personal debt

Fitch attests 'F1 ' Rating of India-based SRF's CP / Short-term Debt.

Bryant Russell
26 September 2008

The rating relies on SRF's well-established market position in its core companies of Nylon Tyre Twine Fabric, refrigerant gases and belting fabrics. In addition, cash from the trading of carbon emission reduction ( CER ) units have provided an extra source of revenues to SRF, further supporting its profitability and improving its money leverage.

However, the rating is also contingent on SRF maintaining moderate fiscal leverage on a sustained basis. SRF registered a decline of ten percent in cash to INR16.1bn in FY08 from INR18.0bn in FY07, essentially on account of lower CER income. Its operating EBIDTA / income proportion slid noticeably to 19.9% in FY08 from 30.5% in FY07 thanks to a decrease in CER cash and reducing profitability in the NTCF business.

Nonetheless , the company's finance leverage ( Total changed Debt / Op EBIDTA ), though increased to 1.6x in FY08 from 0.9x in FY07, stayed at moderate levels. Regardless of important profitability concerns in its core companies, its rating has been confirmed thanks to the moderate leverage supported by CER cash. However, the capability of SRF to generate robust money flows under the Montreal Custom / CERs and gainfully employ these funds to secure a competitive position in its varied companies will guide its rating, given that these money flows are available only for a limited time period. As such, Fitch notes the initiatives being taken by SRF by entering the polyester yarn business, growing its speciality chemicals business and prompting consolidation in the NTCF and belting fabrics are probably going to brace its business profile in the medium to long-term. The incapacity of SRF to boost the performance of its core companies or any debt-led purchase / growth leading to a rise in financial leverage would be viewed adversely for its rating. The company is a leading manufacturer of NTCF, belting fabric and refrigerant gases, and made forays into the fluoro-specialities business in FY04 to develop fluoro- chemicals for pharma and agri-chemical firms. It purchased Thai Baroda Industies Limited ( Thailand ) in Sep 2008 and agreed a definitive agreement to get the belting fabric division of Industex Technical Textiles Limited ( SA ) in July 2008. The best hazard inside a country is rated 'AAA' and other credits are rated just relative to this hazard. State ratings are designed for use principally by local speculators in local markets and are signified by the addition of an identifier for the country worried, for example 'AAA ( ind )' for Countrywide ratings in India.

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