SRF’s Q2FY23 print was mixed with chemicals business EBITDA holding up QoQ in a seasonally weak quarter (up 2x YoY). Ref-gas and specialty business outperformed our expectations and the management expects specialty segment revenue growth in FY23 to exceed the guidance of >20%. Company also anticipates EBIT margin to remain healthy at ~30% in H2FY23. It has announced capex of Rs10bn in specialty in past 12 months, which will add to revenue by Rs9bn-10bn. Packaging films EBIT has collapsed on lower spread and technical textiles EBIT too has declined – and we expect the pain to continue for a few more quarters. SRF’s immediate revenue will likely be aided by large capex commissioning including BOPP plant, CMS plant (to commence soon) and PTFE in Q4FY23. FY24 growth is expected to be helped by start of specialty (agrochemicals) plants. We have cut our EPS estimates by 4-5% for FY23E-24E on lower margins in packaging films and textiles, offset by higher growth in chemicals.

Chemicals business revenue up 62.5% YoY (6.3% QoQ). SRF’s revenue rose 11.4% YoY to Rs37.3bn driven by strong performance in the chemicals business. Revenue from the segment was up 62.5% YoY (+6.3% QoQ – a positive surprise in an otherwise seasonally weak quarter) to Rs18.3bn. This was aided by higher ref-gas (particularly HFCs) volumes / prices and good show in specialty. Packaging film revenue rose 24.2% YoY to Rs13.3bn, but was down 11% QoQ due to drop in spreads. Textile revenue dipped 16.4% YoY / 18.4% QoQ to Rs4.7bn. Gross profit increased by 4.1% YoY (fell 12.9% QoQ) to Rs17.7bn, but margin dipped 470bps QoQ to 47.6% on lower spreads in the non-chemicals business. EBITDA was down 12.7% YoY / 22.7% QoQ to Rs7.7bn and net profit was lower by 4.9% YoY at Rs4.8bn (it benefited from higher other income).

Chemicals business EBIT margin healthy at 28.3%. Chemicals business EBIT surged 106% YoY / fell 0.6% QoQ to Rs5.2bn. Favourable ref-gas prices continue to aid margins for SRF. Company guided for segmental EBIT margin to be higher than 30% in H2FY23.

Packaging films EBIT was down 43.5% YoY / 66% QoQ to Rs1bn, and was hurt from spreads decline, and falling product prices in BOPET. BOPP is doing fine. Technical textiles EBIT came in at Rs0.6bn, down 52.6% YoY (45.8% QoQ).

Concall highlights: 1) SRF has announced capex of Rs6bn for four agrochemical products. It has already announced capex of Rs10bn in past 12 months, which should add Rs9bn-10bn in revenue. It has commenced operations at the MPP-4 plant with 3-4 products, which should rise to 7-8 products. Few of the products are precursors for AIs, and more AI-led capex is likely be announced by SRF in the future. 2) PTFE plant will commence in Q4FY23 and should ramp-up in FY24. It is in the process of taking approval from customers. 3) Hungary BOPET plant is running at only 25-30% utilisation due to high power cost. 4) Though HFC prices in China have dipped, SRF does not expects its realisation to be hurt due to trade barriers for Chinese in India and US.