Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank loan facilities and commercial paper of SRF Limited (SRF).

 

The ratings continue to reflect a strong business risk profile driven by market leadership, diversified revenue, high operating efficiency, and a healthy financial risk profile. These strengths are partially offset by high capex intensity with continuous enhancement in capacities in the specialty chemicals and performance films & foil segments. The operating profitability of the company is expected to improve in the current fiscal.

 

The operating income for the company is expected to improve over the medium term driven by recovery in chemicals and steady operations in technical textiles business. Also, the company has commissioned an aluminium foil facility and in lieu of the same ‘Packaging films business (PFB)’ has been renamed to ‘Performance films and foil business (PFB)’. The performance in the PFB segment is also expected to improve over the medium term. The revenue increased by ~8% to Rs. 10,142 crores in nine months ending Dec’24, compared to Rs. 9404 crores during same period in previous fiscal.

 

The EBITDA (earnings before interest, taxes, depreciation and amortization) margins of the company are expected to improve to 20-22% in fiscal 2026 and fiscal 2027. The operating margins moderated to 17.3% in nine month fiscal 2025 and 19.6% in fiscal 2024, compared to 23.6% in fiscal 2023. The moderation in margins was on account of both chemicals and PFB division going through a downcycle. The situation in chemicals and performance films & foil business has witnessed improvement since Q3 fiscal 2025. In the specialty chemicals business, there has been a volume uptick on account of healthy demand from agrochemical customers and increase in pricing by Chinese players. In the fluorochemicals segment improvement in key products pricing like R32/R22 has been witnessed and prices in China are higher as well. With healthy demand expected for Air conditioners, the segment is poised to perform well.

 

In the PFB segment, key industry players have witnessed recovery since Q1 fiscal 2025, with improving BOPP margins. With sustenance of demand, the revenue is expected to increase for this fiscal as well. SRF has also recently commissioned an aluminium foil facility, which is expected to contribute the revenue from fiscal 2026 onwards.

 

The technical textiles business (TTB) segment remains healthy with steady contributions from NTCF (nylon tyre cord fabrics) and PIY (polyester industrial yarn). The revenue in the segment is projected to grow moderately in the medium term.

 

In fiscal 2024, the company completed capex of ~Rs 2,347 crores for capacity expansion and setting up new facilities in the CB (chemicals business) and PFB segments. SRF has invested around Rs 2,000 crore p.a. on average on capex in the past 5 years and the company has capex plan of Rs. 1,600-1700 crore in fiscal 2025 and fiscal 2026 (lower than previous estimates, thus leading to lower debt availment in the medium term), which will be funded through a mix of internal accruals and debt. The majority of the planned capex will go into the chemical business segment for further capacity and product portfolio expansion. Consequently, the debt/ebitda is expected to improve to ~1.0 to 1.4 times over the medium term (as against expected ~1.6 times in fiscal 2025 and 1.9 times in fiscal 2024), despite a moderation in EBITDA margins.

Analytical Approach

For arriving at its ratings, Crisil has combined the business and financial risk profiles of SRF and all its subsidiaries, as all the entities (together referred to herein as SRF) have the same management and operate in similar businesses.

 

Please refer Annexure - List of Entities Consolidated, 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 business segments. Due to extensive experience in handling fluorine, it is the sole producer of some key refrigerants in India. In the specialty chemical segment, continuous investment in research and development (R&D), and improved manufacturing capability have made it a one-of-its-kind player, exporting products that find application in pharmaceutical and agro-based products. In the technical textile business (TTB), the company is the largest nylon tyre cord fabric manufacturer in India, and continued addition of new value-added products in the belting fabrics and polyester industrial yarn segment (part of the TTB) should further enhance the market position. The market position in the performance films & foil business (PFB) is supported by large capacity and high volume of value-added products. The healthy market position is likely to be sustained, given the leadership position, established track record, and large R&D capability leading to technical expertise.

 

• Diversified revenue and high operating efficiency: SRF has a diversified revenue profile with presence across CB (42%), PFB (40%) and TTB (15%) segments in terms of revenue as of nine-month fiscal 2025. The management has successfully diversified its geographical presence through investments in the PFB segment in South Africa, Thailand, and Hungary. The diversified revenue profile protects against downswing in any one business and keeps the operating margin steady. Furthermore, cost efficiency measures in the TTB and PFB segments, strong R&D capability in specialty chemicals, and market leadership in refrigerants have helped in keeping the margin higher than that of peers.

 

• Strong financial risk profile: The financial risk profile remains strong backed by robust tangible networth with expected gearing of 0.3-0.4 times in fiscal 2025 and fiscal 2026 ( ~0.43 time as on March 31, 2024). The net cash accruals are expected to be above Rs. 1800 crores in fiscal 2025 and fiscal 2026, compared to Rs. 1795 crores in fiscal 2024, resulting in comfortable debt protection metrics. The net cash accruals to adjusted debt is expected to be ~0.5 times in fiscal 2026. The financial robustness is also explained by interest coverage ratio which is expected to improve to ~10 times in fiscal 2026.

 

Weaknesses:

• High capex intensity: The company is continuously incurring capex in specialty chemicals of the CB segment and is also expanding manufacturing facilities of other segments. Capex was around Rs 2347 crore in fiscal 2024. SRF has invested around Rs 2000 crore every year on capex building in the last 5 years and the company has further capex plan of Rs 1600-1700 crore for fiscal 2025 and fiscal 2026, out of which majority will go into chemical business segment. However, profitability of a molecule in the CB segment depends on successful commercialization and acceptability, while cyclicality is inherent in the PFB and TTB segments. Therefore, the ability to maintain strong revenue growth and sustain the operating margin will remain a key monitorable.

 

• Volatility in the chemicals and packaging industry: Most of the revenue (>80%) of the company comes from CB and PFB. The chemicals industry had been has been facing issues since Q2 fiscal 2024 due to China dumping and inventory rationalization measures by key customers. Also, the packaging films industry has been facing issues since fiscal 2023 due to oversupply of BOPP and BOPET. However, recovery in both these industries has been witnessed since Q3 fiscal 2025.

Liquidity: Strong

SRF Ltd enjoys strong liquidity driven by expected cash accruals of more than Rs. 2000 crores per annum in FY26 and FY27 (~Rs. 1800 crores in fiscal 2025) and cash and cash equivalents of Rs.826 crores as on Dec 31, 2024. SRF also has access to fund based limits of Rs.2385 crores, utilized to the tune of 57% on an average (including commercial paper issued) over the 12 months ended Dec 2024. The company has long term repayment obligations around Rs. 800-1050 crores each in FY26 and FY27 with capex of around Rs. 1600 crores per annum. The company can partly fund its repayment obligations and capex requirements through internal accruals. It is expected to refinance balance debt obligations.

Outlook: Stable

Crisil believes SRF will continue to benefit from its market leadership and healthy operating efficiency, while the financial risk profile should remain comfortable due to adequate cash accrual, over the medium term.

Rating sensitivity factors

Upward factors

• Sustenance of the gross debt/EBITDA ratio at below 1.0 time
• Strong revenue growth, with sustained improvement in the operating margin, leading to higher cash accrual 

 

Downward factors

• A sustained increase in the gross debt/EBITDA ratio to more than 2 times
• A sustained decline in the operating margin with stagnant revenue leading to lower cash accrual

 

ESG analysis

ESG profile of SRF Supports its strong credit risk profile

 

The chemical manufacturers can have a significant impact on the environment owing to high water consumption, waste generation and greenhouse gas (GHG) emissions. The sector’s social impact is characterized by health hazards, leading to higher focus on employee safety and well-being and the impact on local community, given the nature of its operations. SRF has continuously focused on mitigating its environmental and social risks.

Key ESG highlights

• SRF has a total of 18.95 MW installed capacity of renewable energy, which includes an onsite 5 MW solar power plant and an offsite 13.95 MW wind power plant.
• SRF incorporates ESG aspects related to health and safety, human rights, labor laws, environment etc. within the supplier agreements and follows a code of conduct to assess the ESG performance of suppliers.
• SRF is committed towards fostering a diverse and inclusive workplace, free from any sort of harassment and/or discrimination based on gender identity, age, ethnicity, sexual orientation, disability, faith, or marital status.
• The governance structure is characterized by 60% of the board comprising independent directors, presence of an investor grievance redressal mechanism and extensive disclosures.

 

There is a growing importance of ESG among investors and lenders. The commitment of SRF to the ESG principle will play a key role in enhancing stakeholder confidence given shareholding foreign portfolio investors and access to both domestic and foreign capital markets.

About the Company

SRF is a multi-business chemicals conglomerate engaged in the manufacturing of industrial and specialty intermediates. Incorporated in 1970, SRF started operations with a Nylon Tyre Cord plant in Manali, Tamilnadu. It is currently present in CB, PFB and TTB and Others business verticals with a revenue contribution of 48%, 34% and 14% and 4% respectively in fiscal 2024. Under the CB segment, the company manufactures fluoro-chemicals (including refrigerant gases, blends and chloromethanes) and specialty chemicals. In the PFB segment it manufactures biaxally oriented polypropylene (BOPP) and biaxally oriented polypropylene terephthalate (BOPET) used in flexible package covers and labels and has established an aluminium foil facility in the previous fiscal. In the TTB segment, it manufactures nylon cord fabrics, belting fabrics, and industrial yarn. SRF has 13 manufacturing units in India and one each in South Africa, Thailand and Hungary. Its sales are spread across more than 100 countries, and it has a workforce of about 9000 employees. Presently India accounts for 45% of revenues followed by USA (11%), Belgium (6%), Switzerland (5%), South Africa (4%), Thailand (4%), Germany (3%), and rest of the world (22%). The parent company Kama Holdings Ltd. holds 50.21% stake while the other 49.74% is held by the public as on March 2024.

 

For the nine months ended Dec 31, 2024, operating income and profit after tax (PAT) were Rs 10,142 crore and Rs 724 crore, respectively, against Rs 9,404 crore and Rs 914 crore, respectively, for the corresponding period of the previous fiscal.

Any other information: Not Applicable