A researcher handles apparatus inside a laboratory. (Photographer: Gilles Sabrie/Bloomberg)

SRF Surges On Strong Growth In Packaging And Chemicals Business

Shares of SRF Ltd. surged nearly 12 percent in the last five days after sales of its key packaging and chemicals business jumped the most in at least five quarters.

Packaging and films revenue surged 52 percent year-on-year in the quarter ended June, led by new capacity addition and a favorable demand-supply situation in the BoPET (biaxially-oriented polyethylene terephthalate) polyester films division, according to the management’s conference call.

Chemicals’ revenue jumped 34 percent on higher volumes of the fluorochemicals business, driven by demand for refrigerants from automakers. The technical textiles segment revenue, however, fell 1.2 percent over the same period last year.

Higher realisations from polyester films and value-added products aided margins. The chemicals business reported a marginal rise, while textiles and polyester yarn margins expanded on higher volumes and cost cuts.

Capex Drives Interest Costs Higher

Apart from setting up a BoPET films manufacturing unit in Hungary for €60 million, the board approved an investment of another $60 million to set up a second BoPET film line and a resin plant in Thailand with an annual capacity of 40,000 million tonnes per annum.

The capacity addition will elevate SRF into one of the top 10 polyester film producers globally. The company’s management, in a conference call with analysts, guided for a capex of Rs 750-800 crore in the ongoing financial year though March 2019. The expansion will be funded through a mix of debt and retained earnings.

Concall Takeaways

  • The management remains bullish on the growth prospects in the specialty chemicals business, guiding for a 40-50 percent increase. That will be driven by a recovery in agrochemicals and new products in the second half of 2018-19.
  • Strong growth in demand in Europe to aid BoPET division; but supply overhang to dent margins slightly.

Also read: Why Chemicals Maker SRF’s Shares Fell To A Seven-Month Low