SRF’s stock price hit an all-time high. Can it go higher? 3 things to watch

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Figure 1: SRF’s stock price momentum from 2022 to April 2025 (Source: Trading View)

Investors should consider a few things before jumping into SRF’s cyclical rally.

Before we proceed, note that Shri Ram Fibres, also known as SRF, is a multi-business entity that manufactures industrial and speciality chemicals. Hence, its valuation is also based on the Sum of the Parts (SOTP), which adds up the individual values of each business segment. We will look at the business segment’s performance and the factors that could drive growth to determine whether one should invest in SRF.

SRF’s multi-business model

Incorporated in 1970, SRF started manufacturing nylon tyre cord and gradually diversified into belting fabrics (1983) and coated fabrics (1986). What started with industrial textiles diversified into chemicals in 1989, packaging in 1995, and speciality chemicals in 2004.

Today, the chemicals business contributes the largest revenue pie of 41.7 per cent and profit pie of 64.1 per cent. The packaging business makes up the second-largest revenue contributor at 39.9 per cent. However, it is yet to give strong profits. And the initial business of technical textiles is only 15.1 per cent of the revenue and 13.8 per cent of the profit.

SRF revenue by business segment 9MFY25

Being the bigger piece of the profit pie, chemical demand and prices significantly influence SRF’s earnings. The chemicals segment is divided into fluorochemicals and speciality chemicals.

Figure 2: Revenue share (Source: Q3FY25 Investor Presentation)

Fluorochemicals include refrigerant gases (R22, HFC blends), where SRF is a domestic leader and one of the top five players worldwide. It is among the few global manufacturers of pharma-grade 134a/P – propellant in metered dose inhalers. In the refrigerant gas space, SRF competes with smaller players like Gujarat Fluorochemicals and Navin Fluorine International. Any industry-level change could see the three stocks moving in tandem.

SRF also makes chloromethanes, intermediates for speciality chemicals, hydrofluoric acid, polytetrafluoroethylene (PTFEs), and fluoropolymers, which have applications in pharma and agro. Here, it competes with PI Industries.

SRF’s chemicals business is influenced by the growing demand for ACs and the international prices of various chemicals.

Understanding the behaviour of chemical stocks

Chemical companies face pricing pressure from China, as it has the lowest production cost. In the chemicals segment, companies innovate products and improve manufacturing capabilities. They have to follow stringent environmental and safety regulations to avoid fines or operational shutdowns.

Chemical stocks are volatile as patent approvals and new chemical demand can drive stock prices while pricing pressure and regulatory issues can pull down prices. These stocks are also cyclical as refrigerant gas undergoes technological upgrades, wherein older high-emission gases are phased out for low-emission ones.

Since SRF supplies chemicals for agro, pharma, and industries worldwide, a growing global economy bodes well for the company. Macro and geopolitical events impact SRF directly and indirectly. The current economic, regulatory, and technological scenario could influence SRF’s two to three-year earnings cycle, and that is where investors should keep an eye on.

1. Trump tariffs and their impact on Indian exports

India’s chemical industry is a beneficiary of the ‘China Plus One’ policy because of its advancements in process engineering and adherence to quality and waste management standards.

India is positioning itself as a leader in the global speciality chemicals market. Hence, when US President Donald Trump imposed a 27 per cent blanket tariff on Indian chemical exports to America, chemical stocks fell. This is 7.7x more than the existing import rate of 3.5 per cent.

Navin Fluorine, PI Industries, and SRF were the hardest hit because of their 25 per cent, 20 per cent, and 7 per cent revenue exposures to US exports, respectively. Their stocks fell 8.9 per cent, 7.4 per cent, and 9.38 per cent, respectively, on the tariff announcement and quickly recovered when the tariff was paused for 90 days. This pause could accelerate export orders as companies stock up ahead of tariffs. That explains the sudden jump in stock prices.

Figure 3: Navin Fluorine International’s April 2025 stock price momentum (Source: Trading View)

While the reciprocal tariffs will make the exports expensive, India is not alone. Other chemical exporting countries also have higher tariffs – China (34 per cent), the European Union (20 per cent), Japan (24 per cent), and South Korea (25 per cent) – mitigating the competitive disadvantage in the export space.

Investors should keep a close watch on the tariff situation and if it turns positive for India in the medium term.

Meanwhile, refrigerant gases are seeing a price uptick because of a thematic upgrade.

2. Phase down of HFC consumption and production

Under the Hydrochlorofluorocarbons (HCFCs) Phase-out Management Plan, the foam manufacturing sector is transitioning to low Global Warming Potential (GWP) chemical cyclopentane. India’s AC sector has transitioned to low-GWP propane (R-290) and HFC-32 technologies. In the US, the GWP positioning will reduce the demand for R125, which could drive demand for R32.

Domestic: India will see an HFC phase-down in the coming years. Production and consumption data will be collected for 2024-2026, which will be used as a base to determine the production and consumption quota in 2027. Once the quota is determined, HFC production and consumption will freeze in 2028 or 2030 and start reducing from 2032 onwards.

HDFC Securities believes SRF will be a key beneficiary and secure the largest consumption and production quota. SRF is the largest manufacturer of refrigerant gases in India, with an HFC capacity of ~52ktpa. However, it has not been operating at optimum capacity due to low demand and non-availability of key raw material, Anhydrous Hydrogen Fluoride or AHF. The company added AHF capacity in 2024, which could drive R-32 production in the next two years and secure it the largest quota.

Historically, a phase-down in production/consumption and the beginning of a quota regime have increased the price of refrigerant gases. History is repeating itself.

Export: IGas USA announced that prices of R32 and R125 refrigerant gases would increase by up to 200 per cent due to supply constraints. Higher prices could significantly boost profit margins for SRF, which reported an earnings before interest and tax (EBIT) margin of 24.3 per cent in Q3FY25.

The next three to four years could set the supply dynamics for HFCs.

While Navin Fluorine is doubling its R32 capacity of 4,500 tonnes, SRF has no plans to increase R-32 capacity, which currently stands at 29,000 to 30,000 tonnes. However, SRF is investing Rs 1,100 crore on building new facilities in Gujarat to manufacture fourth-generation refrigerants.

3. Demand and pricing in speciality chemicals

Apart from HFCs, SRF is also engaged in the manufacturing of speciality chemicals. Here, the company develops new products and processes, registers for a patent, campaigns for commercial launch, and if demand is strong, ramps up production.

Between FY22 and FY24, dumping by Chinese players created excess inventory in the channels, which created pricing pressure in agrochemical intermediates. While the demand has always been decent, large customers were destocking their inventories.

Some areas continue to face pricing pressure, and some areas are seeing restocking, which has boosted demand in FY25. SRF is campaigning for two to three agrochemical intermediates and is in advanced discussion stages for a commercial launch for five products in the pharma sector.

Mirae Asset Management expects SRF to launch six to seven active ingredients with a large addressable market (some as large as $150- 450 million) in the coming two years. The brokerage expects SRF to boost its pharma intermediates business threefold in three years from an estimated Rs 300 crore at present.

Investors should monitor the performance of new products and its production ramp. So far, the company is hoping FY26 to be a good year for some registered agrochemical intermediates.

SRF earnings and analysts’ expectations

The above three trends have created a mixed but overall positive outcome for SRF. The company’s revenue and earnings before interest, tax, depreciation, and amortization (EBITDA) increased by 14.4 per cent and 15.1 per cent year-over-year, hinting that chemical prices have increased.

SRF’s chemicals business saw a 13 per cent jump in EBIT, which improved its EBIT margin to 24.3 per cent in Q3FY25 from 23.1 per cent a year ago. Its packaging business EBIT margin has not grown as it has a long learning cycle for aluminium foils.

The fourth quarter is seasonally strong for SRF, and analysts have upgraded their price targets after the company stated that it expects prices to remain positive.

Figure 4: Brokerages’ price target on SRF after Q3FY25 earnings

Brokerages are optimistic about the next two years and expect earnings per share (EPS) to grow by 60 per cent in FY26 and around 36-48 per cent in FY27. They expect strong EPS from higher prices and increased capacity utilisation in the chemicals business.

Should you buy SRF stock despite high valuations?

SRF stock is trading at a PE ratio of 77.3x, its highest in 10 years. Its ratio is lower than refrigerant gas peer Navin Fluorine International (79.2x), but higher than speciality chemicals peer PI Industries (32.9x). If you look at the PE ratio and analysts’ estimates for FY27, SRF stock is trading at 29x its FY27 EPS estimate. The strong earnings potential over the next two years suggests the 77.3x PE ratio is not entirely unfounded.

Positive HFC pricing, hopes of strong demand and pricing from the newly launched speciality business, and better utilisation of capacity are driving its chemicals business. However, a slowdown in consumer demand and dumping by Chinese players could pose a risk.

It is a good stock to add to your watchlist and monitor the impact of the above three trends of Trump tariffs, HFC pricing, and speciality chemicals performance on the stock price.

Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was unavailable have we used an alternate, but widely used and accepted source of information.

Puja Tayal is a seasoned financial writer with over 17 years of experience in the field of fundamental research.

Disclosure: The writer and her dependents do not hold the stocks discussed in this article.

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