Hold SRF; target of Rs 2820: Prabhudas Lilladher

Prabhudas Lilladher's research report on SRF

We recently met with the management of SRF Limited, to understand its business prospects and get an update on key ongoing projects. The management continues to remain positive on its refrigerants business and expects R-32 realization to rise further in the near term. With a capex of Rs11bn, the 4th generation refrigerants plant is expected to come online by 2027. SRF also targets to gain 40% market share in 6-7 AIs with TAM of $1.2bn. The fluoropolymers vertical is expected to be commercialized by Nov’25, which, along with PTFE at full capacity utilization, has potential to reach EBITDA of Rs3.75-4bn. The aluminum foil plant, launched in FY24, is struggling and has negative EBITDA. ADD for aluminum foil is expected to be introduced in FY26. Coupled with approval from a few European customers, this business is expected to improve further in FY26. Going ahead, we expect continued strength in refrigerants and further improvement in specialty, especially in the newer products launched. Some products continue to face competition due to China dumping, which may impact the company’s performance.

Outlook

The stock currently trades at 52x FY27 EPS, we maintain “Hold” rating with a target price of Rs 2,820, based on a sum-of-the-parts (SOTP) valuation approach. Our numbers are conservative as compared to consensus FY27E EPS at Rs80.