Motilal Oswal Financial Services has issued a decisive BUY recommendation on SRF Ltd, setting a target price of Rs 3,700, representing a potential 14% upside from current levels. The research underscores SRF’s robust recovery in FY25, its strategic capital investments, and a promising growth trajectory led by the chemicals and packaging films businesses. Investors are urged to monitor key financial metrics, margin expansions, and capex execution as the company navigates industry headwinds and competitive pressures.

SRF: Growth and Investment in R&D

SRF Ltd, a diversified chemicals and materials conglomerate, has staged a remarkable turnaround in FY25, rebounding from a muted FY24. Motilal Oswal’s latest research highlights a broad-based recovery across all business segments, aggressive investments in R&D, and a clear focus on capacity expansion. The company’s moat lies in technological innovation and operational efficiency, with the chemicals segment poised to spearhead growth in FY26. The report sets a target of Rs 3,700, reflecting confidence in SRF’s ability to sustain double-digit revenue and profit growth, even as margin pressures and global competition persist.

Motilal Oswal’s BUY Call: Target Price and Stock Levels

Motilal Oswal reiterates a BUY rating on SRF Ltd, with a target price of Rs 3,700 per share. The stock currently trades at Rs 3,239, offering a 14% upside potential. The valuation is underpinned by a sum-of-the-parts (SoTP) methodology, factoring in robust EBITDA growth and improving return ratios.

Key Stock Levels:

Current Market Price (CMP): Rs 3,239

52-Week Range: Rs 3,290 / Rs 2,127

Target Price: Rs 3,700

Market Capitalization: Rs 960.2 billion

Broad-Based Recovery and Segmental Performance

SRF’s FY25 performance marks a healthy rebound, with consolidated revenue rising 12% year-on-year to Rs 146.9 billion and EBITDA up 7% to Rs 28.4 billion. The chemicals segment, which accounts for 46% of sales and 71% of EBIT, grew 6% in revenue, driven by specialty chemicals and fluorochemicals. The Performance Films & Foils (PFF) business surged 24% in revenue, while the Technical Textiles (TTB) segment registered a modest 7% uptick.

Margin performance was mixed, with EBITDA margin contracting slightly to 19.3% due to pricing pressures and competition, particularly from Chinese imports. Despite this, the company achieved a broad-based recovery in all business lines.

Capital Expenditure and Capacity Expansion

SRF’s capital expenditure (capex) intensity slowed in FY25, with total capex at Rs 10.9 billion—down 53% year-on-year. The chemicals business remained the largest capex recipient, accounting for 62% of the spend. Looking ahead, SRF has guided for a capex of Rs 22-23 billion in FY26, targeting both greenfield and brownfield projects to expand manufacturing capabilities, especially in chemicals and packaging.

Recent debottlenecking projects have increased chemicals capacity by 30%, and new fluoropolymer facilities are expected to be commercialized in FY26. The company is also investing Rs 4.5 billion in a new packaging film line in Indore, with operations slated to commence within two years.

Technological Innovation and R&D Leadership

SRF’s competitive edge is anchored in technological innovation, with R&D spending reaching Rs 1.5 billion in FY25—about 5.4% of EBITDA. The Chemicals Technology Group (CTG) drives process enhancements, cost efficiencies, and in-house integration of critical raw materials. The company has filed 481 patents to date, with 38 new filings and two grants in FY25 alone.

SRF launched eight new products in the agrochemical and pharma sectors and 12 new products in BOPET and BOPP films, underscoring its commitment to high-impact, value-added products.

Growth Outlook: Chemicals and Packaging to Drive Momentum

The chemicals business is forecast to grow 20% year-on-year in FY26, led by specialty chemicals and fluorochemicals, while the packaging segment is set to benefit from new capacity and strong export demand. The TTB segment is expected to remain flat, reflecting industry headwinds.

Management projects a consolidated revenue CAGR of 18%, EBITDA CAGR of 32%, and adjusted PAT CAGR of 46% over FY25-27. The chemicals segment is anticipated to deliver a 25% CAGR, while packaging films should see 14% CAGR.

Financial Health and Key Ratios

SRF’s balance sheet has strengthened, with net debt-to-equity improving to 0.37x from 0.43x in FY24. Operating cash flow surged 19% to Rs 24.9 billion, and free cash flow turned positive at Rs 12 billion, reflecting disciplined working capital management and improved profitability.

Return ratios are on an upward trajectory, with ROE expected to rise from 11.4% in FY25 to 18.5% by FY27, and ROCE from 9.6% to 15.3% over the same period.

Here’s a summary of key financial metrics:

Risks and Valuation Considerations

SRF’s valuation remains rich, with FY26E P/E at 47.5x and EV/EBITDA at 26.8x, justified by its leadership in high-growth segments and strong R&D pipeline. Key risks include persistent pricing pressure from Chinese competitors, oversupply in certain product categories, and execution risks in planned capex.

However, the company’s diversified business model, robust balance sheet, and strategic investments in technology and capacity position it well for sustained outperformance.

Investor Takeaway: Strategic BUY for Growth-Oriented Portfolios

Motilal Oswal’s BUY call on SRF Ltd is grounded in the company’s successful turnaround, sectoral leadership, and clear visibility on earnings growth. Investors seeking exposure to India’s chemicals and advanced materials sectors should consider SRF a core holding, with a target price of Rs 3,700 and a favorable risk-reward profile over the next 12 months.