ICICI Direct has reiterated its BUY recommendation on SRF Limited, setting a 12-month target price of Rs 3,315, implying an upside of 21 percent from current levels. The conviction rests squarely on the company’s Chemicals business, which continues to offset weakness in Performance Films and Technical Textiles. Q3FY26 delivered resilient top-line growth, sharp margin expansion, and a 60 percent surge in profit, led by fluorochemicals. Aggressive capital allocation toward next-generation refrigerants, pharma intermediates, and advanced fluoropolymers positions SRF for structurally higher earnings visibility over the medium term, despite near-term sectoral volatility.

SRF at a Glance: A Diversified Manufacturer with a Chemical Core

Founded in 1970, SRF Limited began its journey as a nylon tyre cord manufacturer and has since transformed into a diversified industrial enterprise with strong exposure to specialty chemicals, refrigerant gases, and packaging films. Today, the Chemicals division contributes 49 percent of consolidated revenues, followed by Performance Films at 36 percent, Technical Textiles at 12 percent, and others at 3 percent.

What distinguishes SRF is its disciplined capital deployment. Over the next two to three years, the company plans to invest approximately Rs 5,000 crore, primarily to deepen its fluorochemicals portfolio and future-proof its product mix against cyclical downturns.

Q3FY26 Scorecard: Chemicals Shoulder the Growth Load

SRF posted consolidated revenues of Rs 3,611.5 crore in Q3FY26, marking a 6 percent year-on-year increase. The headline number masks stark segmental divergence.

The Chemicals business delivered a standout performance, growing 22 percent YoY to Rs 1,825 crore, driven by healthy volumes and stable realizations. In contrast, Performance Films revenues declined 3 percent YoY to Rs 1,342 crore, while Technical Textiles fell 11 percent YoY to Rs 453 crore—its third consecutive quarterly decline.

Despite mixed segmental performance, EBITDA surged 26 percent YoY to Rs 780 crore, translating into a robust 21 percent margin, up nearly 330 basis points year-on-year. Profit after tax came in at Rs 432 crore, registering a sharp 60 percent YoY growth, underlining the operating leverage embedded in the Chemicals franchise

Fluorochemicals: Structural Strength in a Seasonally Weak Quarter

The fluorochemicals business remains the cornerstone of SRF’s investment thesis. Even during a seasonally weak quarter, the segment delivered steady volumes and strong realizations, with HFC plants operating at optimal utilization levels.

A key tailwind has been the quota-driven supply restrictions in China, which continue to support global pricing. R32 prices remained firm, aided by declining Chinese exports. Export prices in China hovered around USD 7 per kg, sustaining realizations for Indian producers.

Looking ahead, SRF is making a decisive shift toward fourth-generation refrigerants (HFOs). The company has committed Rs 1,100 crore to add 10,000 tonnes per annum of HFO capacity, with commissioning expected in FY27 and commercial revenues starting FY28. Additionally, an initial Rs 1,500–2,000 crore capex is planned at its Odisha site to scale up HFO production further.

Performance Films: Early Signs of a Cyclical Turn

The Performance Films and Foils segment remained under pressure in Q3FY26, weighed down by lower volumes and range-bound pricing for BOPET and BOPP films. Operational disruptions from GST 2.0, which required repackaging and relabeling, also impacted near-term throughput.

However, management commentary suggests the worst may be behind. Several Chinese packaging film capacities have shut down, and additional closures post the Chinese New Year could tighten supply. SRF expects this to support pricing and margin recovery over the coming quarters.

Strategic projects—including capacitor-grade film, PPPE film, and new polypropylene film lines—are progressing as planned, with a combined capacity addition of 100,000–110,000 metric tonnes, reinforcing medium-term competitiveness.

Technical Textiles: External Pressures Persist

Technical Textiles continues to be the weakest link, impacted by aggressive Chinese imports and subdued demand. Margin pressure in Belting Fabric intensified due to lower-priced imports, while Polyester Industrial Yarn demand remained soft amid a prolonged monsoon season.

Adding to the challenge, U.S. import tariffs have distorted trade flows, resulting in higher Chinese dumping at significantly reduced prices. Management remains cautious on near-term recovery, positioning this segment as a drag rather than a growth driver in FY26.

Strategic Diversification: Pharma Intermediates and Advanced Polymers

SRF is actively reducing its dependence on agrochemicals through targeted investments in pharma intermediates and advanced fluoropolymers. A Rs 180 crore capex is underway to expand pharma intermediate capacity at Dahej, with management targeting a doubling of segment contribution from 10 percent to 20 percent of overall revenues over the next few years.

Simultaneously, production under SRF’s partnership with Chemours for value-added fluoropolymers is expected to commence in calendar year 2026. These initiatives aim to smooth earnings volatility and improve the quality of cash flows.

Capex and Guidance: Building for FY28 and Beyond

For FY26, SRF has guided capex of Rs 2,200–2,300 crore, including land acquisition in Odisha. While management has moderated expectations for specialty chemicals growth—acknowledging it may fall short of the earlier 20 percent guidance—the long-term growth narrative remains intact.

The heavy lifting in capital expenditure is clearly front-loaded, with meaningful returns expected from FY28 onward as HFO and pharma capacities come on stream.

Valuation Framework and Target Price

ICICI Direct values SRF using a sum-of-the-parts methodology.

Chemicals business: 26x EBITDA

Performance Films: 10x EBITDA

Technical Textiles: 5x EBITDA

This yields a fair value of Rs 3,315 per share, reinforcing the BUY rating with a 21 percent upside from the current market price of Rs 2,750

Key Risks Investors Should Monitor

Key downside risks include:

Slower-than-expected growth in fluorochemical specialties

Prolonged softness in specialty chemical demand

Sustained weakness in Performance Films and Technical Textiles

Bottom Line: Chemicals-Led Conviction with a Long-Term Lens

SRF’s Q3FY26 performance underscores a familiar truth for investors: the Chemicals business is doing the heavy lifting, both operationally and strategically. While near-term volatility persists in legacy segments, SRF’s capital allocation toward next-generation refrigerants and pharma intermediates offers a clear pathway to structurally higher margins and earnings resilience. For investors with a medium- to long-term horizon, ICICI Direct’s BUY call remains firmly anchored in fundamentals.