ANNUAL REPORT 2000-2001
SUPREME PETROCHEM LIMITED
CHAIRMAN'S STATEMENT
Dear Members,
meeting as read.
I welcome you to the Annual General Meeting of your Company. The Annual
Accounts and the Directors' Report have been with you for some time now and
with your permission I take the notice convening the meeting as read.
At the outset on behalf of the Board of Directors I would like to convey
heartfelt sympathies and condolences to the people of Gujarat who have
faced with great fortitude the havoc wrought by the earthquake on January
26, 2001.
Before commenting on the performance and the outlook for your Company, let
me put in perspective the prevailing business environment in the Country.
The Indian economy has shown commendable resilience in the face of both
natural and man made crises during he last two years and has in fact the
distinction of being one of the fastest growing economies in the world. The
deceleration of the growth rate for the second consecutive year is however
cause of concern for and unless decisive and swift actions in the long term
interest of the nation are taken the hard earned gains of liberalisation
would be lost.
Abolition of the remaining Quantitative Restrictions w.e.f. April 1,2001
has made, the cocooned Indian industry vulnerable to increased competition
in most items in the market place. The signs of slowing down in the U.S.
economy and some Far East/North East economies are a matter of concern for
this not only affects the exports to these countries but also leads to
possible increase in imports from these economies.
It is in such an uncertain fast changing business environment in a rapidly
globalising India that your Company started taking its first step five
years ago. Your Company has therefore been exposed to international
competition and buffeted by an uncertain business environment since its
inception. Your Company's business has an exposure to the global
petrochemicals cycle and volatility in prices of its products and raw
materials. These challenges I believe has made us stronger and equipped us
to meet the era of low margins and increasing competition.
The Financial Year 2000-01 has not been a good one for the domestic
Polystyrene industry. Against predictions of 15% growth the domestic
Polystyrene market actually shrunk by 4.5% during the year. The two main
reasons for the negative growth have been:
i. high Styrene Monomer prices and
ii. general recession in the country.
The expensive Styrene Monomer forced some end users to drop out of the
market and also lead to a lower growth in mass consumer applications,
whereas the general recession has led to lower off, take from the consumer
durable industry like TV and Refrigerator manufacturers. Alongwith these,
the slow down in some of the developed developing economies of the world
brought the margins under pressure in the export markets. Any upturn in the
petrochemicals cycle, as and when the same occurs, shall improve
significantly your Company's margins based on its capacity and competitive
cost position.
Recent Government action has led to some softening of interest rates,
however there is a case for lower rate. The high interest regime in India
continued to be a stumbling block in the path of faster growth. his is also
proving a deterrent in the investment plans of processors to launch newer
products based on Polystyrene.
With the margins for exports being under pressure, your Company curtailed
production meant for exports in the first quarter. This has adversely
affected your Company's profitability during the current quarter. Your
Company now being an international player is experiencing the impact of
global slow down.
At the beginning of current financial year there were four producers of
Polystyrene in the country with a combined capacity of 348,000 TPA. Since
the beginning of this month, one Company with a capacity of 14,000 PA has
mothballed its plant. The installed capacity now stands reduced to 334,000
TPA. In the current year, we expect the domestic demand to grow from
145,000 tons in the year 00-01 to 166,000 tons.
This demand is likely to further increase during the year on
implementation, by a large convertor a facility to manufacture Polystyrene
formulated products for export market with capacity of 33,000 TPA by
September 2001. This will enable the domestic producers to utilize 55% of
their capacity for domestic requirements.
All Polystyrene producers are now working hard to develop the market for
various applications to boost the consumption of Polystyrene. Your Company
is also promoting several entrepreneurs to put up facility for export of
varieties of Polystyrene product. The raw material prices have also fallen
from the average cost of US$ 700 in the previous year to around US$ 490
now. This will give big support to boost the Polystyrene consumption. We
therefore are of the opinion that your Company may be able to utilize 90%
of its capacity in domestic market in next three years time frame.
Inspite of the difficult short term industry outlook, I would like to
assure the members that your Company has been built on strong fundamentals
and has today the following inherent strengths:
1. a world class, world size facility employing state of the art technology
2. the lowest capital cost per ton of polystyrene in the industry
3. internationally accepted quality
4. leading domestic market share
5. well established marketing network with strong customer relationships
6. continuous improvement in logistics to handle both raw material and
finished goods
7. dedicated, experienced and qualified employees who are committed to
provide optimum quality and service to the customers.
Your Company has during the year consolidated its operations and completed
its expansion projects, thereby emerging as one of the largest single unit
polystyrene manufacturers with an established internationally accepted
quality. The completion of speciality polystyrene facility will enable your
Company to offer value added products. Your Company is now concentrating on
increasing volumes and controlling costs improve margins with emphasis on
seeking cheaper sources of funds to reduce interest cost.
Increased volumes are sought to be achieved by focusing on production of
speciality grades, substitution of alternate materials and new product
applications. Exports continue to be another thrust area where your Company
has been continuously achieving almost 100% growth in quantitative terms.
To strengthen the competitive position further, the Company is keenly
pursuing its Minor port project to handle the import of its raw materials.
In the first phase this project will require an investment outlay of Rs.25
crores.
We are indeed grateful to the members for their patience and unstinting
support, which inspires us to remain steadfast in our efforts to achieve
profitable growth.
We would like to place on record our appreciation of employees' performance
and also take this opportunity to express our thanks to the Banks,
Financial Institutions and Associates of the Company for their whole
hearted co-operation and support to your Company.
Thank you. M. P. TAPARIA
Date: June,6, 2001 Chairman