Incorporated in 1970, SRF commenced operations with nylon cord tyres and, thereafter, diversified into refrigerant gases, speciality chemicals and packaging film, as a few examples over the years.
SRF: Capacity expansion to expand revenue visibility over the long term
• Chemical division forms 43% of the overall revenue followed by packaging film (39%), technical textile (15%) and others (3%)
• The company exports to more than 90+ countries. The revenue from the international market constitutes 57% of the overall revenue while the rest is from the domestic market segment
On 21st July 2022 company received an approval for the project for capacity expansion and modernization of Belting Fabric Operations at a cost of Rs. 162 crores.
Venturing into PTFE through backward integration of R22 diversifies business risk, to a certain extent. A prudent strategy to increase presence across other fluoropolymers can expand revenue visibility meaningfully over the medium to long run.
Continuous capex towards speciality chemicals on the back of higher consumption of fluoro compounds across agrochemical and pharma supports strong business performance in the years to come.
On 21 July 2022 company got the approval for a project to set up a new and dedicated facility to produce advanced intermediates for Agrochemicals at Dahej at a cost of Rs. 250 crores. SRF has a project to set up a new and dedicated facility to produce agro and pharma intermediates at Dahej at a cost of Rs. 72 crores with an additional capacity of 915 MTPA.
Key financial ratios
Segment overview speciality chemical business
Speciality Segment delivered a healthy performance driven by robust demand for flagship products. Downstream derivatives also registered good growth leading to better sales New product additions further supported results. Launched 1 new Agro product in Q1 FY23. New product development funnel at optimal levels. Commissioned a state-of-the-art multi-purpose production facility (MPP4 plant) at Dahej. Newly commissioned capacities are being progressively ramped up.
Segment in structurally strong space. Better realisations and steady volumes witnessed across HFCs. HFC facilities operating at optimal utilisation levels. Dymel® HFA 134a/P (pharma grade gas) continued to do well and reported significant growth of Healthy contribution from chloromethanes aided performance.
Packaging films business
Segment registered strong results on account of BOPP Films delivering healthy performance. Increased sales from Value-Added Products (VAP), further enhanced overall performance. Continued focus on efficiencies and cost competitive procurement to ensure the Company remains one of the lowest-cost producers in the world Bolstered the segment’s mantra of ‘Easy to Do Business With’ to strengthen its position as a major player in the global packaging industry.
Focus on enhancing quality and delivery of products to increase engagement with multinational customers, now present in over 100 countries. Sudden RM price correction – hopefully bottomed out As a market leader, the Company is driving sustainability initiatives and is working towards innovating films that have a lower environmental footprint BOPP Film line at Indore, India expected to be commissioned in Q2FY23.
BOPET films likely to witness inventory impact due to sharp drop in RM prices Several new BOPET lines are scheduled to commence globally – to impact industry margins in the future. Demand is trending towards global suppliers with multi-locational facilities. Energy prices in Europe remain a challenge, at their Hungarian facility BOPP likely to remain healthy.
Coated Fabrics SRF continues to be a leader in the domestic market with a focus on increased sourcing initiatives and superior operating performance After two years of the pandemic, the segment witnessed strong domestic demand Domestic demand for Coated Fabric is expected to remain healthy with good monsoons and resumption of events and outdoor activities Laminated Fabrics SRF maintained its price and volume leadership with the plant operating at full capacity in Q1 FY23 and achieving its highest-ever sales when compared with CPLY Realizations in this sector were adversely affected due to the ongoing surplus supply scenario.
Consolidated Q1FY23 segment results
The chemicals business reported an increase of 55% in its segment revenue from ₹1,114 crore to 1,722 crore during Q1FY23 over CPLY. The operating profit of the Chemicals business increased 134% from ₹222 crore to ₹520 crore in Q1FY23 over CPLY.
During the quarter, the fluorochemicals business performed exceedingly well owing to higher sales volumes in the refrigerants, pharma propellants, and the blends segments with better sales realisations, especially from the export markets. In addition, healthy contribution from the chloromethanes segment augmented the overall results.
The specialty chemicals business performed well on account of strong demand for flagship products and the downstream derivatives. New products are gaining significant traction, resulting in SRF’s capital expenditure plans for the business being robust.
The packaging films business reported an increase of 44% in its segment revenue from ₹1,041 crore to ₹1,496 crore during Q1FY23 when compared with CPLY. The operating profit of the Packaging Films Business increased 25% from
₹237 crore to ₹295 crore in Q1FY23 over CPLY. During the quarter, the business witnessed a slight slowdown in demand for BOPET and BOPP films, which impacted the overall margins. However, their customer centric approach of ‘Easy to do Business With’, coupled with enhanced sales of Value-Added Products (VAPs) contributed positively to the overall performance.
The technical textiles business reported an increase of 16% in its segment revenue from ₹493 crore to ₹571 crore during Q1FY23 over CPLY. The operating profit of the Technical Textiles Business declined 13% from ₹134 crore to ₹116 crore in Q1FY23 over CPLY. The business has performed in line with expectations with increased export volumes from the Nylon Tyre Cord and Belting Fabrics segments.
The other businesses reported an increase of 97% in its segment revenue from ₹54 crore to ₹106 crore in Q1FY23 when compared with CPLY. The operating profit of the Other Businesses increased 250% from ₹2 crore to ₹7 crore in Q1FY23 over CPLY. Both the Coated and Laminated Fabrics business performed well in a difficult external environment.
Company is all set to cater the rising demands in various segment with huge capex plans. Chemicals business remains strong, and company believe the investment intensity will increase in this segment. While their Packaging Films Business performed very well and is expected to grow constantly in long run.
Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.
Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar