SRF gains from HFC strength and foil exports despite specialty chemical headwinds

Investment View and Recommendation

Prabhudas Lilladher's October 22, 2026 Q2FY27 result update upgraded SRF to HOLD from REDUCE following a sharp correction in the share price, while retaining a cautious view on the operating outlook. The broker's SOTP-based target price is Rs 2,349 per share.

• Positive factors: Strong fluorochemicals realisations, higher HFC volumes, solid packaging-film demand and aluminium foil exports.
• Principal concerns: Subdued agrochemical demand and persistent Chinese oversupply in specialty chemicals.

Q2FY27 Financial Performance

SRF reported consolidated Q2FY27 revenue of Rs 49,042 million, up 34.7 per cent year on year and down 2.6 per cent quarter on quarter. Revenue was 11.1 per cent above Prabhudas Lilladher's estimate of Rs 44,130 million and above consensus of Rs 46,000 million.

Segment Performance and Operating Outlook

Chemicals

The Chemicals business grew revenue by 25 per cent year on year, supported by fluorochemicals. Higher HFC volumes, better realisations and expansion into markets including the Middle East drove a strong quarter. However, Chemicals revenue declined 10 per cent sequentially, while segment EBIT margin contracted by 220 basis points quarter on quarter and 350 basis points year on year.

Management expects Chemicals business growth at the upper end of its 20 per cent FY27 guidance. Specialty Chemicals remains weak, although management expects volume recovery in selected pockets in H2FY27.

PVDF, FEP and FKM projects are progressing as planned, while the PTFE mix is improving towards higher-value grades. Chemours is expected to begin with one product in Q4FY27 and a second in Q1FY28, with full ramp-up expected to take 10 to 12 months.

Performance Films and Foil

The Performance Films and Foil business delivered 51 per cent year-on-year and 5 per cent quarter-on-quarter revenue growth, aided by robust demand across geographies and higher aluminium foil exports to Europe. Asset utilisation remained high, although customer procurement moderated after elevated Q1 buying.

Segment EBIT margin normalised to 9.7 per cent from 17.3 per cent in Q1FY27 because the low-cost inventory benefit was absent. Capacitor-grade film has secured key customer approvals and commercial sales are progressing. Aluminium foil is gaining export traction and moving into higher-value grades.

Management expects the existing aluminium foil project to become profitable by year-end. Battery-grade aluminium foil commands a 30 per cent to 40 per cent premium to normal foil, and management expects margins of about 15 per cent.

SRF has approved Rs 6,000 million capex for a 12,000 tonnes per annum aluminium foil facility. Phase I is targeted for September 2028 and Phase II for September 2030.

Technical Textiles

Technical Textiles revenue grew 25 per cent year on year, driven by belting-fabric exports, tire-cord scale-up and new customer additions. Segment EBIT margin expanded to 12.2 per cent from 8.9 per cent in Q2FY26.

Estimates and Valuation

Prabhudas Lilladher raised its FY28E and FY29E sales estimates by 3.8 per cent and 3.6 per cent, respectively, but made marginal EPS cuts of 0.5 per cent and 1.2 per cent.

After deducting net debt of Rs 24,521 million from enterprise value of Rs 719,828 million, the valuation implies Rs 2,349 per share.