The global PET resin industry is passing through an extended downtrend, which continued
in 2015-16.
This downtrend was marked by diverse challenges related to oversupply and volatility in
the petrochemical products linked to the dynamics of crude oil price movements.
The industry was affected by weak global growth, which declined 30 basis points - from
3.4% in 2014 to 3.1% in 2015. There was a sustained decline business activity in China,
there was an economic upheaval in Brazil and there was geopolitical tension in the Middle
East and North Africa.
In view of these extensive challenges, the fact that Dhunseri Petrochem produced 11%
more PET resin than in the previous year must be seen as creditable. The Company responded
to the external challenges by sweating manufacturing assets, marketing wider and deeper
while exercising strong fiscal control.
Global PET market
Crude oil prices continued to soften through 2015-16, moderating the price of the
Company’s two major raw materials MEG and PTA, which yielded ground by 22% and 12%
respectively through the year under review.
A decline in the price of the two principal raw materials had a moderating impact on
PET resin realizations, which declined during the year under review. This resulted in
lower margins for our product.
Facing the challenge
Inspite of these challenges, Dhunseri Petrochem performed well. The Company responded
to every external development with an internal resolve to enhance operating efficiencies.
For instance, a coal price reduction helped it remain competitive leading to lower energy
costs. The Company countered the demand slowdown by operating plants at optimum capacity
with the objective to rationalise production costs. Despite challenges in raw material
sourcing, the Company reported higher production in the FY 2015-16.
As informed in the previous year, the operations of the Company’s subsidiary
Egyptian Indian Polyester Company, S.A.E. (EIPET) were stopped due to a shortage of
working capital. The operations are yet to commence as negotiations with the lenders on
debt re-structuring is pending. We are exploring the introduction of new investors in
EIPET for which an investment banker has been appointed.
Forging strategic partnerships
The biggest development of the Company’s working during the year under review was
strategic in nature. The management of Dhunseri Petrochem resolved to collaborate with
Indorama Ventures, the world’s largest PET resin manufacturer. As a follow-up to this
arrangement – expected to be formalized by September 2016 - the Indian operations of
Dhunseri Petrochem will be transferred to a subsidiary in which Dhunseri Petrochem and
Indorama will hold an equal stake.
There were a number of reasons for this decisive initiative.
There is an ongoing consolidation within the global PET resin industry, whereby some of
the largest companies are focused on enhancing operational scale. This increase in scale
is being derived through restructuring in the prevailing industrial scenario.
The arrangement is relevant in the Indian geography for a number of reasons. The
Company’s principal competitor commissioned sizable capacity expansion, which is more
than twice that of Dhunseri Petrochem. The challenges from the competitor’s backward
integration into the manufacture of raw material and consequent competitive advantage
owing to a larger capacity needed to be mitigated. We believe that our arrangement with
the world’s largest PET resin manufacturer will provide us with the competitive
strength to protect our market share in India.
Enhanced competitiveness
The arrangement will enhance our consolidated competitiveness in various ways.
One, Dhunseri Petrochem will be able to capitalise on Indorama’s robust raw
material sourcing base that ensures the availability of quality raw material at
competitive costs.
Two, Dhunseri Petrochem will effectively leverage Indorama’s globally-dispersed
marketing footprint and enter unexplored geographies.
Three, Dhunseri Petrochem will stand to acquire a 50% ownership of Micro Polypet
Private Limited (capacity of 2,16,000 tonnes per annum) in Panipat to address India’s
growing demand.
Four, the cumulative capacity of Dhunseri Petrochem will increase to nearly 7,00,000
tonnes per annum, generating attractive economies-of-scale related to procurement,
operational overheads and marketing.
On the other hand, Indorama, the largest PET manufacturer in the world enjoying a
presence in 20 countries did not have India on their map until recently. This joint
venture will allow it to cover a faster growing Indian market.
We believe that this arrangement represents a win-win proposition that benefits not
just Dhunseri Petrochem but also Indorama Ventures.
In view of these realities, we are optimistic that the complement of the two companies
would result in an accretion of value that will be beneficial for the shareholders of
Dhunseri Petrochem.
Conclusion
The outlook for the PET resin business in India continues to be optimistic on the back
of low per capita PET consumption and a recovering economy.
At Dhunseri Petrochem, we are prepared for this sizable consumption wave through a
complement of capacity, capability and resources that should translate into sustainable
growth across the foreseeable future.
C.K.Dhanuka, Executive Chairman