SRF - We always find a better way

Overview of SRF followed by Concall excerpts

Industry view

Fluorine chemistry road ahead:

Indian flurochem market is expected to grow at a CAGR of 11.6%, showing the sharpest curve across the global market.

The growth in the fluorine-based intermediates segment will be the highest, more so with India moving towards in-house manufacturing of many actives and intermediates which were otherwise imported from China.

SRF Business profile

Chemicals ( Revenue share - 50.5%, EBIT share - 77.7% )

1. Speciality Chemicals

    - Intermediates for AI / API / Applications

    - Contract Manufacturing, Custom Research & Synthesis

2. Fluorochemicals

    - Refrigerants 

    - Pharma Propellants 

    - Industrial Chemicals 

    - Fluoropolymers (Upcoming)

Packaging Films ( Revenue share 34.6%, EBIT share - 16.3%)

1. Films for Flexible Packaging 

    - Bi-axially Oriented Polyethylene Terephthalate (BOPET) 

    - Bi-axially Oriented Polypropylene (BOPP)

Technical Textiles ( Revenue share - 12.2%, EBIT share - 4.7%)

    - Tyre Cord Fabrics (Nylon & Polyester) 

    - Belting Fabrics Polyester 

    - Industrial Yarn

Others ( Revenue share - 2.7%  EBIT share - 1.3%)

    - Coated Fabrics 

    - Laminated Fabrics

        

Manufacturing Facility:

1. FLUOROCHEMICALS & SPECIALTY CHEMICALS 

• 2 National Operations 

1. Rajasthan, India - Bhiwadi

2. Gujarat, India - Dahej

2. TECHNICAL TEXTILES 

• 4 National Operations 

1. Madhya Pradesh, India - Malanpur, Bhind 

2. Tamil Nadu, India - Manali 

3. Gummidipoondi 

4. Viralimalai 

3. PACKAGING FILMS 

• 3 National Operations 

1. Uttarakhand, India- Kashipur 

2. Madhya Pradesh, India - Special Economic Zone (SEZ), 

3. Pithampur, Indore - Bagdoon, Pithampur, Indore

• 3 International Operations 

4. KwaZulu - Natal, South Africa 

5. Rayong, Thailand 

6. Jaszfenyszaru, Hungary

4. LAMINATED FABRICS 

• 1 National Operation 

1. Uttarakhand, India - Kashipur

5. COATED FABRICS 

• 1 National Operation 

1. Tamil Nadu, India - Gummidipoondi

R&D trends:

SRF carries out chemical research and development work at its four state-of-the-art R&D centers. There are mainly three focus areas for chemical research and development. (i) Developing products and processes based on in-house available products and intermediates thus strengthening the existing product portfolio. (ii) developing products as per customer need, and (iii) creating new futuristic processes and chemistry platforms. The company’s R&D worked on 57 molecules and many products were successfully taken up for process development. More than 20 molecules were taken up for the scale-up studies and 70% were commercially produced in multipurpose and dedicated plants.

Speciality chemicals: 

• Established relationship with marquee customers
• Capability in scaling up pilot processes and creating value through operational excellence
• High levels of customer engagement backed by strong R&D, technical service, product and quality management under one roof
• Handling complex reactions - halogenation, ethylation, hydrogenation, nitration, diazotization, grignard, isomerization, amination, organocatalysis, and decarboxylation

Fluorochemicals:

• Unique and fully integrated facilities extending across a wide range of refrigerants and industrial chemicals 
• Domestic leadership in HFC’s with strong trade distribution network; significant market share of Fluorochemicals in India with global scale operations 
• One of the few global manufacturers for Pharma grade 134a/P - propellant in metered dose inhalers 
• Among the top five global manufacturers for key Fluorochemicals products 

Packaging Films:

• Recognized for expertise in developing, manufacturing and marketing innovative, superior film products 
• Flexible business model, strong and loyal customer relationships with tailored solutions; NPD Lab to ensure future readiness 
• Highly efficient asset base offering value added products in close proximity to customer locations

Technical Textiles:

• Domestic market leader in Tyre Cord manufacturing and Belting Fabrics 
• 40% share in India’s Nylon Tyre Cord market. 2nd largest player globally 
• 3rd largest manufacturer of Conveyor Belting Fabrics in the world

Speciality Chemical business update:

• Segment delivered a robust performance on account of: 

    - Addition of new products that gained substantial traction 

    - Ramp-up of recently commissioned state-of-theart MPP4 facility at Dahej 

    - Healthy demand for key products and downstream derivatives 

• Successfully launched 4 new Agro products and 1 new pharma product

Q3FY23 

Q2FY23

Q1FY23

- Robust investments planned ~ ₹ 1200-1500 Crore over 12-18

• 16 new process patents were granted in 9M FY23, taking the tally to 130 global patents to-date. Overall, the Company has applied for 398 patents.

Fluorochemical Business update:

• Dymel® HFA 134a/P (pharma grade gas) expanded to new geographies and reported significant growth 
• New Chloromethanes plant showing traction
• Successfully commissioned 2 new facilities during the quarter 
• Major capex plans on-track, some delay in PTFE

Q3FY23

Q2FY23

• Successfully commissioned Captive Power Plant at Dahej
• R125 catalyst replacement completed successfully 

Q1FY23

• CMS capex well on track – to be commissioned by Q2FY23
• Segment in structurally strong space

Packaging film business update:

Q3Fy23

• Business faced headwinds on account of: 

    - BOPET and BOPP demand and prices remained soft 

    - Steep energy costs in Europe, impacting overall operations in Hungary

• Commercialized 2 new products in the BOPP segment during the quarter
• With significant capacity addition both in India and overseas, pressure on margins is expected to continue in the near-term

Q2FY23

• SRF has continued to focus on operational efficiency measures to ensure it remains one of the lowest-cost producers in the world
• Segment faced several headwinds that impacted performance during the quarter including significant supply addition in BOPET, global demand slowdown, rising energy costs in Europe, and sharp fall in commodity prices. However, this trend was partially offset with a sustained demand of BOPP Films
• Successfully commissioned BOPP Film line at Indore (DTA II), India during the quarter

Q1FY23

• BOPP Film line at Indore, India expected to be commissioned in Q2FY23
• working towards innovating films that have a lower environmental footprint
• Sudden RM price correction – hopefully bottomed out

Technical Textiles business:

Q3FY23

• Demand for NTCF remained subdued during the quarter
• Sluggish geogrid segment resulted in weak demand for Polyester Industrial Yarn
• Demand in the Belting Fabrics segment is anticipated to remain healthy, with a stable outlook for end-user industries like steel, coal, and power sectors

Q2FY23

• Business has witnessed lower offtake in Nylon Tyre Cord Fabric segment
• Belting Fabrics segment is witnessing healthy demand with increased economic activity

Q1FY23

• Increased export volumes from the Nylon Tyre Cord Fabrics (NTCF) and Belting Fabrics segments
• The Board has approved a project for capacity expansion and modernization of belting fabrics operations at TTB-Viralimalai from 1,100 Metric Tons Per Month (MTPM) to 1,800 MTPM at a projected cost of ₹162 crore to be spent over a period of three years
• Belting Fabric market witnessing large opportunities and capex tuned to maintain and enhance our market share

Others   

 Coated Fabrics

• SRF continues to maintain its leadership position in the domestic market
• Consistent demand & a strong order book.
•  Improved contribution from the Value-Added Products 

Laminated fabrics

Q3FY23

• SRF maintained its pricing and volume leadership, with the facility operating optimally in Q3 FY23
• Margins were subdued and anticipated to remain under pressure as a result of ongoing surplus supply scenario and volatile raw material prices

Q2Fy23

• Margins impacted due to surplus supply and cheap Chinese imports

Q1FY23

• Realizations in this sector were adversely affected due to the ongoing surplus supply scenario

 Future Guidance:

• capex of Rs 1000 cr. + announced over last 6 months
• Increased complexity and addition of new products from recently commissioned capacities in Agro and Pharmaceuticals sectors to remain in focus
• Focus on ramping up sales of new CMS plant and product approvals for the upcoming PTFE plant
• 3Q FY23 to focus on order booking for US HFC sales in Q4 FY23
• Aluminum Foil project remains on track
• 2nd CMS plant in Dahej is currently in final stage of commissioning (Q2)
• Product approval for PTFE plant which is likely to start commercial production (Q2)

ConCalls Excerpts

Q1Fy23 Performance Highights

• Gross rev up by 44% - 3895 YoY
• EBITDA up by 52% - 1030 
• EBITDA margin - 26%
• PAT up by 54% - 608
• Segmental Performance
• Speciality chemical and Fluorochemical growth up by - 55% (1722Cr)
• packaging film business growth up by 44% (1496Cr)
• Technical textile business grown by 16% (571Cr)

Q2FY23

• Revenues grew by 31% Y-o-Y to Rs. 3728 crore.
• EBIT grew 21% Y-o-Y to Rs. 689Cr
• PAT up by 26% - 481Cr
• Segmental performance
• Speciality chemical and Fluorochemical growth up by 62% (1830Cr)
• packaging film business growth up by 24% (1331Cr)

Q3FY23

• Revenues grew by 4% Y-o-Y to Rs. 3470 crore.
• EBIT degrew 9% Y-o-Y to Rs. 726Cr
• PAT up by 1% to 511Cr
• Segmental performance
• Speciality chemical and Fluorochemical growth up by 23% (1757Cr)
• packaging film business  (1203Cr)
• Technical textile business degrew from 538 Cr to 426 Cr YoY

Capex whether commissioned/ Announced

Q1Fy23

• successfully commissioned our state-of-the-art multi-purpose production facility MPP4 at Dahej
• setting up of a new dedicated facility to produce 1,000 metric ton annually of an advanced agrochemical intermediate for Rs.250 ( will be completed in 8-9 months )
• To expand the capacity of an intermediate product that finds application in both agrochemical and pharma intermediates and related feedstock of Rs.72 crore
• Two technical structures will be developed for various agrochemical products for Rs.78 crore
• From medium term strategy another 1200-1500Cr capex is lined up over next 12 to 18 months
• new BOPP film line at Indore India is expected to be commissioned in Q2 FY2023
• Board has approved a project for capacity expansion and modernization of belting fabric operations at our Viralimalai plant from 1100 metric ton per month to 1800 metric ton per month at a projected cost of Rs.162 crore, this will be spent over a period of next three years
• R gas 15000 metric ton capacity likely to get commissioned in Q1Fy23

Q3

• Pharma intermediate plant (PIP) is also being commissioned and should be ramped up fairly quickly
• Board has approved another project for setting up a new and dedicated facility to produce an agrochemical intermediate at a projected cost of INR 110 crores
• A new plant building structure at Dahej was approved at a cost of INR 40 crores to meet the future requirements. 
•  Board has approved a project to establish a range of specialty fluoropolymers at Dahej, at a cost of INR 595 crores. This project seeks to enter into the lucrative PVDF, FEP and FKM space, which caters to range of industries that include battery, chemical, coating, solar, automotive and aerospace. Expected to commissioned in 4 months
• At Dahej, commissioned 20MW captive power plant

There is certainly some seasonality in the HFC space that does play out and Q2 is generally weaker than Q1.

Weaker rupee is good for company

QnA

Q1FY23

Upside to fluorochemical in FY24 & FY25

- Certainly upside of 20% guidance

1500Cr will double the revenue?

On chloromethane capacity coming up

Capex on Fluorochemicals ( Huge runway for fluoro chemicals 👌)

margins in PTFE plant expected (Very high margin product )

Expecting EBIT margin to improve even from 26-27% upwards for FY23

All refrigerant gases are running full capacity

On 15000 HFC gas commissioning

On current capacity utilization

Almost 3100-3300 Cr capex is for FY23 and around same number goes for FY24

On headwinds in packaging material

- Margins to remain flat and not deterioriting from last year number, also committed to keep running the line and sell whatever is produced instead of closing the line

                                                                        Q2FY23

- BOPET continue to witness the margin decline due to lot of supplies coming online both locally and globally, also impacted due to rising power cost in Hungary and melt down in the commodity prices.

- BOPP is partially supporting the margin as demand is strong, commissioned new BOPP film plant and expecting volume growth in Q3

- What is SRF doing in order to maintain the margins and pressure coming up in packaging film?

- In technical textile business, Nylon tyre cord continues to witness subdued demand, however, Belting Fabrics and Polyester Industrial Yarn segments witnessed healthy growth during the quarter.

- In the other businesses SRF maintained its domestic market leadership in Coated Fabrics on the back of steady demand. In the Laminated Fabrics segment, SRF retained its pricing and volume leadership with the plant operating at full capacity and recording its highest ever sales in Q2 FY2023.

On Depreciating rupee impact  ( higher interest cost in P&L )

Net Debt for Q2

    

- Growth of chemical business beyond 20% plus

- on HFC demand outlook from short to medium term ( Anti dumping duty helping demand along with few plant closure in China )

- On derisking the supply chain

- On Hungary rising input cost issue impact ( EBITDA in year FY2022)
    

- What is driving the BOPP demand when BOPET is facing the headwinds?

- On capacity utilization rate for current quarter across the segments

- 600Cr capex announced will be 

- On Technical textile business margin guidance going forward

                                                                        Q3FY23

- There has been delay in commissioning in PTFE  plant...Probable timeline for plant coming up?

    

- 9M performance of packaging film business

- Better product mix has led to higher margins in speciality chemicals

- Thoughts on polymer business from point of view of customer acquisition, cost efficiency, how deeply integrated

- In an usually weak quarter for HFC, what has led to increase in the volume?

- Capacity utilization rate for the quarter

Operating rates. So Vivek, I think when we look at it from a Technical Textiles perspective, probably in the range of about 65%, 70% from an overall NTCF positioning, belting is pretty much full in terms of the capacity that we have. On the Packaging Films side, about 80%, 82% is the operating position on that. This is also including Hungary in that sense. But when I look at purely Hungary, Hungary is probably operating at 40%, 50% in terms of the operating rate on the Hungary side.

- Aluminium foil plant will have asset turn of 1.75x - 2x

- PTFE should follow similar trajectory of speciality chemical business asset turn of 0.8x-1.2x

- Speciality chemical & fluorochemical is always heavier in H2 than H1

Some Financial trends of SRF business

    EBIT Margin trend across verticals

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