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G. Madhan

INVESTORS seeking higher returns from their fixed deposit investments, and willing to assume a significant degree of risk to meet this objective, can consider the fixed deposit programme of SRF Polymers. Considering the high interest rates, an investment of up to one year can be considered. Given the fluid interest rate scenario and relatively high business risks involved, investments of over a year can be avoided. The company's earnings have been on a declining trend.

Scheme and features: SRF Polymer offers only the cumulative scheme. As the interest is compounded at quarterly rests, the annual yields for the same are 8.24 per cent and 8.58 per cent respectively. The minimum deposit amount under the scheme is Rs 15,000.

Business prospects: SRF Polymers makes fishnet twine and engineering plastics. The engineering plastics business makes compounds used as the raw material for various applications in automobiles, white goods, electrical, textile machinery, and electronics sectors. The company has sold its polyester film operations to SRF.

The fishnet business in India is highly fragmented. Considering the dominant market share the company already enjoys in this industry, there is limited scope for growth in the domestic market. The growth in the engineering plastics business may be brighter, as they hinge on the fortunes of the domestic automobile industry and on exports. Considering the robust growth witnessed by the automobile industry, the engineering plastics business has good prospects for growth.

Financials: The company's revenue has grown steadily over the past two years. The trend continued during the first quarter of this year ending June 2004, as the revenue grew 9 per cent to Rs 40.8 crore, over the corresponding previous period.

At the operating level, profits and margins, however, witnessed a steep drop, due to the sharp increase in the cost of key inputs.

Considering the firm trend in the price of polyester chips, the pressure on margins is likely to continue. The company's earnings also saw a 20 per cent drop in the recently-concluded quarter. The interest coverage ratio also dropped to 1.8 times in FY'04 from 2.8 in FY'03.

Suitability: The returns under the scheme are not substantially higher than that offered by the small-savings schemes such as post-office monthly income schemes. Risk-averse investors should therefore consider these alternatives, before they consider this fixed deposit programme, which carries a significantly higher risk profile.

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