Companies' Research Facts

SRF Ltd: Is it Worth to look for ?

SRF Ltd is a chemical based multi-business entity engaged in the manufacturing of industrial and specialty intermediates.

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(A) Introduction

The company’s diversified business portfolio covers Technical Textiles, Fluorochemicals, Specialty Chemicals and Packaging Films.

In 1970, DCM group decided to set up a separate entity to manufacture nylon tyre cord fibers and this separate entity was Shri Ram Fibers which later on become SRF.

The company is run by Mr. Arun Bharat Ram who is Grandson of Lala Shri Ram (Founder of DCM Group). Arun Bharat Ram’s sons,Ashish Bharat Ram and Kartik Bharat Ram are also completely active in the management of the company.

(B) Major Historic Events

1970:

SRF Ltd. incorporated on 9th January 1970 under the name of Shriram Fibres Ltd.

1974:

The company commenced Nylon Tyre Cord Fabric Plant at Manali, Chennai.

1977:

Further, introduced Fishnet Twines & Nylon Engineering Plastics in the same location. Nylon Engineering Plastics was introduced in the year 1979.

1983:

The Company established Industrial Fabrics Plant at Tiruchirapalli.

1984:

Shri Ram Fibres Ltd & Japanese company, Nippondenso Co. Ltd, incorporated SRF Nippondenso Limited. The Company manufactures alternators/generators with or without vacuum pump regulators.

1986:

The company commissioned Coated Fabrics project at Tiruchirapalli. Also during the year, SRF Finance Ltd started its operations.

1989:

Then SRF entered into chemical business with the start of commercial production of fluorochemicals at Bhiwadi.

1990:

Company changed its name from Shriram Fibres Limited to the present name SRF Limited.

1993:

Eventually, SRF divested from SRF Nippondenso Co. Ltd. to concentrate on its core businesses.

1995:

SRF started Chloromethane production at Bhiwadi. SRF also entered into health care segment by setting up a Vision Care project to manufacture plastic lenses at Bangalore.

1996:

SRF took over the nylon tyre Cord plant of Ceat at Gwalior. Also, the company made its first overseas presence by the way of operation plant for tyre cord in Dubai.

1997:

The Company divested SRF Finance Ltd to GE Capital. The company also divested the Vision Care business.

2000:

The company acquired Tyre Cord Fabric conversion facility of Dupont at Gummidipoondi, Chennai.

2002:

SRF businesses – Polyester Films, Fishnet Twines and Engineering Plastics spun off as a separate entity ‘SRF Polymers Ltd’.

2004:

SRF inaugurated the Packaging Film Plant at Indore & also Pharma Chemicals Business at Bhiwadi.

2006:

SRF commissioned Captive Power Project at the company’s Chemical Business, Jhiwana.

2007:

The project of holographic film plant of the company commissioned in December at an investment of approximately Rs. 10 crore. The product from this plant is used for luxury packaging segments.

2008:

SRF acquired two foreign companies. Firstly, Thailand based tyre cord company ‘Thai Baroda Industries Limited (TBIL)’. Secondly, South Africa based manufacturer of belting fabrics ‘Industex Technical Textiles (Pty) Limited’.

2009:

SRF purchased Engineering Plastics Business & Industrial Yarn Business. Moreover, SRF established a 14400 MT production capacity for polyester industrial yarn (PIY). Produced PIY is used in radial tyres, conveyor belts and coated fabrics.

2010:

Then SRF ventured into laminated fabrics by setting up a green-field plant of 900 sqm annual capacity at Kashipur, Uttarakhand.

2012:

Further in 2012, SRF started operations in newly commissioned chemical complex at Dahej, Gujarat.

2013:

The company set up a Greenfield facility for BOPET films in Thailand. Further, SRF expanded its overseas operations by establishing a BOPP films by setting up a Greenfield plant in South Africa.

2014:

To meet the growing demands of HFC 134a the company set up a second plant with capacity of 12500 tonnes per annum leading to total capacity of 17500 tonnes per annum.

2015:

In order to expand in the Fluorochemicals business space SRF acquired the Dymel HFC 134a regulated medical pharmaceutical propellant business from DuPont.

2016:

SRF set up pilot plant to manufacture next generation refrigerant gas HFO 1234yf. This will make SRF the first company outside US and Europe to manufacture HFO 1234yf using indigenous technology. HFO 1234yf use is expected to increase in car air-conditioning systems globally in future.

2016:

Moreover, the company approved two separate capex proposals aggregating Rs 345 crore. Firstly for the setting up a Multi-Purpose Plant for specialty chemicals. Secondly, for Chloromethane (CMS) plant in its Chemical Complex at Dahej, Gujarat. Capacity for Chloromethanes to increase to 80000 tonnes p.a.

2017:

SRF Ltd entered into a definitive agreement to acquire the HFC-125 assets from a Mexichem UK Limited, a global leader in the development manufacture & supply of fluoroproducts. Further, the company plans to relocate the assets to India and set up the facility for manufacturing HFC-125 at its Chemical Complex in Dahej, Gujarat. Thus, this acquisition provides the unique advantage of manufacturing all three major HFCs namely HFC 134a, 32 and 125 to market under the company’s FLORON brand.

2018:

SRF Ltd set up a second Bi-axially Oriented Polyethylene Terephthalate (BOPET) film line and a Resin plant in Thailand at the company’s existing manufacturing location under SRF Industries (Thailand) Limited (wholly owned subsidiary of SRF). Estimated Investment is US$ 60 million & plant is expected to become operational in close to two years.
Once operational, the new line shall produce approx. 40,000 metric tonnes p.a. With this capacity addition, the company will further strengthen its presence in the South East Asian region & expand its customer base in new geographies.

2019:

SRF entered into a definitive agreement for sale of its Engineering Plastics Business to DSM India Pvt. Ltd. for INR 320 crore. The Business was divested effective August 1, 2019.

Secondly, SRF Board of Directors approved the project for setting up of polytetrafluoroethylene (PTFE) facility at an estimated cost of INR 424 crore & capacity 5000 MTPA. The company’s rationale is to enter into fluoropolymers segment of fluorocarbons to derive cost advantage from the integrated value chain.

Also, the company closed the operations of Technical Textile Business of Rayong unit of SRF Industries (Thailand) Ltd. being economically nonviable.

Further, the Board approved setting up of a BOPP (Biaxially Oriented PolyPropylene Films) film line in Thailand by SRF Industries (Thailand) Ltd. (a wholly owned subsidiary of the Company) at a total cost of USD 50 million.

(C) About the Executive Management

(a) Mr. Arun Bharat Ram – Chairman

Arun Bharat Ram set up SRF in 1970 as a manufacturer of nylon tyre cord. He started his career in 1967 with the Delhi Cloth & General Mills Co. Ltd. (now DCM Ltd.), the flagship company of the Shri Ram Group of Companies. He became President of CII during 2000-2001. Presently, he is Chairman of CII Education Council, & the Indian Co-Chairman of the Indo German Consultative Group. Mr. Arun received remuneration of INR 5.20 crore for FY19, higher by 9.52% from FY18.

(b) Mr. Ashish Bharat Ram – Managing Director

Mr. Ashish is the son of Mr. Arun Bharat Ram. He holds a degree in Economics from Delhi University & an MBA from The Johnson Graduate School of Management, Cornell University. He took over as Managing Director of SRF Ltd. in January 2007. Prior to joining SRF Ltd. Mr. Ashish had successful stints at DCM Toyota Ltd., SRF Finance Ltd. & SRF Overseas Ltd. Now, he serves as the Regional Chair for South Asia for the Young Presidents Organization (YPO) & is a member of the Northern Region Executive Committee of the Confederation of Indian Industry (CII). His remuneration for FY19 increased by 15.66% to INR 5.59 crore.

(c) Mr. Kartik Bharat Ram – Deputy Managing Director

Mr. Kartik is son of Mr. Arun Bharat Ram & younger brother of Mr. Ashish Bharat Ram. He is a graduate from Santa Clara University, California & MBA from Cornell University, New York. Mr. Kartik also holds the position of Chairman in KAMA Holdings, a company that holds a majority shares in SRF Ltd. He also served as Chairman of the Confederation of Indian Industry (CII) Delhi State Council for the year 2007-08. He received remuneration of INR 5.62 crore, higher by 16.10% from FY18.

(D) Shareholding Pattern

Kama Holdings Ltd has the majority stake in the shareholding of the company. Kama Holdings Ltd holds 52.28% of the shares SRF Ltd. Mr. Arun Bharat Ram hold 0.05% shares. Institutions & Non-institutions hold 30.37% and 17.31% of the shares respectively as on 30th September 2019.

Shareholders holding more than 1%

(E) Business Diversification

I. Chemical Business

The Chemicals Business comprises two further product segments, namely Fluorochemicals & Specialty Chemicals.

A. Fluorochemicals

SRF is a domestic leader in fluorochemicals business. Fluorochemicals Business (FCB) drives its business through the sale of refrigerants, pharma propellants & industrial chemicals. This business serves reputed OEMs manufacturing air-conditioners, refrigerators, pharmaceuticals, chillers and automobiles.

(i) Refrigerants

The applications are room air-conditioners, automobile air-conditioners, refrigerators and chillers. Refrigerants are marketed under the FLORON brand. SRF manufactures ozone friendly refrigerants such as F 134a, F 32 & HFC blends such as F 410A, F 407C & F22. SRF recently launched Superton AC Air Pure for reducing the indoor air pollution problem caused by poorly maintained AC systems. Supertron AC Air Pure is a self-use product for purifying the AC ducts, coils & other passages. Thus, it can be used in both car & split room ACs.

(ii) Pharma Propellants

SRF produce HFA 134a/P as per European Monograph / BP standards. SRF acquired the pharmaceutical propellant brand Dymel HFA 134a/P from DuPont. The technical knowhow was also acquired to convert technical grade of F 134a to the propellant grade. Pharma Propellants are used in the medical treatments of diseases like asthma, chronic obstructive pulmonary disease, diabetes, angina pectoris & many others.

(iii) Industrial Chemicals

SRF manufactures a wide range of industrial chemicals that are used for diverse applications such as feedstock for pharma & agrochemicals, metal de-greasing, foam blowing & dry-cleaning. SRF’s main products in the Chloromethane space are Methylene Chloride, Chloroform & Carbon Tetra Chloride, which are used by the pharma & agrochemical customers.
Other products in this segment are Trichloroethylene, Perchloroethylene & Dilute Hydrofluoric Acid. Additionally, CLEAN SHAKTI, a brand of quality cleaning chemicals for toilet bowl, hard surface/floor & glass is marketed in India by SRF Ltd.

B. Specialty Chemicals

Specialty Chemicals Business remains focused on the agrochemical & pharmaceutical industry. SRF has been in the fluorination chemistry. also the company has an extensive experience in handling fluorine. In addition, the company is planning to expand it in the non-fluorinated chemistry as well. SRF is now manufacturing Active Ingredient (AI) for a major agro customer.

II. Packaging Films Business

SRF Packaging Films are used in food & non-food packaging, labeling, industrial & various other end applications. Two kinds of packaging film produced by company are:

A. Bi-axially Oriented Polyethylene Terephthalate (BOPET):

BOPET is produced from Polyethylene terephthalate (PET) resin. PET is a plastic material produced by biaxial orientation of PET resin which has found increasing applications within the packaging field. SRF offers its products under PETLAR brand for the entire range of BOPET films.

B. Biaxially Oriented PolyPropylene Films (BOPP):

BOPP (Biaxially-oriented Polypropylene) is a plastic material made from stretched polypropylene resin and is used for its barrier properties for converting and various other industrial applications. BOPP films are sold under ‘OPLAR’ brand by the company.

The non-industrial application of packaging films is for packaging of confectionery, dairy, pet food, ready to eat food. Secondly the industrial packaging includes Electric cables, Air ducting, Solar panels, Electronics, Flat screen display etc.

III. Technical Textiles Business

SRF is the largest manufacturer of technical textiles in India. In some products it enjoys global leadership. The products under this category are:

A. Tyre Cord Fabrics (TCF)

Nylon Tyre Cord Fabrics (NTCF), Polyester Tyre Cord Fabrics (PTCF), Cycle Tyre Cord Fabrics and Chafer Fabrics are the products provided by company under this category. SRF is the largest NTCF manufacturer in India.

B. Belting Fabrics

SRF manufactures belting fabrics used as reinforcement material inside the conveyour belts. SRF is second largest manufacturer of conveyor belting Fabrics in the world. Moreover, serves customers in 20 countries across Europe, Asia, USA and Latin America. The company offers belting fabrics made of the fibres like Polyester, Nylon 6, Nylon 66, Monofilament, Aramid and Steel.

C. Polyester Industrial Yarn

Company also makes industrial yarns & twines to meet specific requirements of customers for diverse applications such as industrial sewing threads, fishnet twines, webbings etc.

IV. Other Business

A. Engineering Plastics:

This Business is divested by  SRF from August 1, 2019.

B. Coated Fabric

A laminated fabric is a two (or more) layer construction with a polymer film bonded to a fabric. Application is for Awnings, Tents, Pagodas, Customized tarpaulin, Static covers etc.

C. Laminated Fabric

SRF coated fabrics are used in making Print banners, Hoardings, Billboards, Tent dome covers, Pandal covers etc.

(F) Revenue from Operations

I. Revenue Segments as per Geography

SRF is not only providing its products in India but exporting in more than 75 countries. So its revenue comes from different sources. South Africa, Germany, USA and Thailand are the main markets for the products of the company.

II. Revenue Segments as per Business Categories

Segments are same as how the product is categorized into four categories. Thus, the revenue is into the four categories on the basis of products; Technical textiles business (TTB), Chemicals business (CB), Packaging films business (PFB) & Others.

III. Segment wise Performance

  • The Chemicals business performed well during the 2nd Quarter of FY20. The Specialty Chemicals Business performed well with strong demand witnessed in the overseas markets.
  • Also, SRF maintained its growth guidance of 40-50% in Specialty Chemicals for FY20.
  • Fluorochemicals segment results improved due to increase in domestic demand, key refrigerants & significant contribution from Chloromethanes.
  • Technical textiles business revenue declined by a significant 29% YoY to INR3.2b due to the slump in the automotive sector.
  • Thus, overall decline in the volumes & margin of the technical textiles business.
  • Further, technical textiles business margin contracted due to one-time stamp duty payment of Rs. 28.82 crore related to Tyrecord Division at Malanpur, Madhya Pradesh.

(G) Cost Structure

(H) Significant Ratios

(I) Plant Locations

(J) Recent Concall Highlights

Technical Textiles

  • During the quarter ended 30 September 2019, SRF Industries (Thailand) Ltd., a wholly owned subsidiary announced the closure of its Technical Textiles Business operations at Rayong, Thailand. It was economically unviable.
  • The shutdown led to a volume loss of 800-1000 MT per month. However, the company will target some customers in Thailand from Indian plant which should aid margin recovery as cost of production is lower in India.
  • Tyre Cord Fabric segment adversely impacted due production cuts by tyre companies. Led to an overall decline in volumes & margins. Replacement demand also impacted due to financing issues. NTCF demand is expected to remain negative in the coming months due to the general economic environment.
  • There is an inventory loss of INR90-100m as the prices of caprolactam fell from USD 2000/MT to USD 1400/MT. Caprolactam is input raw material used in technical textile business.
  • Fabrics segment witnessed delayed cash flows in H1FY20 owing to the ongoing credit challenges in economy.

Chemicals Business

  • SRF board approved setting up an integrated Poly Tetra Fluoro Ethylene [PTFE] plant of 5000 MTPA capacity along with an R22 plant as feed stock at a cost of Rs. 424 crore. This will enable the company to enter Fluoro polymers segment and thus derive the cost advantage from the integrated value chain.
  • SRF approved a number of capex plans.
    Firstly, commissioning a facility to produce agro-chemical intermediates at capex of INR 140 crore. Secondly, the board also approved a capex of INR 40 crore to expand the capacity for production of a specialty product that finds application in agro, pharma & other specialty industries.

Packaging Segment

  • For packaging segment, Management stated that machine erection process at Hungary & Thailand started during the quarter and is running on schedule.
  • SRF expects oversupply position in BOPET segment because new BOPET lines are being commissioned & supply is likely to exceed demand in the short to medium term, which will affect margins negatively. Overall the global packaging films industry is witnessing improvement in capacity utilization.

(K) Research & Development

SRF has 2 dedicated R&D facilities – Engineering lab & Pilot Plant facilities. During the FY19 CTG filed 35 patents, taking the total count to 170 patents filed so far. 20 patents were granted in FY19 taking the total count of patents granted to the Company to 33. R&D expenditure during last 3 years:

(L) Group Companies

(M) Competitors

SRF is facing competition from different competitors in different fields. There are various private players in technical textile field. Major competitors of SRF Ltd:

(N) Controversies

(i) Dahej Plant Closure

Gujarat Pollution Control Board directed the company to close the operations of its industrial plant at Dahej in Gujarat due to alleged non-compliance with the Water (Prevention and Control of Pollution) Act, 1974. Dahej Plant is a significant contributor to the chemicals business of SRF. The company closed its production for few days in April. Eventually the board revoked the order.

(ii) Stamp Duty for Tyrecord Division

Hon’ble Supreme Court of India dismissed Special Leave Petition on 23rd September 2019 filed by the Company against the order of the Division Bench of Hon’ble Madhya Pradesh High Court, Gwalior Bench. Therefore, Court ordered the company to pay stamp duty of Rs. 23.73 Crores with a penalty of Rs. 5.09 Crores on the Deed of Conveyance dated 13th June, 1996 executed in relation to acquisition of captioned division from Ceat Limited the Collector of Stamps, Bhind (Madhya Pradesh).

(O) Opportunities & Risks/Concerns

Opportunities

(i) Less production of Specialty Chemicals in China and EU

There is closure of plants in China and EU due to increasing environmental concerns. China is the largest producer and exporter of specialty chemical. So this provides an opportunity for Indian specialty chemicals manufacturers to increase their capacity and export their product to other countries. According to CRISIL the specialty chemical business is expected to grow at a CAGR of 12-13%.

(ii) Packaging Film Industry Growth

Demand of BOPP and BOPET film is now in oversupply position. But in long term their demand is expected to rise. SRF expects demand of BOPET film to increase at 10% p.a.

Risks/Conerns

(i) Auto Sector slowdown

The Indian automobile sector is witnessing worst decline. As the demand of tyre cord fabric & refrigerant gases depend on this sector, it impacted the results of the company. Technical textile business of SRF under-performed due to decline in demand from auto sector.

(ii) Unavailability of Raw Material

This problem can hamper the growth story of SRF. Unavailability or increase in prices of raw material pose a significant risk for the production of the company.

(iii) Cheaper Imports

China can export their products to India at a reduced price owing to US-China trade war. Cheaper imports can lead to buyers to buy from china. Also, this results in squeezing margins, specially impacting technical textiles.

(P) Future Course of Action

SRF has a plan to increase its packaging film capacity. Company has a Capex plan of INR 11-12 billion for FY20. Out of this INR 8-9 billion is to be spent on packaging film business.

Moreover, SRF board of directors approved a capital expenditure for capacity enhancement cum modernization of the Tyre Cord Fabric value chain at an estimated cost of INR125 crore. The capacity to be enhanced is 750MTPM of the greige fabric capacity and 1,255MTPM of yarn capacity by March, 2023. (Existing capacity: Greige fabric 3,800MTPM, Yarn: 3,450MTPM).

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications. 

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. The report & references mentioned are only for the information of the readers about the industry stated.

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