SRF's performance in the second quarter of FY25 was disappointing, with a significant decline in operating profitability as EBIT fell 22% year-on-year.
The Chemicals segment, which accounted for 74% of the EBIT mix for FY24, experienced a notable 29% dip in EBIT, while the Technical Textiles division also struggled with a 5% decline. However, the Packaging Film business showed resilience, achieving a 7% growth in EBIT.
The macroeconomic outlook for the Chemicals sector remains uncertain, but management expects a potential recovery in the third quarter, which could gain momentum in the fourth quarter of FY25. This recovery is anticipated to be driven by a robust order book in specialty chemicals and an increase in export and domestic volumes in the Fluorochemicals segment. Due to the challenging macro environment, estimates for FY25 and FY26 EBITDA have been reduced by 13% and 7% respectively.
The stock has been valued on a sum-of-the-parts basis, resulting in a target price of INR 2,080, with a reiteration of a Neutral rating from Motilal Oswal.