SRF

Downgraded to Equal Weight Amid Global Headwinds

reported a mixed Q3FY26 performance. Strong traction in the chemicals business offset weakness in performance films and technical textiles. While medium-term growth drivers remain intact, near-term challenges from Chinese competition, US tariffs, and valuation concerns limit upside potential. Chemicals Business - Accounts for 50% of sales in Q3FY26; grew 22% YoY. - Growth driven by firm pricing of HFC refrigerant gases and better volumes. - Domestic demand improved post prolonged monsoon; global prices supported by China’s quota restrictions. - Specialty chemicals weaker due to deferred agro purchases and Chinese pricing pressure. - Management expects sequential improvement in Q4 as raw material prices bottom out. Performance Films - Accounts for 37% of sales; impacted by GST 2 disruptions requiring resizing/reprinting of packaging films. - Thailand and Hungary operations pressured by cheaper imports. - Aluminium foil business provided partial offset with better volumes and realisations. Technical Textiles - Continued impact from Chinese dumping in belting fabrics. - US tariffs further weighed on export volumes. - Near-term outlook remains subdued due to aggressive Chinese pricing. Capex & Strategic Initiatives - Odisha site investment: ₹282 crore for land at Tata Steel SEZ for future chemical facilities. - Target industries: semiconductors, automotive, aerospace. - FY27 capex guidance: ₹1,500–2,000 crore, in line with FY26 outlay. - Includes ₹180 crore pharma intermediate plant with ~8-month timeline. - Plans to invest in next-gen refrigeration gases, aligned with Kigali agreement restrictions. Valuation & Outlook - Stock trades at 18.4x EV/EBITDA FY28e, considered premium. - Benefits from refrigerant gases expected to sustain, but near-term concerns from China and US tariffs weigh on sentiment. - Recommendation downgraded to Equal Weight; investors advised to wait for better entry levels or easing of global headwinds.