SRF preps for HFC phase-down; near-term demand-supply mismatch boost likely

The HFC phase-down is a global initiative under the 2016 Kigali Amendment to the 1987 Montreal Protocol,which requires signatory countries to reduce greenhouse gas emissions from HFCs.

HFCs—potent climate pollutants—are an important part of SRF’s business. The refrigerant gases producer is also investing in developing next-generation HFCs and is investing ₹1,100 crore to manufacture Hydrofluoroolefins (HFOs), which have much lower global warming potential (GWP).

The Kigali Amendment mandates countries to reduce the production and consumption of HFCs based on their GWP value, a measure of the harmful impact of a gas.For instance, R32, an important HFC, has a GWP of 675, which means 1kg of R32 has the same global warming impact as 675kg of CO₂. Similarly, the GWP of 1,430 for R134a means it is twice as harmful as R32.

With the GWP-based mandate, developed countries are switching to HFCs like R32, leading to a demand-supply mismatch. “In our view, SRF will continue to benefit from the global refrigerant gas demand-supply mismatch, particularly for HFC-32, where it has headroom to increase its sales volume,” said a 30 August JM Financial Institutional Securities report.

The GWP-based mandate is also expected to help SRF, as India’s current production and consumption have a greater share of HFCs with higher GWP, which could be replaced with R32. “Significant consumption of HFC-134a and blends in India could be potentially used for HFC-32 quota in future in case of GWP-based quotas,” JM Financial noted.

No impact so far

While the phase-down has already started in the developed countries, India’s reduction mandate starts only in 2032. For now, SRF is running its plants at full capacity utilization, as actual production during 2024-26, the baseline period, would determine Indian companies’ quota after the phase-down starts. So, the near-term earnings outlook would depend onhow the global demand-supply mismatch for refrigerant gases evolves.

SRF saw a decent start to FY26, with Ebitda (earnings before interest, taxes, depreciation, and amortization) growth of 38% in the June quarter (Q1FY26), to ₹830 crore, versus 7% in FY25. Its key chemicals business, comprising fluorocarbons and agrochemicals, saw 64% growth in Ebit with a 660 basis point margin surge to 27.3%. This segment accounted for 48% of SRF’s revenue in Q1FY26, up from 43% a year ago.

SRF maintained its FY26 chemical business revenue growth guidance of 20% against 12% in FY25.During the quarter, it began commercial sales of R467a, developed and patented in-house by SRF, to replace R22, a high-GWP gas. To make the optimal use of its production facilities, it also entered into an agreement in August with Chemours, a speciality chemicals company, to manufacture certain products at its Dahej plant, to be marketed globally by Chemours.

Meanwhile, SRF stock is up 31% so far in CY25, buoyed by the strong outlook for HFCs. SRF has outlined capital expenditure of ₹2,400-2,500 crore for FY26 versus around ₹1,100 crore in FY25. Going by Bloomberg’s consensus estimates, SRF could record earnings per share growth of 52% in FY26.“SRF is set to benefit from regulatory shifts and evolving global consumption patterns, particularly under the Kigali Amendment,” said a 30 August Motilal Oswal Financial Services report.

Motilal expects SRF to post a compound annual growth rate of 16%/30% in revenue and Ebitda over FY25-27.