We met Rahul Jain, CFO, SRF Ltd. The company remains confident of meeting its 50% revenue growth guidance for specialty chemical business despite multiple chemical companies issuing earnings warnings/guidance cut. It said guidance is based on strong order pipeline visibility it has for the next 12-18 months. Maintain Hold rating on the stock. Below are the key takeaways from the meeting.

Strong visibility for specialty chemical business

SRF said its guidance of 50% revenue growth in specialty chemicals is based on strong orderbook visibility for the next 18 months, and it is much more confident of revenue growth delivery for the next six months based on manufacturing schedule. Though it is seeing stress in the US agrochemicals market, South America is doing well. Most of its exports are for European clients while Japan and North America are relatively small.

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The revenue growth is driven by both new and existing products with contribution from both being almost equal at 50%. Company has benefited from expansion in the product portfolio, and currently has commercialised molecule of 30-32, while active manufacturing is of 10-12 products. It was 5-6 products during FY16/FY17. Its product pipeline remains robust. The inventory loss during shutdown of Dahej plant was Rs 60-70 mn. However, long production cycle for a few products has delayed normalisation of plant operations by 60-90 days.

PTFE need backward integration of R-22

SRF has announced capex of Rs 4.24 bn for integrated manufacturing plant of Polytetrafluoroethylene (PTFE) along with R-22. The capacity expected is 5,000mtpa. The requirement of R-22 is almost 2.1x per kg of PTFE. SRF is increasing its R22 capacity from the present 12,500mt to 25,000mt which should suffice its need of R-22 for feedstock in manufacturing PTFE. SRF has enough chloroform capacity for manufacturing R-22 at Dahej, thanks to the chloromethane plant commissioned in FY18.

HFC new plant to commission soon

The commissioning of new hydrofluorocarbon (HFC) plants has been delayed due to heavy rain and flooding in Dahej. The new capacity will expand R-134a by 5,000mt to 20,000mt, R-32 to 7,000mt and R-125 to 7,000mt. SRF has 12,500mt of R-22 capacity of which 7,000-8,000mt is sold as ref-gas; and non-emissive use is 3,000-4,000mt. The second phase out of 25% from base level will kick in on 1-Jan-20. SRF believes second phase out will not hurt its volumes.