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Informist, Wednesday, May 7, 2025

By Afra Abubacker

NEW DELHI – Specialty chemicals player SRF Ltd is likely to report strong earnings for the March quarter, aided by strong refrigerant pricing and improved volumes in its core chemicals business. Analysts expect the company to post sharp sequential gains, but have flagged that the performance might be driven by pre-emptive restocking amid US tariff worries. SRF will announce its Jan-Mar earnings on Monday. 

The chemical, packaging film, and technical textile maker's March quarter revenue, net profit, and earnings before interest, tax, depreciation, and amortisation are all projected to register double-digit on-year growth, marking a strong end to the financial year. At the core of this growth lies the chemicals segment, which contributes over half of SRF's profit and remains its most significant vertical.

As per the average of the estimates of 11 brokerages, SRF's consolidated net profit for Jan-Mar is likely to rise more than 14% on year to INR 4.82 billion. Sequentially, it is seen up 78%. The highest net profit estimate of INR 5.68 billion was by Equirus Securities while the lowest of INR 3.36 billion was by Prabhudas Lilladher.

The top line of the specialty chemical player is expected to rise almost 14% on year to INR 40.56 billion for the reporting quarter, according to consensus estimates. ICICI Securities has the highest estimate for consolidated net sales at INR 42.6 billion while Prabhudas Lilladher has the lowest of INR 36.1 billion. Sequentially, the top line is likely to rise 16.2%. 

Analysts attribute the expected surge in earnings to improved seasonal demand and pricing gains in specialty chemicals and refrigerant gases. Refrigerant gases like R-32 and R-22 have seen firm prices, supported by domestic demand and pre-emptive stocking from overseas customers ahead of the implementation of tariffs.

"The pickup in exports during 4QFY25 (Jan-Mar) may be at least partly attributable to stocking up by customers ahead of the US tariff announcement," Kotak Securities said. "A truer picture on the state of demand should emerge in 1QFY26 (Apr-Jun). Firmness in refrigerants will also help SRF," it added.

While specialty chemicals are steering the earnings growth, performance in other segments is seen mixed. ICICI Securities expects the EBITDA for technical textiles to decline 15% on year. The packaging films segment, on the other hand, is expected to post gains from improved spreads in variants such as BOPP (biaxially oriented polypropylene) and BOPET (biaxially oriented polyethylene terephthalate).

SRF's EBITDA for the March quarter is expected to rise over 22% on year and about 30% sequentially to INR 9.00 billion, as per the average of estimates.

Despite the upbeat March quarter outlook, brokerages are cautiously optimistic on the stock. While ICICI Securities maintains a 'hold' rating, citing earnings recovery, Kotak has issued a more guarded view with a 'sell' rating, citing valuation concerns and global uncertainties. "While there are a few bright spots this quarter, their shine may be partly due to stocking up by customers ahead of tariffs," Kotak said. The US accounts for 11% of SRF's exports, according to Indian Chemical News. 

Prabhudas Lilladher, which has a 'hold' rating, sounds similar caution. The US had earlier imposed 145% tariffs on Chinese goods and 26% on Indian chemical imports. However, with ongoing US-India and US-China trade talks, many goods, including some chemicals, are exempted from the new tariffs. Nevertheless, the market lacks clarity on tariffs. 

According to Prabhudas Lilladher, even if US-China trade tensions create some export opportunities for India, China may bypass these duties by routing exports through countries such as Argentina and Brazil. The brokerage also flagged risks from global competition, especially from low-cost Chinese refrigerant and specialty chemicals, and margin volatility stemming from raw material costs.  

"The addition of capacity in China and increasing chemical output in both EU27 (European Union) by 2% as well as China by 9.1% as compared to growth in India by just 1.5% in CY24 (Jan-Dec) continue to pose a threat to Indian chemical companies, impacting their performance going further," Prabhudas Lilladher said.

Shares of SRF closed at INR 3,055.70 on the National Stock Exchange on Wednesday, up 4.4%. Since reporting its December quarter earnings on Jan. 29, shares of the company have increased about 15%. 

Investors and analysts will watch out for management commentary on export outlook, capacity utilisation, and expansion plans in the upcoming earnings call to assess whether the March quarter's strong performance is a blip or the beginning of a sustainable upcycle.

Following are the Jan-Mar earnings estimates for SRF Ltd. based on reports from 11 brokerage firms in descending order by the estimate of net profit, in INR million:

End

Edited by Avishek Dutta

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