SRF Limited (503806) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SRF Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar Saumya from Ambit Capital. Thank you, and over to you, sir.

Thank you. Good morning, everyone. Thank you for joining us today. We at Ambit Capital, are pleased to host SRF Limited's Q1 FY '27 Results Conference Call. We have with us today Mr. Samir Kashyap, President and Chief Financial Officer; and Ms. Sugandha Singhal, Senior Vice President, Head Treasury and Investor Relations of SRF Limited. I would now like to invite Ms. Nitika Dhawan, Head of Corporate Communications at SRF, to initiate proceedings for the results con call. Thank you. Over to you, ma'am.

Good morning, everyone, and thank you for joining us on SRF Quarter 1 Financial Year '27 Results Conference Call. We will begin this call with brief opening remarks from our President and Chief Financial Officer, Mr. Samir Kashyap, following which we will open the forum for an interactive question-and-answer session. Before we begin this call, I would like to point out that some statements made in this call may be forward-looking, and it just came on to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Kashyap to make his opening remarks.

Good morning, everyone, and a warm welcome to SRF Limited's Q1 FY '27 Earnings Conference Call. Thank you for joining us today. I trust that you've had the opportunity to review our financial results and the investor presentation shared earlier. I will begin by taking you through the key highlights of our performance during the quarter, followed by an update on each of our businesses, and we will be happy to then take your questions. The operating environment remained volatile during the quarter, shared by ongoing geopolitical developments, evolving trade dynamics and disruptions across global supply chains. Demand trends also remain uneven across some of our end markets. Despite these challenges, SRF delivered an extremely strong start to the financial year, reflecting resilience of our diversified business portfolio, the agility of our teams and our disciplined focus on execution and operational excellence. During the quarter, we strengthened our market position for technology elevation, deeper customer relationships and improved operating efficiencies. We also made steady progress on our strategic investments aimed at expanding capacities, broadening our product portfolio and strengthening the capabilities required to drive sustainable long-term growth. For the quarter ended June 30, 2026, gross operating revenue stood at INR 5,033 crores. The company's operational EBIT increased 61% to INR 1,168 crores in Q1 FY '27 when compared with the comparable period last year, translating into an EBIT margin of 22%. Profit after tax stood at INR 759 crores, registering a growth of 76% over the corresponding quarter last year. The Board has also approved an interim dividend of INR 5 per equity share. Let me now take you through the performance of our individual businesses. Our Chemicals business continues to be a key growth driver during the quarter, reporting revenues of INR 2,315 crores, representing a 26% year-over-year growth. The Speciality Chemicals business delivered a steady performance despite operating in a challenging market environment. Our continued investment technology, process innovation and cost optimization has maintained competitiveness across key product categories. During the quarter, we strengthened our innovation pipeline through the development of new AI and intermediate molecules while deepening customer engagement across both agro and pharmaceutical applications. In SCB, we are now working on various molecules that are beyond our traditional customer segments, which we believe will bring greater and better to the future of this business. Our efforts towards operational excellence were also recognized externally during the quarter. SRF received the ET Edge Bronze Award for supplier relationship management and was recognized as the ISCM Supply Chain Champion in the diversified sector. These recognitions reflect strength of our supply chain capabilities and the quality of our customer relationships. The Fluorochemicals business delivered another strong quarter supported by healthy domestic demand and robust export volumes. Higher volumes across refrigerants, industrial chemicals and photopolymers along with improved realizations has offset the impact of elevated raw material costs caused by supply chain disruptions. Our HFC facilities continue to operate at high utilization levels. We also made further progress in scaling up with an increasing contribution on value-added rates. As communicated earlier, we expect the flouropolymer portfolio to make a progressively stronger contribution as customer approvals and higher value-added rates translate into higher commercial volumes. Our strategic projects, including the proposed investments at our new site in Orissa are progressing in line with our plans. These investments in next-generation refrigerants backward integration and specialty are central to our ambition of building a globally significant flourochemicals business. First, the commissioning of our new HR plants in Odisha, we will be in the top 3 to 4 refrigerant gas manufacturers globally, thereby positioning us uniquely. While geopolitical and trade-related developments may continue to create near-term volatility, we remain confident about the outlook for the Chemicals business. Growth will be supported by healthy refrigerant demand, improving contribution from fluoropolymers, a strong innovative pipeline in Specialty Chemicals and the progressive commissioning of new capacities. Moving on to our Performance Films and Foils Business. This business reported revenues of INR 2,070 crores, reflecting a 42% year-on-year growth. The business delivered a strong operational performance across all manufacturing locations. Margins improved across regions, supported by temporary supply disruptions arising from geopolitical developments. During the quarter, we capitalized our capacitor grade BOPP film project following the successful completion of trials undertaken earlier. The project strengthens our presence in the specialized high-value segments through Capa our brand of capacitor grade BOPP films, offering excellent dielectric stability and self-healing performance, thereby enhancing reliability and extending capacitor life. Customer qualification is progressing well with approvals already secured from several leading customers. Commercial volumes are expected to ramp up progressively as additional approvals are received. The aluminum foil business also continued to gain momentum. Exports increased during the quarter, while customer approvals for value-added applications progressed further, especially in the aseptic packaging segment. These developments should support an overall improvement of product mix. Our Board has approved a proposal for setting up of a BOPET in India with a capacity of 25,000 metric tons per annum at a projected cost of INR 250 crores. This addition serves a few strategic objectives, including expanding into a new substrate where due to limited domestic capacity, there's lesser volatility versus thin film as also helping us provide a wider product offering to our customers so that we can truly become a one-stop shop for them. We intend to target high-end use cases in electrical and electronics industry and are slated to be the only manufacturer of a dedicated line, thereby setting us apart from competition. We see a 24-month time frame for this line to be commissioned. We are also progressing with our investments in additional metalizers and coating lines. These projects will enhance our value-added product portfolio and strengthen the business ability to address emerging opportunities in sustainable and specialized packaging applications. We are also encouraged by the improvement in our overseas operations. While there's been some benefit due to the geopolitical uncertainties, there has been a sustained effort to enhance product penetration in local markets, which will make the business more resilient. While competitive pressures remain in this segment, we are encouraged by the improvement in operating performance and the progress being made in scaling our newer product categories. After this exceptional performance in Q1, which was aided by supply constraints, and higher prices due to geopolitical uncertainties, we do see the performance of this business stabilizing to more normal levels in Q2. Having said that, we expect the baseline performance to be recalibrated at a higher level from here on. Our Technical Textiles business reported revenues of INR 597 crores during the quarter. The [indiscernible] Fabrics business continued to generate stable performance, supported by resilient demand across key end use segments. Optimal plant operations, disciplined manufacturing and focused cost optimization initiatives helped the business maintain a healthy operating performance. The Belting Fabrics Business benefited from improved domestic demand and robust exports to the U.S. The outlook for the business remains positive, particularly following the rationalization of tariffs in the U.S. Our focus will remain on expanding volumes and improving operating efficiencies. DIY has performed within the quarter, supported by improved share in Geotextile and seat bell segments. TTB's performance in Q2 is expected to normalize, but yet deliver an improvement versus the comparable period previous year. Our other businesses comprising quoted fabrics and laminated fabrics delivered a stable performance during the quarter. The Coated Fabrics business maintained its leadership position in the domestic market. Disciplined cost management, operational efficiencies and a growing focus on value-added products help sustain profitability. The Laminated Fabrics business also delivered a straight performance supported by product mix optimization and continued improvements across manufacturing operations. During Q1 FY '27, our CSR, the CSR Foundation continued to drive meaningful social impact of education, digital inclusion, skill development, health care and community development. The foundation reached thousands of students through Learning and STEM programs, expanded access to digital services, supported youth employability initiatives and strengthen community engagement through partnerships and government convergence, reaffirming its commitment to creating sustainable and inclusive growth. Furthermore, I'm happy to share that SRF Foundation was honored with the prestigious Pamecha Shiksha Bhushan Award for the ninth time in June 2026. To conclude, the global operating environment remains uncertain with geopolitical divestments, changing trade policies and raw material volatility, continuing to influence businesses and supply chains. Nevertheless, we remain confident in SRF's ability to navigate these challenges. Across our businesses, we are focused on improving our operating efficiencies, increasing the contribution from value-added products, deepening customer relationships and executing our strategic capital expenditure program. Our investments in innovation, technology and new capabilities are creating new growth opportunities and strengthening our competitive position. Supported by our diversified portfolio, strong balance sheet and disciplined execution, we are well positioned to deliver profitable and sustainable growth. Overall, we are pleased with the start to the financial year and remain confident about SRF's future prospects. It is important, though, to recognize that SRF business, especially the Chemicals business is highly seasonal in nature, and as has been the case in the past, we will see lower numbers in Q2 as compared to Q1. Having said that, this exceptional outcome across all our businesses in Q1 which has helped us deliver our best ever quarterly performance positions us very well vis-a-vis our goals for this financial year. This outcome is a strong testament to the resilience, maturity and robustness of our business to convert adversity into opportunity and maximize outcomes while remaining strongly committed and steadfast in our efforts to ensure the success of our customers as well. On that note, I conclude my remarks and we'll be glad to discuss any questions or comments that you may have. I would now like to ask the moderator to open the line for the Q&A session. Thank you very much.

[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities.

I got a few of them. First, on the infrastructure space in the hedge, how much land more left because the Odisha plant may take another 2 years to come? For the next 2 years, do you have enough land parcel available in the hedge facility for us to commission all the active ingredients we are working with? How are we placed on the infrastructure side? That will be my first question.

Yes, Sanjesh, we do have some space. We are reasonably well utilized in the hedge, Sanjesh, but there is still space specifically for specialty. There are structures that are available over there to expand and grow all that they need for this next 24-month period. So yes, there is adequate space specifically for specialty. And everything else that we've already commissioned on the CapEx side, those spaces are already well earmarked and work is ongoing over there. So yes, in a nutshell, enough space to cater to anything that we need to get into at least for the next 24 months at the hedge.

That's clear. Second, when do we see some of these active ingredients really getting into scale because we have been speaking now for almost 3 years, I know it takes time end market hasn't been support you. But what are you hearing from your customers? You spoke about some green shoots in the Specialty business. Are we seeing good offtake in the second half in active ingredient or it's more like an FY '28 story for us?

Yes. So even on the last call, Sanjesh, I called out two leading aspects when I talked about the green shoots. One was we were seeing volumes start to show the first signs of recovery. I think through the last year, you heard the commentary from SRF been very clear around protecting share. That was the primary focus. I think that's paid off well over this time, while it's been a very difficult journey as we saw the price destruction around that. But nevertheless, I think we've done a fabulous job of holding on to share. That's number one. So we are starting to see volumes over a little bit through last quarter and this quarter as well, start improving -- the trend is upwards. So that's the first time. And I think the second, which is probably one that has you all more concerned around price and at least across key products at this point in time. We are finally starting to see price trend marginally upwards in the right direction. We've seen some volumes also given your specific question on what we're hearing from customers. So with the speed in Q1, while there has been some opportunistic buying as well, I think through specific pockets where we have kind of stayed by the customer size through this journey, we are starting to see support from them on the volume side, and we're seeing uptick over there. So I think that's the basis and genesis on my opening comments around volumes starting to look better. So that's -- it's still early signs. It is in pockets. So I wouldn't say it's a broad-based improvement just yet. But first signs directionally building on, I think, what I shared with all of you when we did this call in May.

Got it. That's very clear. Very helpful. One last question on the Fluorochemical business, which is our refrigerant gas. The prices appears to be very strong and sustaining. And thanks, they were very harsh summer this year across the world. But do you see these pricing trends sustaining at the level what we saw in the last quarter or post this season over, have you seen some softening of the prices?

Sanjesh, you probably recollect from the previous call as well, there was this whole concern around AG pricing through this year. Our broad commentary was we expect as gas pricing broadly to stay at the levels they were only get better from here. I think what you've seen in Q1 is a testament to that view that we had. I think that we are playing out well. Having said that, I think we all do know Q2 and Q3, specifically from India and Middle East standpoint is weaker versus Q2, even from a volume standpoint. Forget just price, from both standpoints, it is softer. So we will see that come off a little bit. But I think we are very clear that we will see strong growth versus last year Q2, overall on gas. It's done outstandingly well in Q1, and we'll continue to do so I think through the rest of this year for a bunch of different reasons that we've talked about multiple times in the past.

Best of luck for the coming quarters.

Thanks, Sanjesh.

The next question is from the line of Jason from IDBI Capital.

Sir, first question just pertains to I mean the Performance business has basically performed very, very well in this quarter. So just wanted to know what could be the reason for this? Is that such a strong outperformance in this quarter, especially from the Performance Films business.

Yes. So I'm not sure if you had joined our call in May, but I had kind of put the seed in all of your minds that contrary to what you are all hearing around strikes and grief in the Packaged Films business. We were going to -- we were going to do well. I think I talked about the fact that we had robust supply chains that were holding up despite everything happening in the Middle East. So I think all of that is what is really panned out in Q1. So let me try and give you a few broad indicators on what kind of drove the Q1 performance. So in a way, the war has helped us, said very simply, right? I think the rest of the world were shutting plant, capacities were going off stream. And like I told you on in the previous call as well, we were operating flat out 100% capacity. And that's really just points to the fact that we did not have domestic reliance on raw material, the fact that we operated in a DTA unit, the fact that we source globally and ensure that our raw material supply chains were very robust. So one, that ensured we were operating right through this entire quarter. And like I said, we've pretty much operated flat out. So that's factor number one, especially, I think when you contrast us with the competition, we will stand out and show up differently on that account. I think the second piece is there was a whole period where there was a lot of panic buying by a bunch of customers at that point in time. And we have shared at different points in time that we've tried to manage this journey of price volatility effectively by customers because we also realize that at some point, we're going to correct as well and we want to manage that downturn equally effectively. So we've tried to be rational about pricing. But having said that, prices had significantly improved because of panic buying. So those pretty much are two big drivers for what happened in Q1. Yes, I think the [indiscernible] comes down to the efficacy with which we could operate and ensure we could deliver product to customers reliably, which was significantly impacted during this period.

And sir, my next question just pertains to -- I mean, we do agree that there are some green shoots in the agri cycle. And so slowly, volumes seem to be coming back and that recovery is there. Now with the even prices of [indiscernible] also pretty strong. Just wanted some color on how we are going to grow the chemicals business. What are the big strong growth driver of this business going ahead? Just wanted some color -- more color on that front. Probably you can highlight some factors from the pharma piece as well, which you're slowly trying to grow. So could you give us some color on what are the growth drivers for the Chemicals business going ahead?

Yes, sure. So a broad guidance on Chemicals for this year was that we could grow 15% to 20%. We continue to hold that guidance. And I think the Q1 outcome positions us outstandingly well to deliver that well. We've delivered a 26% growth in that portfolio. I think very, very solid start to the year. The fact that RG pricing has helped as well as it has to Q1, our expectation is yes, we go through the cycle of Q2 and Q3. But overall, for this year, I think the overall number is looking very good, both from a volume as well as a price standpoint. I think everything around quota and all that will happen through December. We'll also drive a set of outcomes, which will be significantly positive for the gas business. For the longest time, we said this. And I know people kind of look at it differently, maybe from a market standpoint that the time for gas has arrived. We're saying this a little while now. I know a lot of people look at it differently, and that's fine. But I think what you're seeing in our results is that part of the portfolio to be shining at this point in time. And delivery to a plan that I think we put in motion some time ago. So that will continue to be a big driver. We continue to hold the overall growth range that we've set for the year. I don't think directionally, we're moving away from that range. Hopefully, we will eventually land at the higher end of that by the end of the year, given how strong Q1 has been. In terms of Pharma, since you asked about that specifically, we -- I said this before, but I repeat it again. We have a stated goal to be the 26% range of revenue by 2030. We are progressing well on that journey. We've had a strong outcome in the last couple of quarters in growing that share. It is baby steps. And in the larger scheme of the numbers, it kind of obviously doesn't just show up as yet. But I think to give you some more color what is positive on that front to this quarter is we are working on a larger number of molecules with a set of customers. The number of customers we are working with is also growing. So when you kind of put that together, you're in a matrix of sort where the likelihood of trade improving has only gone up because you've just increased both the universe you're playing in and the number of molecules that you're playing in. So when one of these comes to real fusion in terms of to large quantities that matter, I think we'll start seeing some de-function changes. At this point in time, those volumes are smaller. And in the larger scheme of things, and overall chemicals business doesn't really show up. But yes, that's some additional color on the pharma sector for you.

Sir, just one thing.

Sorry to interrupt you, Mr. Jason. Can you please rejoin the queue for follow-up questions. The next question is from the line of Arjun Khanna from Kotak Mahindra.

Congratulations on a great set of numbers. Sir, the first question is just in your comments, you did allude to probably the second quarter being sequentially weak. Just for my understanding, year-on-year, we don't see because seasonality would be second quarter previous year also, you are specifically referring to sequentially Q1 to Q2. Is that the right understanding?

Yes, Arjun. Absolutely. You've got the spot on. So year-over-year, we will see growth. Sequential quarter Q1 has been fairly obviously a kind of a blowout in terms of outcome. So yes, versus that, there will be a correction. But versus last year, we will see growth.

Sure. The second query, sir, is regarding, say, the aluminum foil piece, essentially, our packaging piece has been expanding. Now this quarter margins are significantly higher, but when you all look at a sustainable level, so EBIT moved from maybe 10% to 17% this quarter. What would you believe the sustainable levels to be for this piece for the remaining part of the year?

Without giving you a specific number, let me just give you some color, Arjun. At a structural level, I think we are doing a bunch of different things in aluminum, okay? We have kind of significantly now managed to deliver progress and push to be more export-oriented versus the past. So directionally close to half the volume or maybe a bit more kind of actually moved into Europe. So that's kind of given us a good bump up in terms of being in a different market, number one. Number two, we are participating in areas where traditionally we weren't in terms of product end use, and that's giving us better realization from a price standpoint. Yes, there was a big spike in the aluminum price points anyway. Earlier this quarter, more or less, I wouldn't say entirely rationalized out, but yes, they had lower levels versus the peaks that we saw. But there is that impact, too. But having said that, I think the most important piece, I mean I think we spoke about this in press release that we put out yesterday is we are making some very strong progress on the aseptic packaging side, working with a bunch of leading players. There's very significant progress that has been made thus far. And early next fiscal is things -- all things go well, we're in stages of testing at this point in time. But if all things go well on that front, it could mean opening up a completely different segment and space of revenue for ourselves.

Sure. So when we had announced aluminum, we had said we may look at expansion. If you could comment on where we are on that thought process? And two, what's the outlook on BOPET and BOPP at this point in time? I'll come back for questions later.

Yes. So I don't think we're getting into expansion on aluminum just yet. We are pretty much right now more focused on where product goes out to in terms of markets, like I said, our focus is to build on that export share as time comes, and we are ready. I cited [indiscernible] ample space for us to be able to expand. I think right now, the focus remains around moving to higher grade foil and better use cases and applications, so like I like what I spoke about around septic. Once we've kind of gone past those gates, I think is the point where we will start thinking about potential capacity expansion. At this point in time, there isn't anything on the calls that we're talking about. So that's the answer on oil expansion. Outlook on BOPET and BOPP, like I said in my comments on the previous question, we saw disproportionate pricing in Q1 just because of all that is happening in the Middle East. I wish I could crystal barge this tell you what is going to happen in the Middle East crisis. You guys are probably a better charge of that than I am. But the uncertainty in a sense kind of helps because that does keep crude oil prices at a certain level. So we see crude in that 70-ish range. And if it kind of holds over there, I think we were on from past that, that bodes well for plastics pricing in general. And that's the way we see it panning out. So yes, there will be a connection. I don't think we will see numbers that look at crazy as Q1 heading into Q2. But we don't see a steep either.

Sure. Very helpful. Just on the PTFE, we were talking of scaling up. Are we -- I mean, there is a comment in the presentation on the same. But if you could throw some more color on that.

Yes, sure. So we've been talking about moving into higher grades for some time. So that work on even just the base PTFE side is progressing well. The last call, we talked about some small CapEx that we were making over there on the PTFE front to come get to those higher grades. So that's kind of on track and progressing well. Our PVDF plant is set to be commissioned towards the end of this quarter. So that's all on track too. On Chemours, we are happy with the progress that we've made. CMOs requested a few design changes in the plant. And they also Chemours very specific in terms of expectations they have on the equipment. So there are some pieces where there are only specific manufacturers of that equipment in Europe that Chemours let you work with. That added a little bit to the time line. It's nothing huge that is moving out. So a couple of months here or there, 3, 4 months versus the December time lines where [indiscernible] could kind of move out a little bit. But at this point, from everything we have from Chemours, they are very happy with the progress. The only thing that's kind of moving the time line marginally outwards is the design piece that they want us to incorporate to make the plants more effective and to bring in this equipment from Europe.

The next question is from the Naushad Chaudhary from Aditya Birla.

Two questions. Starting with the electronic grade sales, capacity and collector grade, where I believe we are committing roughly INR 520 crores of Capex. Can you elaborate a bit more on this? What is the TAM size for these two grades could be in the next few years? What are the key drivers here? And the economics of the grades, things are different than versus our core packaging a business, especially in terms of margin profile and volatility.

Okay. So in terms of capacitor, like I said, we capitalized earlier in the quarter, trial runs are done. We're in the stage right now where we are working with a set of customers on satisfying quality parameters. Testing on the capacitor side is significantly more extensive versus vanilla fill, as you can imagine. So those time lines are where we are right now in terms of the middle of testing, so to say. We have -- we are expecting to start seeing some early state revenue towards the later part of this quarter. And by Q1 or Q2 of next year is when we think we should be close to full capacity. That's kind of the outlook that we have. Pricing on capacitor film is significantly better than vanilla film. So it is only going to be accretive to margins for the films business. You've heard us say this in the past, kind of our whole desire to move up into the value-added chain. And a step-in capacitor is clearly in that direction. It is significantly better in terms of pricing versus Vanilla film, like I said earlier. And presently, there are a large set of players in India, producing the set of film for the electronics industry. So there's a lot of customer interest and demand and that universe of who we are working with is only growing at this time. There is a fair amount of early acceptance that we've reached with the set of customers as well. So strong momentum on all of those fronts and getting through those check posts at this point in time.

And initial study and sense in terms of the economics and volatility of this piece of business versus the base business? Would it be similar? Would it be better?

I don't think we see as much volatility. That was part of the rationale being in play. So if you go back to what we've been saying for a few calls, the broader strategy right now of the packaging film side of the business is really to go and derisk ourselves from the volatility of the consuming. So everything that we are doing in every value-added play, whether that is around metallized product, whether that's an unquoted product, whether it is what we're planning to do on a BOPET capacitor and even some of the new initiatives that we announced, including the new CapEx that the Board approved yesterday are all steps in that direction. So the reason we are embarking on the journey is early to derisk ourselves from the cyclicality of polyester pricing. And this is another initiative on that front. We don't see the cyclicality to be as volatile as what you are probably imagining and as compared to thin film.

Sure. Second question on the --

Sorry to interrupt you, Mr. Chaudhry, but I request you to rejoin the queue. The next question is from the line of Rohit Nagraj from 360 ONE Capital.

Congrats on a strong quarter. Sir, first question on the AI front. So the 67 AIs that we had -- we have in at part of them commercialized. Where are we in terms of the journey from revenue recognition given that at peak, we were expecting something like $400 million, $500 million of revenues. So how many have commercialized, what are the stages and maybe some milestones in terms of reaching that $400 million, $500 million of revenue?