SRF plans to spend Rs 5 billion for expansion
SRF Ltd, an Indian tyre cord and chemical manufacturer. which acquired two overseas companies this year, plans to borrow about Rs2 billion for expanding its present capacities.
Official sources from the company confirmed to Fibre2fashion about the plan adding that in all, SRF would spend Rs5 billion this fiscal for expanding capacity which includes setting up of the country's first polyester tyre cord factory. A part of the funds required for this project would be from internal cash flows.
SRF seeks to nearly double its revenue by year ending March 31, 2012. Some of its recent acquisitions include a tyre cord manufacturing company in Thailand and a belting fabric maker in South Africa which would result in increase in overall sales and building capacities for seizing opportunities in India. As of now, the company is expanding into making polyester fibre used for car radial tires and is doubling packaging film capacity.
There is no manufacturer for producing polyester tyre cords in India and it is witnessing a healthy growth in sales for the past six years. SRF affirms that the packaging industry has been growing at 15-17 percent and is likely to grow at the same pace for another five to seven years.
To meet its present requirement of capital for expansion, the company is holding talks with a few banks that will lend money for a period of five to six years. Sales this year, ending March 31, dropped to Rs16.8 billion, while profits plunged by 53 percent to 1.35 billion rupees.
With input cost surging, rupee appreciation against dollar made imports of nylon tire cords and other technical textiles, which account for 58 percent of the revenue, cheaper. This was one of the major reasons behind a drastic drop in domestic sales of the company.
SRF spent Rs1 billion for Thai Baroda Industries Ltd, increasing its capacity to make tire cords by 65,000 tons a year. This apart, it also bought Industex Technical Textiles (Pty) Ltd of South Africa in July which has a capacity to make 3,500 tons of fabrics used in conveyor belts at factories and mines, for 200 million rupees.
Moreover, SRF is also coming up with a plant at its factory in Gummidipoondi in the southern Tamil Nadu state to serve the purpose of producing 4,000 tons of polyester cords a year. Production is expected to start as early as February next year.
Company's four factories have a cumulative capacity to make 44,000 tons of nylon cords a year in India which are used in the manufacturing of tyres for buses and trucks. Experts believe that a fall in rupee against dollar is sure to increase the profit margins of SRF's nylon cord business. The Indian currency has fallen by 15.2 percent this year, which in turn will make imports dearer.
Profit margins of the company shrunk to 8 percent in the year ending March 31, 2007 from 15.3 percent recorded in the corresponding period last year. However, the trend would change once the expansion plans materialize bringing in more revenues and profits.