SRF Ltd. Considers Demerger of Performance Films & Foils Business Upon Reaching EBITDA Milestones

SRF Limited, a prominent specialty chemicals manufacturer, is considering a strategic demerger of its performance films and foils business. The potential separation is slated to occur once this specific business unit achieves an annual EBITDA ranging from ₹1,000 crore to ₹1,200 crore. The company's Chairman and Managing Director, Ashish Bharat Ram, indicated in an exclusive interview that reaching this financial threshold would position the board and investors more favourably to evaluate such a separation.

SRF's current strategy emphasises keeping its business verticals—chemicals, performance films, and technical textiles—consolidated to benefit from cash fungibility. The technical textiles segment, described as the group's 'cash cow', generates substantial free cash flows. This capital is then strategically reinvested to accelerate growth in the chemicals and packaging divisions, allowing for capital allocation to opportunities with the highest potential returns. The company views this consolidation as a trade-off for shareholders, balancing the immediate clarity of value from a demerger against the potential for greater overall returns through internal capital redeployment.

While a demerger is not ruled out and remains a possible future path, SRF management is prioritising its current integrated growth strategy. The performance films and foils business reported an EBIT of ₹356 crore for the full financial year and ₹259 crore in the first half of FY2025.

Impact This news is significant for SRF's shareholders as it outlines a potential strategic restructuring that could unlock value. The company's approach to capital allocation and business synergy will be closely watched. The market will likely assess the likelihood and timeline of achieving the EBITDA targets for the demerger. The stock may react based on investor sentiment towards future growth prospects and potential value creation.

Impact Rating: 6/10

Difficult Terms: Demerger: The separation of a business unit or division from a parent company to form a new, independent company. Performance Films and Foils: Specialized plastic films with specific properties used in packaging, industrial applications, and other sectors. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA): A measure of a company's operating performance before considering non-operating expenses like interest, taxes, and non-cash charges like depreciation and amortisation. Cash Fungibility: The ability to interchange or use cash generated from one business segment to fund operations, investments, or growth in another segment. Technical Textiles: Engineered fabrics designed for specific functional performance, used in industries such as automotive, construction, and defence. Cash Cow: A business or product that generates consistent and substantial cash flow with minimal investment. Free Cash Flows: The cash a company generates after accounting for capital expenditures necessary to maintain or expand its asset base. Capital Redeployment: The strategy of using capital obtained from one investment or business to fund new investments or businesses, often in areas with higher expected returns.