SRF Shares Drop 6% as Management Highlights Chinese Competition Pressure
SRF Ltd shares fell 6% on January 21 following management commentary about persistent competitive pressure from Chinese players across core product categories. While the refrigerant gas segment showed exceptional strength with 26% YoY EBITDA growth, other segments faced challenges including margin pressures in belting fabric and weaker packaging films performance. Major brokerages Jefferies, Citi, and Morgan Stanley maintain negative ratings with price targets suggesting potential downside of up to 24.5%, citing concerns about Chinese competition, capacity constraints, and uncertain demand recovery timeline.
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SRF shares experienced a significant decline of 6% on Wednesday, January 21, following management commentary during a post-earnings conference call that highlighted persistent competitive pressure from Chinese players across several core product categories. The company's leadership acknowledged the challenging market dynamics while expressing cautious optimism about future demand recovery.
Management Commentary on Market Challenges
During the conference call, SRF management provided detailed insights into the competitive landscape affecting the company's operations. The leadership noted that Chinese competitors are finding it increasingly difficult to sustain current price levels, suggesting that the present situation may not be viable in the long term. This competitive pressure has been particularly evident across multiple product segments, creating margin compression challenges for the company.
The management highlighted specific recovery signs in the agrochemicals sector, which is used in crop protection applications. Additionally, they noted witnessing early signs of recovery in the domestic market for both BOPP (Biaxially Oriented Polypropylene) and BOPET (Biaxially Oriented Polyethylene Terephthalate) films from December 2025 onwards.
Segment-Wise Performance Analysis
| Segment | Performance Highlights |
|---|---|
| Refrigerant Gas | Exceptionally strong performance with 26% YoY EBITDA growth |
| Specialty Chemicals | Soft performance, expected improvement in Q4 due to seasonality |
| Belting Fabric | Continued margin pressure from Chinese imports and US tariff impacts |
| Packaging Films | Weaker revenues compared to estimates |
| Technical Textiles | Below-expectation performance |
The refrigerant gas segment emerged as a standout performer, driving the overall 26% year-over-year EBITDA increase and 1% sequential growth. However, the company faces capacity constraints in this segment, limiting potential volume upside from previous year levels.
Brokerage Outlook and Price Targets
Major financial institutions have maintained negative outlooks on SRF, with three prominent brokerages projecting significant downside potential:
| Brokerage | Rating | Price Target | Potential Downside |
|---|---|---|---|
| Jefferies | Underperform | ₹2,640.00 | Moderate downside |
| Citi | Sell | ₹2,575.00 | Significant downside |
| Morgan Stanley | Underweight | ₹2,177.00 | Up to 24.5% |
Jefferies Analysis
Jefferies maintained its "underperform" rating with a price target of ₹2,640.00 per share. The brokerage noted that while EBITDA performance aligned with expectations, the specialty chemicals segment showed softness. They highlighted that the stock has outperformed the Nifty by 29% in 2025, primarily driven by refrigerant gas strength, and currently trades at plus one standard deviation above its long-term average.
Citi's Assessment
Citi retained its "sell" rating with a ₹2,575.00 price target, citing underperformance relative to estimates driven by lower EBIT margins in the chemicals segment. The brokerage identified several downside risks to consensus expectations, including:
- High base effects heading into the fourth quarter
- Continued pricing pressure from low-cost Chinese competition
- Deferred procurement by agricultural majors
- Expected R32 capacity additions by multiple players in 2026
Morgan Stanley's Perspective
Morgan Stanley maintained an "underweight" rating with the most bearish price target of ₹2,177.00 per share. The brokerage noted that SRF's FY26 guidance of 20% topline growth implies 15% growth in the March quarter, which hinges on a sharp recovery in specialty chemicals during the fiscal fourth quarter.
Market Performance and Outlook
Shares of SRF closed at ₹2,709.80 on Wednesday, reflecting the 6% decline. The stock has experienced broader weakness, declining 13% over the past month. Despite near-term challenges, management expressed cautious optimism about demand recovery, particularly noting potential improvements in domestic markets and the unsustainable nature of current Chinese pricing strategies.
The company continues to navigate tariff uncertainty in the US market, which may create short-term volatility in the fluorochemicals segment. However, management believes that signs of recovery in agrochemicals and domestic packaging films could provide support for future performance.
Historical Stock Returns for SRF
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -5.95% | -10.79% | -12.25% | -14.92% | +3.81% | +131.13% |
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