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Informist, Wednesday, Oct. 23, 2024

--SRF sees raw material prices in chemical business stabilising, bottoming out

--CONTEXT: Comments by SRF's mgmt in post-earnings analyst call 

By Anand JC and Ayushman Mishra

MUMBAI – SRF Ltd. could perform better in the next two quarters of the ongoing financial year, after seeing subdued demand in the first half, the company's management said in a post-earnings analyst call Wednesday.

The company expects its order book to drive a turnaround in Jan-Mar. The company is getting into more complex industries and products, the management said. SRF is seeing traction for new and old products, the company said. The overall performance of SRF's speciality chemicals segment was affected by a demand slowdown in the agrochemicals market. Higher inventory levels due to subdued demand in this segment led to rationalisation and lower off-take, the management said.

SRF's management expects capital expenditure in this financial year to be between INR 16 billion and INR 18 billion. The company had previously guided for a capital expenditure in the range of INR 15 billion–INR 19 billion.

SRF is seeing a decline in consumption of hydrofluorocarbons in developing countries like the US owing to regulatory requirements, the company said in its investor presentation on Wednesday. However, it is seeing significant demand growth in markets like India and West Asia due to expanding industrial sectors and rising air conditioning and refrigeration needs.  

The company said its finance costs increased compared to the previous years, leading to higher expenses in its premium segments. However, SRF expects a reduction in its borrowing costs in the near future as the global interest rate cycle now shows downward trend, the management said.

SRF's customers have started taking a relook at their inventory positioning, the management said. Inventory positioning, which was as high as 270 days for some products, has been cut down very significantly, the company said. The management sees this happening because of the availability of Chinese raw materials, supply chain relook by customers. Availability of products was becoming a problem during the COVID-19 pandemic. As that has waned, customers of SRF now have the confidence of getting products within 30 to 60 days, the company said.

Some of SRF's legacy key products have seen the impact of price erosion, and on volume positioning to a certain extent, the management said. SRF's margin should remain in the range of plus or minus 2-3%. SRF is seeing better domestic volumes in its aluminium foil business and is hoping to export it soon enough, the management said.

The company is sitting on a larger inventory position now, which it expects to dilute in the remaining two quarters of the ongoing financial year. SRF could see more traction in its new projects in the next 12 months, the management said.

SRF's management said the company is in good shape when it comes to the development of active ingredients, but customer registration processes have been delayed. The company expects to start the business in the next 12-18 months.

On Wednesday, shares of SRF closed at INR 2,248.20 on the National Stock Exchange, up 3.2% from the previous close.  End

Edited by Ashish Shirke

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