and carbon footprint, at an estimated cost of INR 11 billion. The project is anticipated to be completed in about 30 months.  

The company will also set up a manufacturing facility for BOPP or biaxially oriented polypropylene and BOPE or biaxially oriented polyethylene films in Indore, India. This capacity addition aligns with the company's sustainability agenda, as polyolefin substrates are considered more sustainable. The cost for this project is INR 4.5 billion. It is expected to be operational in approximately 25 months.  

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.  End

Edited by Akul Nishant Akhoury

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.