"Our efforts shall be to consolidate market position." - Views on News from Equitymaster

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  • Sep 1, 2001 - "Our efforts shall be to consolidate market position."

"Our efforts shall be to consolidate market position."

Sep 1, 2001

Mr. O.P. Lohia is the Managing Director of Indo Rama (India) Ltd. The Indo Rama group has presence in Indonesia, Thailand, Nepal, Sri Lanka and India. The company, today, is the largest manufacturer of synthetic fibre and yarn in the country. Besides, with focus technology, Indo Rama is amongst the lowest cost producer of polyester in the world. In an interview with Equitymaster.com, Mr. Lohia spoke on the prospects of the polyester industry and the difficulties faced by manufacturers. Also, the capital restructuring programme to reduce the heavy interest burden.

EQTM: Fortunes of the polyester sector were lifted only in the last two years. However, the global and domestic economy has slowed down, which has led to weakening of the polyester cycle. What is the outlook on the cycle and the domestic demand over the next one to three years?

Mr. Lohia: The Asian Polyester industry has recorded the highest growth rate of 220% up from around 5 m tonnes in 1990 to about 16 m tonnes in 2000. Presently, market trend indications continue to appear positive. This is supported by the fact that prices have improved since the beginning of this year. While the prices of our raw materials (PTA/ MEG) have increased, demand-pull has helped us generate volumes and meet market demand. Further, with domestic capacity stagnating around 1.4 m tonnes, demand is expected to rise in the next couple of years and margins of efficient producers should improve in the future.

In India, consumption of PSF and POY/PFY have grown at the rate of 12%-15% in the last three years and this growth is expected to be sustained at a CAGR of 7-8% over the next four years.

EQTM: The Government recently imposed anti-dumping duty on POY and is investigating dumping of PSF from South East Asia. Are these tariffs to protect a less efficient domestic polyester industry?

Mr. Lohia: To avoid indiscriminate dumping from countries of the South East Asian region that are confronted with overcapacities, the government has imposed antidumping duties on POY imports.

However, while the government is yet to complete its investigation into dumping of cheaper PSF into the country, anti-dumping duties on POY have been imposed now, long after the industry has been through a phase of consolidation, whereby inefficient and unviable companies have either closed down or sold out, leaving in operation only companies with global scales of production.

EQTM: The company reported an improved operating performance despite the difficult industry scenario. To what does the company attribute this performance?

Mr. Lohia: Through a combination of initiatives such as improvement of internal process efficiencies and ability to enhance customer value consistently along with other initiatives such as the scientific management of supply chain logistics and cash flows, the company has been able to meet the market demands and challenges successfully.

EQTM: The company has hived off plans of setting up a PTA plant and venturing further downstream. What is the status of the greenfield project planned in Karnataka? Could you share with us the details?

Mr. Lohia: The adversely high duty structure with respect to capital goods imports, which is as high as 50% is a deterrent to fresh investments in the case of our industry. The stiff excise duty of 36.8% on POY/PFY, which compares unfavourably with cotton or even certain luxury products, is another area of concern for synthetic textile manufacturers when considering the case of expansion or new investments.

EQTM: The company is undergoing capital restructuring with part of the loans being converted into equity. However, the balance sheet continues to remain highly leveraged. How does the company plan to bring down the leverage ratio?

Mr. Lohia: Only a small part of the outstanding dues to IFCI of Rs. 102.7 m was converted into equity as per mutual understanding. As regards the high debt-equity ratio, the same is being addressed. We have repaid a substantial amount of outstandings including the prepayment of one of our high-cost loans. Further, the company has plans to raise some funds through low interest debt paper purely for the purpose of substituting high cost debt and a part of such debt will be prepaid out of income accruals this quarter. We expect the leverage ratio to come within the acceptable norms for capital-intensive projects by March 31, 2002.

EQTM: What initiatives is Indo Rama Synthetics taking to enhance shareholder value?

Mr. Lohia: Despite a sluggish economy, we have registered good results, reporting a net profit of Rs. 187.4 m for the year 2000-01 and again for the Q1 of the current year, with a net profit of Rs. 191.6 m. These growth trends are expected to continue. Our efforts shall be to consolidate our market position combined with continuous internal initiatives through which we expect to deliver enhanced shareholder value in the near future.

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