Fundamental Radar: SRF good bet in chemicals space as earnings bottom out, says Sandeep Raina
SRF is one of the leading multi-business chemicals conglomerates, engaged in the manufacturing of industrial and specialty intermediates.
The chemicals business faced challenges in the last few quarters amid a seasonal dip in demand for refrigerants and inventory destocking in agrochemicals and order delays.
This weighed on the overall earnings of the company, as operating profit slid 31% in the December quarter, with margins contracting a sharp 900 basis points in the chemicals business and by 575 bps in packaging business.
However, Nuvama Professional Clients Group believes that earnings downcycle has bottomed out, and the company should start seeing a recovery in the ensuing quarters.
“We believe the chemicals business shall witness a recovery as management has guided for a strong recovery in Q4 FY24 after a 9-10% decline in speciality chemicals in 9M FY24,” said Sandeep Raina, executive vice president — research at Nuvama.
After two years of lull, the sector prospects have improved and are looking interesting, Raina said, adding that refrigerant gasses demand is likely to see a recovery.
New launches and a gradual pickup in demand from agrochemicals, coupled with a resurgence of deferred orders would drive growth. Growth in fluorochemicals would be aided by domestic passenger vehicle and room ACs. Additionally, the freeze on hydrofluorocarbon (HFC) production in China is likely to contribute to growth, Raina said.
Amid uncertainty, SRF has continued with capex in speciality chemicals (estimated Rs 18
