SRF Limited analyst Q&A

The first question is from the line of Nitesh Dhoot from Anand Rathi Institutional Equities.

My first question is on the agrochemical capex of INR250 crore, that's for 12,000 metric tonnes. So, assuming 1 point per metric tonne, this appears to be a sub-$3 product. Can you give some colour if it's an existing product or a new product? And if you could also clarify any particular reason for capex in lower value products?

Okay, here’s how we’re looking at it . While 12,000 is the rated capacity, actual capacity will ultimately depend on the base product mix. As we move up the value chain and focus on more differentiated products, the actual capacity will vary. This shift is something we believe is essential. So therefore, while 12,000 will be nameplate rated capacity, which is a requirement to be given, the idea here is to not set this up as just that product . It is a requirement for a very large product, and the assumption of 1:1 may not be correct on this side. And therefore, we believe its set up the foundation for the future for us.

But is this an existing product? Or is it a new product completely?

For us, it is a new product completely. We've not done this in the past.

Okay. So, on the capacity utilization, the current capacity utilization in R32 and what will be the likely exit rate for FY26? And if you could give some outlook on the R32 prices. What we heard from the channel is that there has been some softening in prices in th e domestic market. If you could just give some colour there.

Two or 3 questions together, Nitesh. The first one about capacity. Our current capacity utilization is pretty much as much as the rated capacity that we have on the table, so that's effectively full capacity utilization. From FY26 exit perspective, our target is to continue this at that level. From a pricing perspective, you have to also understand that pricing of this is also a function of the current demand and supply. There is always the seasonality that prevails within the R32 or overall HFC position. Also, that is your channel check in terms of what the pricing is, either lower or higher. We believe that the pricing is strong , and given overall market conditions, it is likely to remain that way.

Sure. So just one last question on packaging films. So typical equipment ordering to plant commercialization would typically be around 24 months, right? But are there any other faster routes also, asking this in context of the recent supply disruptions that happened in the industry, and also if you've seen any increase on the BOPP import side since the incident?

So, 2 things, Nitesh. I think in the BOPP segment of Performance Films and Foil business, what you are saying in terms of supply situation is right. But there are no other routes. You will have to buy the machinery from the 2 global suppliers. If it is BOPET or BOPP, there are 2 large global suppliers being Brückner and Dornier. So that's how it works out, no shortcuts around it. The second question was with respect to the overall situation in terms of the supply on BOPP , yes it remains tight. India will be short from an overall perspective. The incident that happened is roughly about 25% of the India production capacity, so India will be short and therefore, there will be a need for some imports as well.

The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.

Congratulations for a great set of numbers. Sir, I have few questions. The first question is on the N2, N3 regulation for the MHCV side, we have referred to that in a market trends part of it. In terms of R134a, my understanding is we are the sole HFC manufacturer of this gas in India. Is this correct? And what would your market share be at this point in time?

Sure. And just in terms of pricing, while you did allude to R32, given with this regulation, do you see a step-up in terms of demand? And since it's already in the system now, are we seeing benefits from the same?

Roughly speaking, I would say it should start to see demand positive in 2026 and not in the current year from R134a perspective.

Okay. Sure. Fair. The second one is on the PTFE and the aluminium foil. So, these have been recent projects by us. We were expecting a ramp-up in FY26. If you could comment on both of them, please?

On the aluminium foil, we said in the press release as well, that the ADD that has been levied for 5 years is a positive. We are starting to see traction on the aluminium foil in the domestic market. Our overall goal here is to continue to grow the market and to increase our production on the aluminium foil. From PTFE also we believe there will be some positives from the overall FY26 perspective; global sales, free flow, fine cut should take up a better position going forward.

We were earlier talking about exports also of aluminium foil. We haven't seen much in export data. So, is this something that will happen maybe in the second half of the year? Or we are now concentrating post the ADD on the domestic market?

No, there are U.S. and European customers that have been identified. Some of the sampling will start happening. And hopefully, some of that traction we should see in FY26 itself.

And just on this, what utilization levels are we currently at for both PTFE and aluminium foil?

Aluminium foil, we will roughly be, I would say, at 50% to 60%. PTFE will also be in the similar range.

The next question is from the line of Sumant Kumar from Motilal Oswal.

So, In Specialty Chemicals, when we talk about healthy revenue growth, is it primarily driven by newly launched products, or are existing products contributing more significantly to the growth?

When you think about Q1 FY26, I would attribute a larger growth into the newly launched products. But when you compare it to CPLY, where we were seeing a bit of depression from an overall inventory cycle that we have spoken about , we've seen some of the older products or some of the legacy products also go up in volumes, although in some cases, we've seen pricing to be slightly lower. The point also is that for some of these products, we are saying that we will ensure that our market share remains positive and we continue to find answers to some of the pricing pressure that's there.

And considering our current scenario, can we assume chemical business, what margin we have shown in Q1, it is going to continue in Q2?

I have always looked at it from an annual margin perspective, Sumant, you are aware of that. Again, quarter-on-quarter margin may not be the right way to look at it , and therefore, we will continue to be on the same position on that side, Sumant. I don't think we want to look at quarter- on-quarter margins.

Okay. And any change in chemical business growth guidance for the year?

I think we've done fairly well in Q1. Why should there be a change? You want a higher change or a lower change?

Higher.

So, you will always want the higher one, but we are still sticking to the original guidance.

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

So, sir, in terms of the re f gas pricing, of course, it has helped us this quarter , and roughly speaking, R32 quarter -on-quarter as it grew around 20%. That's what the pricing increase reflects. You have also mentioned in the presentation that domestic market was weak. So could you give us some colour in terms of how this has panned out, just roughly ballpark in terms of volume or price, how the performance has been so strong in terms of the Fluorochemicals business. And also, a related thing is, do you think the pricing will be sustainable going ahead?

I would really say 2 things here, Jason. The fact is there has been a positive in ref gas pricing. I don't want to put a number of 20% or 25% or 30% around it from a domestic and an export market perspective. I can only give tell you that the pricing has been positive . The other thing, in terms of overall market situation, RAC production is known data, that it has been weak when we compare it to CPLY. We've been able to find some countermeasures and continue to utilize our capacity to the maximum possible. The second question I kind of forgot, could you repeat?

So just wanted to know, given the strong pricing trajectory of ref gas so far, do we expect this trend to sustain going ahead?

The way you want to look at it is the global pricing for this. I think there are various positions in terms of where China is, where overall capacity positions are playing out. We do believe that pricing should remain strong. But there could be changes in overall demand from a world market perspective, although we don't see that happening.

Going on. There are a few that are under campaign positions , hopefully, some of the ramp-up will be seen in FY26, but there are larger products that we are talking to and are in various stages of development in the AI phase.

Okay. Sir, just wanted to know, it's a well -known fact that last quarter, 1 major competitor witnessed a major fire and that must have positively impacted our performance films business. Just wanted to understand , how much of a positive impact was there? And how much do you think it is sustainable going ahead?

We are all aware of what is happening in the market . That incident has caused a positive , in terms of the fact that BOPP demand and supply situation has kind of got changed. But frankly speaking, I would say that to be able to quantify it is very difficult.

The next question is from the line of Sanjesh Jain from ICICI Securities.

First, on the specialty side, you mentioned that there was some strategic pricing action that has been taken. And in the initial remarks, you said that there were pricing pressure. In a scenario of pricing pressure, and I think when you say strategic pricing, you're talking of upward revision, now what's transpiring there?

That’s your assumption, Sanjesh. What we are saying here is that in certain products, we are not willing to let our market share go. We are working on cost position , we are working on our overall utilization of the product and therefore, want to continue it like that. We are not saying that we have taken certain strategic pricing decision upwards or downwards. We are just saying that we want to look at some of the products as one of the largest products that we have and continue gaining market share around it.

Okay. Got it. That's clear. Second, on the R32, you said that India market was weak, but we as a countermeasure found some market in the exports, which are the markets which are showing traction for R32 for us?

I don't want to go into position for various export regions. I'm saying overall exports were higher from a volumetric perspective, and it could be to the U.S. market, it could be to other Middle East and Southeast Asia markets. I'm not talking about various jurisdictions or geographies here.

Okay. Same geography, but more volume is what you are telling?

I have not said any of that. Interpretation at your end.

One last question from my end before I get back into the queue. For the specialty, what we are hearing commentary from the global agrochemical is sort of slightly weakish from earlier. Are you seeing that trend in your discussion with the customer because the customers, one’s who are listed large agrochemical companies have been downward revising their guidance. Anything that we have picked in our discussions?

I think our order book is in fairly good position. There could be various positions that some of the global players have, and therefore, from their overall perspective, they are looking at probably a slightly negative outlook. I don't think we are in a situation where we are saying that there is a negative outlook on our end as well. We continue to stick to our overall guidance.

Got it. So, we stick to the things we said last quarter that 60% - 70% of our order book is already booked, so that gives us the confidence of growth and we stick to that point.

Correct.

The next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund.

Congrats on a good set of numbers. 2- 3 quick clarification. First, you touched upon R467 A, which is our in-house developed baby. Just wanted to understand the current revenue size, and can this be big for us in the future in the next 4 - 5 years.

Look, Naushad, I can't give you gas by gas revenue. Overall, HFC positions were higher, that's all that I can tell you. But gas by gas, I don't give either revenue or volumes. But yes, given the fact that this is a replacement for R22, we certainly believe that for a 5 to 10 -year period, this could play out as a large positive.

Sure. Second, on the fresh land acquisition, similar or larger size of compared to Dahej, any development there or if anything you would like to touch upon?

I can only say there is work going on, on that side. Hopefully, there should be something that comes through in the near future. Once there is an announcement around it, you will certainly come to know. But as of now, I can only tell you work is going on.

On the Packaging business side, despite marginal revenue growth, we have seen a good jump on the margin side sequentially and year -on-year as well . But historically it has been , on an average 14% - 15% margin business. But last 2 - 3 years was a problem. So, do you think the cycle has bottomed out and we should quickly go back to the normalized run rate at least?

I think you are aware in terms of the current market situation on what has happened to one of the market participants. Given the situation, the supply demand situation has completely twisted on its head for BOPP. Hopefully, that can sustain over a period of time because capacities don't come up quickly. It will take time. Someone else had asked the question earlier that can there be a shorter room to get these capacities online, for which I said it's not practically impossible.

Look, very, very difficult to be able to say marginal increase or more increase. It will depend on the demand and supply situation only.

The next question is from the line of Ankur Periwal from Axis Capital.

There is a comment wherein we highlight ed that stricter registration norms are delaying some bit of product launches from the innovators. So, just wanted your clarification here. Is this referring to some of our AI that we are making or it is a general comment for the industry at large?

It's more a general comment, but yes, to a certain extent, dovetails into the AI position as well.

Okay. But as you mentioned, your 20% growth guidance remains intact, which factors in such delays or maybe the pricing -led strategic initiatives which we had highlighted there . Will that be a right statement?

We are still very confident that we will be able to get there. There may be some delays , but given the prevailing situation, we are fairly confident that whether with AI or without AI, we should be able to get that number.

Great, sir. Secondly, the new pharma intermediate that we had launched, and I'm going back to our earlier comment wherein we had expected the pharma business to grow at a much faster pace. Will this be a bigger driver for that ramp-up? Or how should one look at the new launches on the pharma side there?

Look, pharma intermediates, agrochemical products, all of these will continue to come through. When we say we have launched the new product , it doesn't mean that the commercial scale quantities have started to flow through. It has now been approved, and as the customer needs get more stable, we will continue to sell the product.

Great, sir. And just lastly, on the fluoropolymer side, any timelines you'd like to share from a ramp-up perspective given that we are almost 50% - 60% utilization?

You are talking about PTFE?

PTFE, correct.

Yes, I think FY26 should be a better year than FY25 for the PTFE segment overall.

So should we expect full ramp-up by the end of this year, let's say, Q4 at an exit run rate? Or it may take slightly lower.

The next question is from the line of Abhijit Akella from Kotak Securities.

Just one question on the refrigerant side, for R32, what would our estimate of total world demand be at this point in time? And if you have a forecast for the next 5 years by 2030 or so, that would be great to have as well. And also, how much might China production be at presen t for the product?

I don't have that data available readily. I will probably relook at this and maybe come back to you separately on this.

Sure, sure. That's fine. And maybe just one other thing then. You did mention at the close of your opening remarks that some businesses could see some near-term pressures. So, if you could please just specify which areas you might be seeing that in?

That's a more general comment. We are facing some pressure on the technical textile front, given where demand is , given where the overall position is. So that's something that is there. But overall, I don't see a negativity around it. I think our commitment to capex has been strong, we are continuing to put in more money on the capex. Some headwinds will always be there. Since business is not linear, it will continue to evolve over a period of time. So, I think that was a more generic comment rather than a specific comment.

The next question is from the line of Vivek Rajamani from Morgan Stanley.

Congratulations on a good sort of numbers. Just one question on the refrigerant gases, ex of R32, if you could just touch upon the kind of pricing trends that you're seeing for the remaining products and how you see that evolving over the course of fiscal 2026?

The way I would look at it is not ex of R32. Thematically we've seen overall HFC prices are higher. I think stable to higher is the trend that we will end up seeing during FY26 also, and that's the thematic. I can't give you gas by gas prices because it will depend on which market it is going, what kind of packaging it is going, the SKU wise positioning etc. So I don't kind of talk about that. But thematically, better pricing is what we've seen in Q1, and hopefully, that trend can continue.

Sure, sir. That's clear. And just one clarification from a domestic export mix, the 50 -50-odd percent number, which would be the same for this quarter? Or has that mix changed , purely on the ref gas side?

HFC side, I think, about 60% domestic, 40% export from a volumetric position.

The next question is from the line of Krishan Parwani from JM Financial.

Congrats on a good set of numbers. Two from my side. First, in your opening remarks, you mentioned that registration and scale-up of an AI is expected in FY26, so what is the status of the rest 4 to 5 AIs? Would there be a scale -up of any other AIs apart from the one that you mentioned in FY26?

There are 4 or 5 AIs in commercial batching situation. Because these are dependent on customer registration and customer positions on it , we don't know the exact timing of it, but likely to witness some traction in FY26.

Got it. And secondly, just on this Spec. Chem. side, what would be your domestic specialty chemical sales as a percentage of overall Spec. Chem. sales? A rough range would be helpful.

Roughly speaking, I would say 60% export, 40% domestic. But even that 40% domestic is at the behest of some global majors only.

Yes. So earlier, I think that used to be 80% export 20% domestic. So that mix has changed considerably?

At some point in time, it was probably 95% export and 5% domestic, so that situation is also evolving over a period of time.

The next question is from the line of Kumar Saumya from Ambit Capital.

Sir, just one question, sir. Just wanted to understand the domestic and export mix of R32, last quarter is 60:40 and now you said this quarter as well 60:40?

60:40 I said earlier was for overall HFCs. For R32 also, roughly speaking it’s the same as 60:40.

Okay. No. So I was of the view that domestic has been weak and we have pushed more volume in the export market. So, this Q would have been different this quarter compared to the last quarter.

The fact is that generally speaking, in this quarter we would expect a better domestic demand. But given the weakness in R AC segment, that demand was weak . So we had to find countermeasures from an export market perspective.

The next question is from the line of Meet Vora from Emkay Global.

Sir, first question was with respect to R467A. I wanted to understand the current market size in India and globally. Is it already sizable today, or is it still in the development phase as a potential replacement for R22 globally?

Understood, sir. Second, sir, was more of a clarification. We have mentioned in the PPT that our AHF-3 plant is getting stabilized. So, is it now running at optimal capacity or the ramp -up is yet to be seen?

Ramp up is yet to be seen. But it is kind of getting there.

Okay. And just one last bit, with regards to HFC capacity utilization, we mentioned that we are now running at optimal capacity, right in terms of all HFCs put together.

That comment was more on R32.

The next question is from the line of Nitin Agarwal from DAM Capital.

Sir, with respect to your comment around the quota regime in India for HFCs and the challenges that some of the other competitors may face in putting up larger capacities. Sir, what is the typical time required for someone to set up the capacities to meet the quota requirements?

2024, 2025, 2026 are the measurement or baseline years from a calendar perspective. Somebody will have to look at their average production of HFCs for these 3 years and 65% of the 2009 and 2010 average of the R22 or HCFC, to calculate their overall production quota. The other position is also with respect to how much HFCs you sold during 2024, 2025 and 2026 on an average. So, that is how it is going to play out to determine the overall quota available.

And sir, for our perspective, are we looking to put up any incremental capacities before the quota – 2026 period ends?

We don’t have any plans around that as of now. You have to understand the overall position on the quota regime. Capacity additions were only allowed until a certain point in time. Post that, they may not be considered for Montreal, and if you set up capacity by, say close of 2026, where will you sell that capacity? You may then have the production capability, but no consumption capability.

The next question is from the line of Rohit Nagraj from B&K Securities.

Congrats on good set of numbers. Sir, just one question on the agrochemical intermediates capacity new capex that we have announced. In terms of margins for the product , will it be in line with the company-wide specialty chemical margins? And an allied question to that, in terms of the capacity it seems a large capacity, but at any point in time in future, will it be fungible? I mean you said it's a nameplate capacity, so, will it be fungible at any point in time?

I have not understood the second question, but let me answer the first one, where you are saying that are the margins similar to the margins of some of the competition in this.

I don't give out breakup of the EBIT margins between Fluorochemicals and Specialty. So that's not what we do.

Sure. In terms of capacity, you said that the 12,000 tonnes capacity, it's a nameplate capacity, and we may reach that level or we may not, but we have taken an approval. So, at any point in time, is the capacity fungible for any other products? Or will it always be a dedicated product till the life cycle of the final year?

It will be dependent on the product mix of various products that can be produced. So yes, it will be, to a certain extent, fungible between products.

The next question is from the line of Madhav Marda from Fidelity International.

Just one question on the quota. When you said that 2024 to 2026 is the quota measurement period. If instead of R32, anyone is selling R125 in the domestic market in this period of 2024 to 2026, given that it’s an HFC as well, does that give the ability to sell R32 , if you're already selling R125 in the domestic market?

It will be on the GWP equivalence basis. So, if someone was selling R125 in the domestic market, yes, they get a 3x multiplier on that. The only point is that where are R125 sales in India? It is largely an export product.

Okay. But R125 goes into some 410A consumption, right, in the country?

Yes, but what I meant is that largely, as R125, it is primarily exported to the U.S. market.

Okay. And sir, just a follow -up there. The HFC consumption of 2024 to 2026, that gets added with your HCFC production you did in 2009 to 2011, right? So, is it a combination of these two, or is it one or the other? How exactly does it work?

There are 2 positions on this . There is one with respect to production capability and one with respect to sales capability. So, there are 2 different things. And like I said, at the right point, we will set up a call along with Prashant to explain the entire detailed nuance of this. So maybe that's the right point to answer and ask that question.

The next question is from the line of Dhavan Shah from Alpha Accurate Advisors.

So, sir, my question is on the R32. If we look at the global capacity, it is always in the excess supply than the demand. So, what gives us the confidence that the prices are likely to sustain? And secondly, I think IGAS also came out with capacity in Middle East. So, are you seeing any incremental volumes from there for R32 and do you foresee any other incremental capacity coming in, in the global market except the Indian players who have announced the expansion for R32?

Dhavan, like I said earlier also, you know global capacity better than I do . So, I am unable to comment on the first one. In terms of pricing of R32, I answered that in a brief to a previous question by someone, that we believe where the current demand and supply situation is, pricing remains strong. That's how I would look at it. To comment on whether the UAE plant is producing or not , or is it selling or not, you know pretty much as much as I do. So, I kind of pass that question.

The next question is from the line of Surya Narayan Patra from Phillip Capital.

Couple of clarification only. The R32 price appreciation in the recent month , is it led by any production disruption by any large global producer? Because that is how it has been reported by a couple of global listing articles. Could you clarify?

To the best of my knowledge, it is the current demand and supply situation, given where China is, given where overall position is , given that there was a huge pre -quota filling that had happened in the U.S. because of which there was a massive overstocking that happened. So, when you think about it thematically, the world needs more R32, and therefore we believe that our capacity of R32 and a couple of other capacities are in good shape Also given the fact that some of the U.S. blends use more R32 than HFOs, so overall, it seems in good shape, but I have not heard of any single disruption leading to capacity positions.

Second clarification, sir, about the agrochemical price or the specialty chemical pricing in the global market, you have mentioned in the presentation that there is a kind of China-led pressure that persists and this is likely to be the new norm going ahead. So, are you giving kind of a cautious indication about the margin situation for our overall specialty chemical business going ahead? Or how should one think about it?

The way we are looking at the Specialty Chemicals business, and I've talked about it in the past is that we still believe growth is there. In some of the products, we have been global leader s, and we don't want to give up our position as global leaders in those products. It's probably more a product-based comment rather than a generic comment in terms of the overall margin profile of the Specialty Chemicals business.

Okay. Just one point more. In case of the capex situation, in the FY25, we have done around INR1,100-odd crore kind of capex, obviously, a lower number , but again, we are committing about INR2,500 crore kind of capex for the current year. So, the visibility of the demand situation, all that is giving a kind of positive indication or last year was a cautious stance in terms of capex announcement and execution. What was this indicating really?

I think you're reading too much into it. Last year, we had clearly said that the capex cycle that we were in and given the market situation, we will not be going very large on capex. Today, what we are saying is we have seen some market improvement. Our capex position is a function of how the market improvement has happened, and therefore moving upwards when compared to FY25. Also there were large capitalization s that happened during FY24, and therefore in FY25 we wanted to digest some of the capex that had happened earlier.

The next question is from the line of Aman Kumar from AK Securities.

There is a significant rise in the price of BOPP films in the domestic market. So, is this happening to the overseas market also?

I've not looked at export pricing, but you are right in terms of BOPP, given the current demand and supply situation in the market.

So, it is confined to India only. So how are the margins in the international market?

Margins are largely same.

And regarding BOPET, there seems to be overcapacity in the market. When can we expect this overcapacity to ease?

From a BOPET perspective also, there is some change in the demand and supply situation. Not many large new lines are coming up globally on the BOPET side, so hopefully, in the next few years we should see some positive.

So right now, margins are better than last year?

Certainly.

The next question is from the line of Amit Agicha from HG Hawa & Co.

Sir, what are your ROCE targets post commissioning of the new projects?

For which business?

For all the 4 businesses.

Overall, when we think about ROCE, IRR and payback period, each business has a different position. The Specialty Chemicals business from an overall perspective, is driven by positioning over a period of time , while the performance films & foils business is slightly more commoditized and therefore will have a slightly lower ROCE target. Capital is not a constraint, and we continue to invest in more value-added products even on the performance films business side. Overall targets remain in excess of 25% for the chemicals business, and maybe 200 basis points lower from a performance films and foil business perspective, on an overall long -term basis.

And sir, second question was coming to the debt, like what is the current debt levels? And what is the company's strategy?

Roughly about INR3,200 crore to INR3,400 crore was the overall net debt position. Also, net debt is a function of how much cash we have available. So g iven our current situation, we believe the overall number remains there or thereabouts plus minus INR200 crore, given where the capex cycle would be at that point in time.

Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Thank you, everyone. I hope we've been able to answer all of your questions. I wish that each one of you remain safe and healthy. If you have any further questions, we would be happy to be of assistance. We hope to have your valuable support on a continued basis as we move ahead. On behalf of the management, I once again thank you for taking the time to join us on this call. Thanks, and bye-bye. This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility for such errors, although an effort has been made to ensure a high level of accuracy.