Release Date: May 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SRF Ltd (BOM:503806, Financial) celebrated its 50th anniversary, highlighting its long-term stability and stakeholder support.
- The company has a strong focus on R&D and infrastructure, which supports its ability to develop complex products and drive sustainable growth.
- Despite challenges, the technical textiles business saw marginal growth in FY24, indicating resilience in this segment.
- The company has made significant investments in expanding its chemical business, with INR1,700 crores spent on various projects in FY24.
- SRF Ltd (BOM:503806) has enhanced its capabilities in novel chemistries and is showing positive traction in the pharma sector, with nine dedicated facilities commissioned at the Dahej site.
Negative Points
- Operating revenue decreased by 12% to INR13,139 crores, and EBITDA dropped by 26% to INR2,744 crores, reflecting a challenging fiscal year.
- Profit after tax decreased by 38% from INR2,162 crores in FY23 to INR1,336 crores in FY24, indicating significant financial pressure.
- The chemical business declined by 15% due to a protracted inventory destocking cycle and competitive pressures from China.
- The packaging films business registered a revenue decline of 14%, with market conditions remaining extremely difficult and margins under pressure.
- The fluorochemicals business faced a tough year with weak domestic market conditions, Chinese dumping, and inventory buildup, leading to stress on refrigerant prices and volumes.
Q & A Highlights
Q: Good to see quarterly recovery and detailed presentation. Sir, first question is on the specialty chemicals business. So we have mentioned in our press release that the recovery will pick up pace in the second half of FY25 while we gave a very strong 20% kind of growth guidance. So is it that the first half will be relatively noted, and a significant portion of the growth will come only in the second half? I mean, I wanted to understand your confidence on the same.
A: So Rohit, thanks for your question. To be very frank about it, when you look at the specialty chemicals business, there is always, let's say, when we look at it, H1 versus H2, H2 is always stronger. Now the way we are looking at it is the fact that we are coming out of a kind of difficult environment. The environment where the inventory de-stockings have started to happen. What we have seen is that there is some positive that is already starting to build. When we say overall growth of 20%, that's something that we are looking to achieve even in the specialty chemicals business, given the fact that this year was a slightly lower year than what we expected at the beginning of the year. Large recovery should come towards H2. But yes, I don't think there is a negative trait here. I think we've always said that we have to look at it from a business as a whole or a year as a whole perspective, rather than looking at it from a quarter-on-quarter perspective. So I think that's the way we are looking at it rather than dividing it into Q1, Q2, Q3, Q4. So that's how we would look at it, Rohit.
Q: Sir, second question is, again, similar on the ref gas. There also, we've been pretty confident. So given that the US market -- the quotas have been declined, there have been Chinese ingress of material. Do we really see that there will be significant volume pickup for us from the other geographies to make up for the loss in the US? And similarly, a strong traction in terms of pricing so that we will be able to achieve this 20% kind of growth.
A: So Rohit, again, I think the way we are looking at it is the fact that we have seen a lot of Chinese inventory in the system as of now, largely on 32. We have also said, and I think Ashish also commented on it, that the inventory that had built up over a period because of low Chinese prices is now starting to kind of get liquidated at a very fast pace. As that is happening, we have also seen pricing improve. With respect to where the US market is versus, let's say, the overall market is? I think the way we are looking at it is that while US. HFC market will see some declines, there will be some negatives around it. What we believe is that the overall increase in, let's say, India domestic and the Middle East and Southeast Asia should more or less cover it up. And therefore, given that we will have more capacity, more volumes to play here because of the new 32 plants that commissioned probably at the end of Q3 last year, right, we should have a very large presence in the HFC space, and therefore, both from a volume and pricing perspective, I think we should be in great shape.
Q: First, on the chemical side and in our release, we did mention pricing-led pressure because of excess capacities at China end. So just wanted to get your thoughts in terms of growth, is it that now the overall trend in pricing has come down and we are focusing more on volume-led growth, which will drive the growth across both ref gas as well as the specialty chemical side?
A: Well, I mean, let me distinguish this for you, Ankur. I don't think we can compare between specialty chemicals and fluorochemicals and the ref gas piece. What we are saying is that prices have been softer, we are starting to see some price positives starting to come in. US has continued to destock inventory. There is now some local Chinese prices that have started to go up largely on 32. That's what we are seeing. And again, I think the focus for us from our fluorochemicals business is to look at where quota positionings are and improve our, let's say, capacity, utilize our capacity to the full and sales volumes so as to maximize that piece. Like I think we have said in the past, when we look at HFCs, quota becomes an important element for it. And now going back into the specialty chemical piece, I don't think it is a generic comment that can be made where we can say that we are now looking at more volumes than pricing. What we are saying even in the specialty chemicals piece, and I think the MD's comments also reflected that, that there are certain, let's say, views in the market coming around, say, one of our key products, which is essentially saying that the Chinese have crashed prices of that product. We have made very significant technological breakthroughs in the product. Our costs have come down significantly. We are continuing to work on cost of those products. While there will be some margin erosion, I think it will be much more taken up by the volumes that we will be able to achieve in that product, which I think should add significantly in terms of our overall profit from the product and specialty chemicals business as a whole. So that's how we would look at it. So the rebound, when it comes in, it should be a positive, Ankur.
Q: My first question is on the specialty chemical business. So while on the chemical business front, we have seen for the full year, there is a sequential margin correction. Obviously, possibly because of the underperformance at the ref gas front. But sir, can you clarify that this dent in the margin is purely from the ref gas front and may not be from specialty business?
A: So Surya, to be very frank about it, again, I don't think we have to look at it like that. But in relative terms, if I look at it, specialty chemicals business margin has been slightly positive from what we have seen in FY23. For fluorochemicals business, yes, there has been a margin dent. But you've also got to understand, Surya, that FY23 for fluorochemicals business was also a very high year. Now to that extent, there was some expectation of this coming down. And I think we had precluded to that in our earlier discussions as well. So to that extent, yes, the margin is lower. And to my mind, between FY23 and FY24 for specialty, margin is flat to slight positive.
Q: Two questions. Firstly, if I could just make an extension of the earlier questions on fluorochemicals? Would it be possible to give a sense of how you see your geographic profile in fluorochemicals settling in the next one, two years as you transition away from the
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
