Polyfibre tariff cut to imply tougher competition in yarn - Views on News from Equitymaster

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  • Mar 3, 2000 - Polyfibre tariff cut to imply tougher competition in yarn

Polyfibre tariff cut to imply tougher competition in yarn

Mar 3, 2000

Lower import duties on polyester filament yarn (PFY) and polyester staple fibre (PSF) would affect the bottomline of Reliance Industries when imports of textiles from the European Union and the USA commence. So far the imports of PSF and PFY are negligible. Reliance Industries (RIL) is India’s largest producer of fibre intermediates (polyester terephthalate and mono-ethylene glycol) and downstream petrochemicals (polypropylene, high-density polyethylene, linear low-density polyethylene).

During the Budget Speech the Finance Minister made an innocuous announcement that the composite rate of tariff has been fixed in place of the ad-valorem rates fixed at present to give effect to the Indo-US and Indo-EU agreement on Textile.

These agreements were signed in 1993 and were slated to be implemented in 1999 itself. After a delay of two year’s the agreements, which imply an opening of the Indian Textile market these agreements have been brought in force.

The effect of the agreements is that the duties on both PFY and PSF have been brought down to 20% from the 35% prevailing currently. If one were to take into account the special additional duty of 4% and the surcharge of 10% the import duty works out to 26.4%.

The impact of these would only be felt over the long term since the imports are negligible as at present. What it implies in the future is that apart from the integrated manufacturers such as Reliance stand alone companies, which manufacture PSF and PFY from fibre intermediates will face tough times.

Already a consolidation within the industry is on with players such as India Polyfibres, Raymond Synthetics, Orissa Synthetics selling out to Reliance. This trend would only get accentuated in the future.

It also implies the importance of established brands for companies such as Raymond, Indian Rayon and in the apparel market, since they could theoretically source PFY or PSF from either the domestic market or from imports.

Market View:
Reliance Industries has also been rated as a buy primarily due to the rise in petrochemical prices (tracking international prices) and its holding in blue chips such as L & T and BSES. The increase in the prices would nullify to some extent the impact of the minimum alternate tax on the company.

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