Indo Rama May Invest Rs 240 Cr In Pta Plant

Indo Rama Synthetics (India) Ltd will seek shareholder approval in its forthcoming annual general meeting to invest Rs 240 crore as 60 per cent equity of the proposed subscribed capital of the new joint venture, Indo Rama Petrochemicals Ltd. This joint venture company, being set up in Andhra Pradesh, is a 60:40 partnership with Mitsui Petrochemical Industries Ltd and Itochu Corporation of Japan.

The new company will set up a plant in Cheepurupalli near Vishakhapatnam for manufacture of purified terephthalic acid (PTA). This is a backward integration move for the company which is engaged in the production of polyester products. The plant will have a capacity of 3,50,000 tonnes per annum.

Indo Rama has a technical tie-up for production of PTA with Mitsui Petrochemicals which, along with Amoco of the US, are the world leaders in technology transfer of PTA.

The total project cost has been estimated to be Rs 1200 crore, and the debt-equity ratio will be 2:1

The commercial production is expected to start by early 2000. The directors of Indo Rama has declared that equity participation in the proposed joint venture will be beneficial to the company as the majority of its PTA will be available for captive consumption, and will make its final products highly competitive in the national and international markets.

O P Lohia, managing director, Indo Rama, has said that domestic demand for polyester is expected to rise by around 30 per cent, and the demand supply balance is expected to be restored in this fiscal. Indo Rama, which has a market share of 22 per cent in polyester products, had failed to achieve the projection made by the company of a sales of Rs 1423.62 crore and profit after tax of Rs 106.52 crore in its letter of offer to shareholders in 1996 when the rights issue, aggregating Rs 103.17 crore, was successfully placed to part finance the second phase expansion of the companys polyester capacity.

The company recorded sales of Rs 1185.08 crore (16.76 per cent less than the projected figure) and profit after tax of Rs 1.55 crore (98.54 per cent less than projected figure) in fiscal 1996-97.

The company officials claim that the main reason for the poor show is the low margins arising out of a sharp decline in product prices in the wake of overproduction in the country and higher interest and depreciation costs.