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As per a recent report by ICRA (Investment Information and Credit Rating Agency Ltd) the tide seems to be turning for the Indian synthetic fibers manufacturers. The report projects that the margins of the synthetic fibres manufacturers will rise in the medium term.

The prognosis is based on the assessment of the likely trend in the global manmade fibres industry, with which the domestic industry has strong linkages. The report, complied by a team of ICRA sector specialists, mentions that the same price cyclicality, and hence profitability, that affects the global fibres industry also affects their Indian counterparts.

Globally, the polyester chain is set to experience a rise in margins following the faster increase in demand vis-à-vis capacity. However, over capacity in the paraxylene market is currently high and the operating rates in this case are expected to recover to the high levels only in the medium to long term. With the margins rising in the polyester chain and the low margins continuing in paraxylene, players (global and Indian) with a presence in intermediates (purified teraphthalic acid, di-methyl terephthalate and mono-ethylene glycol) are expected to gain.

The decline in polyester prices had severely affected its substitutes such as viscose staple fibre and nylon filament yarn / industrial tyre yarn. However, with polyester margins and prices showing a rising trend, the prospects for these businesses are also expected to improve. The current downturn in the global polyester markets, over-capacity in the domestic market and entry of large integrated players have hurt not only the small players, but even the medium ones. It has also been observed that the stock prices of middle-capacity players have taken a severe beating, making them targets for acquisition by the strong ones. This is evidenced by, the market leader Reliance Industries Ltd (RIL) which has acquired various medium-capacity players in the domestic polyester filament yarn (PFY) industry like Raymond Synthetics, ICI and DCL Polyester and is in the process of acquiring JCT Fibres. The acquisition of small capacity players is expected to lead to a decline in the number of players in the domestic manmade fibres industry, resulting in lower fragmentation

Investors will do well to concentrate on industry majors like Reliance Industries and Indorama Synthetics. Reliance Industries Ltd (RIL) is the world's largest integrated petrochemicals companies. RIL enjoys a leadership position in domestic market in all its products, with a marketshare of 45% in polyesters and 85% and 80% in polyester intermediates PTA and MEG respectively. The company sources the feedstock (naphtha) for its in-house businesses from the Jamnagar refinery. RIL derives 97% of its revenue from the domestic market. The low per capita consumption of polymers, polyesters and their intermediates in India as compared to the developed countries indicates a strong growth potential, which RIL plans to tap. RIL will be commissioning two new polyethylene (PE) capacities in the next 2 years to boost the supply-driven domestic PE.

A Lohia group company, Indo Rama Synthetics Ltd. (IRSL), was set up in 1986 and it commenced operations with a 21,120 sophisticated spindle synthetic yarn unit at Pithampur in 1989. Today, the its installed capacity is 122,976 spindles. IRSL has the second largest POY/PSF production capacity, second only to Reliance Industries in India. IRSL exports nearly half of it´s blended yarn output. In recent years the company has also seen astounding growth in production as against the installed capacity. It is expected that the capacity utilisation would cross 100 per cent to end up with 75,000 tonne of yarn in the current year. The company has kicked off backward integration programme and has entered into a joint venture with Mitsui Chemicals Inc. and Itochu Corporation of Japan. This project is estimated to cost around US $340 million for a Purified Terephthalic Acid (PTA). The plant, vital to the company's production of POY and PSF, will have a production capacity of 350,000 tonnes per annum and will be a 60:40 partnership between Indo Rama and the global conglomerates. The larger part of the production will be for captive consumption, enabling freedom from erratic external supply. Commercial production from this project is expected to commence by end 2002. Both these polymer majors are well placed to ride the revival wave and can be considered for investment by investors.

Aru Srivastava

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