Shares of SRF Ltd lost over 2 percent on July 26 and traded near the one-year low after most analysts cut the target price on poor earnings for the June quarter. The stock has declined three out of last four sessions.
The SRF stock hit a low of Rs 2,110.70 and fell as much as 2.4 percent from its previous close. At 10.21am, it was trading at Rs 2,136 on the BSE, down 1.21 percent from its previous close.
SRF faced several challenges in the June quarter. The demand for refrigerant gas was slow in both domestic and export markets, leading to a decrease in overall realisations. Additionally, weak seasonality for specialty chemicals and an unfavourable base further impacted the company's performance. There was a decline in sales across SRF's chemicals, packaging film, and technical textiles segments, resulting in an overall decrease in revenue.
Brokerage firm Jefferies India have lowered the segment revenue growth over FY24-25 to reflect a slowdown in global agrochem cycle, leading to 15 percent/17 percent cut in FY24/25 EBITDA. It maintained the 'hold' rating on the stock but cut its target price by 7 percent to Rs 2,000.
The company has brought attention to the current situation in the global agrochemicals market, where there is a destocking of inventory occurring alongside an increase in supplies from China. Due to these factors, the company anticipates a slowdown that may persist for a few quarters.
Considering the uncertain market conditions, the company has refrained from providing specific growth and margin guidance at this moment. Instead, it plans to review and reassess its growth and margin projections when it will declare its 2QFY24 results.
Brokerage firm Kotak Institutional Equities have cut its earnings estimates for FY24 and FY25 by 18 percent and 17 percent, driven by downward revisions in chemicals and packaging films business.
Despite the current uncertain economic conditions, brokerage firm JM Financial sees a favourable opportunity to 'buy' the stock. This optimism is based on the company's management's unwavering commitment to its capital expenditure (capex) plans and introduction of new products. In FY24, the company plans to make substantial investments in various projects, including an estimated capitalisation of Rs 11 billion in the fluorochemicals segment and Rs 14-15 billion in the fluorospecialty chemicals business. There are plans for commercialisation worth more than Rs 5 billion in the aluminum foil project.
"In our view, given most of SRF’s upcoming projects are going to be dedicated (currently 80-85 percent of fluorospecialty revenue), even if spec-chem growth tapers down to 15 percent in FY24, some of the volumes could be deferred to FY25 given there is no underlying demand concern indicated by its customers. Moreover, there will also be large contribution from pharma intermediates and the PTFE plant in FY25 and beyond. Hence, in our view, FY24 should be considered as a base reset year and a good opportunity to buy the name," JM Financial said in a note.
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