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Informist, Monday, Jan. 27, 2025

By Anand JC

MUMBAI - Speciality chemicals player SRF Ltd.'s financials for the December quarter are likely to remain under pressure as a majority of its business segments were under pressure, analysts have said. The company will detail its earnings on Wednesday. 

As per the average of the estimates of 12 brokerages, the consolidated net profit of SRF is seen at INR 2.26 billion, down 10.9% compared to the year-ago period. Sequentially, it may rise 12.1%. Motilal Oswal Financial Services' estimate of INR 2.64 billion is the highest among the reports collated by Informist, while Elara Securities (India)'s INR 1.68-billion estimate is the lowest.

Elara Securities has a cautious stance on the chemicals sector, as global chemical companies' commentaries suggest less visibility on price recovery and weak demand recovery for most segments, until Apr-Sept.

Analysts at PhillipCapital (India) expect SRF to report one of its weakest earnings shows in the last four years, as the company remains hit by demand issues in speciality chemicals and refrigerant gas, along with an aggressive new capacity-addition drive, it said in a note.

Analysts expect most chemical companies to post a recovery in sales during the December quarter on a year-on-year basis. SRF's revenue from operations for the quarter may increase 10.8% on year to INR 33.81 billion, as per analysts. Sequentially, the top line is likely to slide 1.3%. HDFC Securities expects SRF's revenue to increase 13% on year owing to a potential improvement in the packaging film and technical textile businesses.

PhillipCapital's estimate of a INR 30.13-billion top line by the chemicals company for the December quarter is the lowest amongst the 13 estimates, while Systematix Shares and Stocks' projection of INR 35.79 billion is the highest. PhillipCapital expects SRF's sales to fall 12% sequentially and around 100 basis points on year due to sustained underperformance in the speciality chemicals space, and the price pressure due to lower crude oil prices during the December quarter.

SRF's earnings before interest, tax, depreciation and amortisation for the December quarter is expected to fall 6% on year and 4.7% sequentially to INR 5.66 billion.

Elara expects SRF's EBITDA for the reporting quarter to fall 12% sequentially due to flat export demand. HDFC Securities expects SRF's EBITDA margin for the December quarter to fall 276 basis points on-year owing to margin pressure across all business segments. SRF's EBITDA margin for the December quarter of 2023 was 19.1% and for the September quarter, it was 16.4%. Systematix Shares expects the company to report a significant improvement in margin only in Jan-Mar.

SEGMENTAL OUTLOOK

Systematix Shares expects SRF's top line to get a 17% on-year boost on the back of continued momentum in packaging and technical textiles. The brokerage anticipates SRF's packaging business to gain from new value-added products, improving aluminium foil margins and some anti-dumping duties. Motilal Oswal expects SRF's packaging business to grow 30% year-on-year.

Systematix Shares sees SRF's technical textiles business benefitting from higher volumes and new value-added products in belting fabrics. Motilal Oswal expects this segment to grow 12% year-on-year for the December quarter.

Investors will keep an eye on the pace of recovery of SRF's margins in the specialty chemicals segment. The export market dynamics of fluorochemicals will also be a key monitorable, analysts have said.

Between Oct. 22, when the company reported its September quarter earnings, and Jan. 27, its shares appreciated roughly 18%. On Monday, shares of the company closed at INR 2,570.4 on the National Stock Exchange, down 0.5%.

Following are the Oct-Dec earnings estimates for SRF Ltd based on reports from nine brokerage firms in descending order by the estimate of net profit:

End

Edited by Avishek Dutta

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