SRF Limited: Amansa Capital’s big bet

SRF has 3 business verticals – Chemicals & Polymers, Technical Textiles and Packaging Films. SRF is a market leader in most of its business segments in India. SRF also commands a significant global presence in some of its businesses, with operations in India, Thailand and South Africa, and exporting to 75 countries.

SRF has 9 manufacturing plants in India and 4 overseas, has 6500 employees globally.

1) Chemicals & Polymers Business:
SRF derives 34% of its revenues from chemicals & polymers business. The chemicals & polymers business comprises of fluoro specialty, fluorochemicals and engineering plastics.

1.1) Fluoro Specialty:
SRF derives 15% of its revenues from fluoro specialty business. SRF develops and supplies complex intermediates for new molecule innovations in pharma/agrochemicals. SRF has over 25 years of experience in fluorine chemistry, is one of the leading global fluoro specialty players. Fluorine is one of the most hazardous chemicals.

Its key customers in this space include Bayer Corp, Syngenta, and Pfizer.

1.2) Fluorochemicals:
The fluorochemicals business derives its revenue from the sale of refrigerants, pharma grade propellants and solvents.

SRF is the domestic market leader in the fluorinated refrigerants space, exports to more than 60 countries. The refrigerant product range includes HCFC 22, HFC 134a, HFC 32 and HFC Blends such as HFC 404A, HFC 407C, HFC 410A. The business serves reputed OEMs manufacturing air-conditioners, refrigerators, chillers and automobiles. SRF sells wide range of refrigerants under the brand name FLORON®.

SRF is the only manufacturer of R134a in India and a leading supplier to automobiles and pharma companies such as Cipla and Lupin. SRF supplies R134a cans to Wal-Mart.

In 2015, SRF acquired Dupont’s Global Business of DYMEL HFC 134a Pharma. SRF developed indigenous technology for production of HFC 134a. SRF has filed 111 process patents so far.

1.3) Engineering Plastics:
SRF continues to maintain its leadership position in critical segments such as automotive and electrical by focussing on key customers and applications, leveraging existing OEM relationships.

2) Technical Textile Business:
SRF derives 39% of its revenues from technical textiles business. SRF is taking cash from this business which is not growing, and redeploys that cash into fluoro specialty business.

3) Packaging Films:
SRF derives 27% of its revenues from packaging films. It is a commodity business. SRF is one of the largest manufactures of BOPET and BOPP films and exports packaging films to around 70 countries. SRF is the lowest-cost producer in the world.

SRF has technology tie-ups with
– Dupont for HFC 143a
– Unitika and Toray for High Tenacity
– Polyamide 6 Yarn
– Toray for Polyester Tyre Cord Yarns
– ValMehler for Industrial Fabrics
– Honeywell for CFCs and HFCs
– Arkema for Chloromethanes

Investors:
– Promoters hold 52% of the company
– Amansa holds 6.5% of the company
– DSP Blackrock holds 4.4% of the company

Source: Company

Big opportunity for India in specialty chemicals: Amansa Capital

The speciality chemical outsourcing industry is today where the pharma industry was 15-20 years ago.

India is very strong in chemical engineering skill set. It has a large base of chemical manufacturing. US and Europe do not want to manufacture chemicals anymore. They are outsourcing to China, but China is scaling back on chemical manufacturing because of environmental reasons. It opens up the space for India.

SRF is in the stage of transformation and it stands out in terms of their expertise in certain molecules. SRF has a long history of chemical engineering. SRF has been producing chemicals for different application for the last few decades and what they are doing very smartly now is they are taking the cash from existing business which is not growing, and redeployed that cash in high technology business.

SRF will not do commoditised business and they are reinvesting all the capital in the speciality chemicals business.

If you look at the company 5-6 years ago when the stock was not doing well the company did two things, one they used cash to buy back shares. Secondly the founder family bought stocks to increase the stake in the company and they own more than 50% of the company today. It clearly tells us they are fully aligned with minority shareholders.

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