Rating Rationale
July 04, 2019 | Mumbai
SRF Limited
'CRISIL AA+/Stable' assigned to bank debt ; debt instruments reaffirmed 
 
Rating Action
Total Bank Loan Facilities Rated Rs.1000 Crore
Long Term Rating CRISIL AA+/Stable (Assigned)
 
Rs.300 Crore Non Convertible Debentures CRISIL AA+/Stable (Reaffirmed)
Rs.400 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AA+/Stable' rating to the long-term bank facilities, and reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the debt instruments, of SRF Limited (SRF).
 
The ratings continue to reflect a strong business risk profile, driven by market leadership, diversified revenue, and superior operating efficiency. The ratings also factor in a healthy financial risk profile. These strengths are partially offset by high capital intensity with continuous enhancement in capacity in the specialty chemicals and packaging films segments.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of SRF and all its subsidiaries, as they all have the same management and operate in similar businesses.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Market leadership
The company is the market leader in most of its businesses. Due to extensive experience in handling fluorine, it is the sole producer of some key refrigerants in India. In the fluoro-specialities segment, continuous investment in research and development (R&D), and improved manufacturing capability have made it a one-of-its-kind player, exporting from India products that find application in pharmaceutical and agro-based products. In the technical textiles (TT) business, the company is the largest nylon tyre cord fabric manufacturer in India, and addition of new value-added products in the belting fabric segment (part of the TT business) should further assist its market position. The market position in the packaging films (PF) business is supported by large capacity and high volume of value-added products. The company is likely to sustain its healthy market share, given its leadership position, established track record, and large R&D capability leading to technical expertise.
 
* Diversified revenue and superior operating efficiency
The company has a presence in TT (29% of the revenue in fiscal 2019, against 37% in fiscal 2018), chemicals (CP; 34% against 32%), and PF (37% against 31%). The management has successfully diversified the geographical presence through investments in the PF business in Thailand and South Africa, among other countries. The diversified revenue protects against downswing in any one business, and keeps the operating margin steady. Furthermore, cost efficiency measures in the TT and PF businesses, strong R&D capability in fluoro-specialities, and market leadership in refrigerants has kept the margin higher than that of peers. The EBITDA (earnings before interest, tax, depreciation, and amortisation) margin improved to 17.7% in fiscal 2019 from 17.3% in fiscal 2018. The operating performance is likely to remain stable over the medium term, supported by diversity in revenue.
 
* Healthy financial risk profile
The networth was robust at Rs 4,016 crore, and the gearing comfortable at 0.93 time, as on March 31, 2019. The debt to EBITDA ratio improved to 2.74 time as on March 31, 2019, from 3.25 times a year earlier. That's primarily because of the returns from the capital expenditure (capex) during fiscal 2018 on the specialty chemicals and PF segments, along with healthy organic growth in each of its segments. With benefits from the capex accruing further, the debt to EBITDA ratio is expected to remain below 2.75 times in fiscal 2020 and its level will remain a key monitorable. The gearing is expected to remain below 1.0 time. Low cost of borrowing and moderate gearing have kept the interest coverage ratio over 6.0 times in the past three fiscals. The sale of the engineering plastic segment for a proposed consideration of ~Rs 320 crore will further strengthen the financial risk profile.
 
The financial risk profile is likely to remain healthy over the medium term, backed by strong cash accrual, comfortable gearing, and ample liquidity.
 
Weakness
* High capital intensity
The company has continuous capex in the specialty chemicals segment of the CP business and has plans to expand manufacturing facilities in the PF business in foreign geographies. There was a capex of around Rs 1,160 crore during fiscal 2019, and Rs 1200-1500 crore is planned for fiscal 2020. Over the past four fiscals, the capital in the CP business has a compound annual growth rate of 18%, driven primarily by capex in this segment. The profitability of a molecule in this segment depends on successful commercialisation and acceptability. As a result, return on capital employed for the segment was 9.6% during fiscal 2019 and 8.5% in fiscal 2018.
Liquidity

Liquidity is adequate, driven by a cash and bank balance of Rs 299 crore as on March 31, 2019, and ample annual cash accrual of about Rs 925 crore during fiscal 2019. Liquidity is further supported by working capital lines of Rs 3,580 crore, utilisation of which was 56% as on March 31, 2019. The capex for fiscals 2020 and 2021 is estimated at Rs 1,600-2,200 crore, and is expected to be funded by a mix of internal cash accrual and debt. The repayment obligation for fiscal 2020 is Rs 368 crore, which should be easily met by internal cash accrual.

Outlook: Stable

CRISIL believes SRF's business risk profile will continue to benefit from market leadership and healthy operating efficiency, while the financial risk profile should remain comfortable due to strong cash accrual.
 
Upside scenario
* Significant increase in revenue and profitability while the strong financial risk profile is maintained
 
Downside scenario
* Sustained reduction in revenue and profitability or large, debt-funded expansion, which adversely impacts the debt to EBITDA ratio

About the Company

SRF started with a nylon tyre cord plant in Manali, India in 1970. It is currently present in the TT, CP, and PF business verticals. Under the TT segment, the company manufactures nylon tyre cord fabrics, belting fabrics, coated fabrics, and industrial yarns. In the CP segment, it manufactures fluoro-chemicals, fluoro-specialty chemicals, and chloromethanes.
 
It has 12 manufacturing units in India, one in South Africa, and two in Thailand, with sales spread across 75 countries, and a workforce of about 6500 employees.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Revenue Rs crore 7,693 5,610
Profit after tax (PAT) Rs crore 642 462
PAT margin % 8.3 8.2
Adjusted debt/adjusted networth Times 0.93 1.04
Interest coverage Times 6.83 8.0

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Working Capital Facility NA NA NA 323.0 CRISIL AA+/Stable
NA Proposed Working Capital Facility NA NA NA 504.0 CRISIL AA+/Stable
NA External Commercial Borrowings NA NA NA 173.0 CRISIL AA+/Stable
INE647A07033 Non-convertible debentures 30-Jun-2017 7.33% 30-Jun-2020 300.0 CRISIL AA+/Stable
NA Commercial paper NA NA 7-365 days 400.0 CRISIL A1+
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
SRF Holiday Home Limited Fully consolidated Strong business and financial linkages
SRF Global BV Fully consolidated Strong business and financial linkages
SRF Overseas Limited Fully consolidated Strong business and financial linkages
SRF Industries (Thailand) Limited Fully consolidated Strong business and financial linkages
SRF Industex Belting (Pty) Limited Fully consolidated Strong business and financial linkages
SRF Flexipak (South Africa) (Pty) Limited Fully consolidated Strong business and financial linkages
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  400.00  CRISIL A1+      06-07-18  CRISIL A1+  22-09-17  CRISIL A1+    --  -- 
                02-06-17  CRISIL A1+       
Non Convertible Debentures  LT  300.00
04-07-19 
CRISIL AA+/Stable      06-07-18  CRISIL AA+/Stable  22-09-17  CRISIL AA+/Stable    --  -- 
                02-06-17  CRISIL AA+/Stable       
Fund-based Bank Facilities  LT/ST  1000.00  CRISIL AA+/Stable    --    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Working Capital Facility 323 CRISIL AA+/Stable -- 0 --
External Commercial Borrowings 173 CRISIL AA+/Stable -- 0 --
Proposed Working Capital Facility 504 CRISIL AA+/Stable -- 0 --
Total 1000 -- Total 0 --
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023
Sachin.Gupta@crisil.com


Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329
nitesh.jain@crisil.com


Ashutosh Agarwal
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
Ashutosh.Agarwal@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL