SRF scouts for recovery in chemicals business as earnings visibility suffers

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Subscribe to enjoy similar stories. SRF Ltd's September quarter (Q2FY25) results drew a lukewarm response from the Street, with the underperformance in its core chemicals segment and muted growth in the packaging films business weighing on investor sentiment. Consolidated Ebitda came in at ₹538 crore, down 13% year-on-year, falling short of the consensus estimate of ₹631 crore.

SRF’s chemicals segment, which contributed nearly half of revenue and three-fourths of Ebit in FY24, remains a drag on the company’s earnings outlook. Segment revenue declined by around 5% year-on-year in Q2FY25, compounding the 11% fall recorded in Q1FY25. The decline was largely driven by inventory rationalization across consumer industries.

Read this | India Inc’s increasingly important growth driver: The subsidiaries The global agrochemical industry has remained under pressure due to elevated inventories and pricing challenges, exacerbated by surplus supply from China that has disrupted export markets. While SRF’s specialty chemicals business saw some traction from new products, overall volumes were constrained by inventory issues. Consequently, Ebit for this segment plunged nearly 30% year-on-year in Q2FY25, with margins contracting sharply.

The management expects specialty chemicals business performance to gradually pick-up in H2FY25 aided by a strong order book. However, it has refrained from providing revenue and margin guidance for FY25 amid a volatile demand environment. According to JM Financial Institutional Securities, with prices bottoming out and chemicals Ebit margin similar to that in FY17-19, chemicals margin should improve hereon aided by positive operating leverage.