Indo Rama Plans Rs 1200cr Psf Plant In Vizag

Indo Rama Synthetics is likely to set up a Rs 1,200 crore polyester fibre plant near Visakhapatnam. The proposed plant, with an installed capacity of 600 metric tonnes per day, will produce 300 mt of polyester staple fibre (PSF) and a similar quantity of polyester oriented yarn (POY) daily.

Indo Rama has an existing polyester fibre manufacturing facility at Butibori in Maharashtra, which will be operated at 720 mt per day in six months time.

The company, at present, averages around 600 mt per day. The proposed polyester fibre unit will be a forward integration to the Rs 1,400 crore purified terephthalic acid (PTA) plant to be set up in Vizag.

The project has a 2:1 debt equity ratio which is similar to the company's debt-equity ratio. The PTA project, a tripartite joint venture between Indo Rama, Itochu and Mitsui, has an investment outlay of $340 million.

The equity component would be $105 million. Though the share holders' agreement is yet to be signed, Indo Rama has proposed to hold a 60 per cent stake, while Itochu would hold 26% equity.

The remaining 14 % stake is to be offered to Mitsui. The company proposes to finance the integrated project from its cash profit of Rs 1000 crore which is expected to be generated in the coming three to four years.

It is banking on a boom in the polyester industry which is witnessing a growth rate of 40-45%. The demand is expected to overtake supply from 1998-99 onwards, said O P Lohia, chairman of the company.

According to Lohia, polyester consumption in 1998-99 would be 1.3 million metric tonnes as opposed to the total supply of 1.2 million metric tonnes, thereby leaving a substantial gap between demand and supply.

The above situation is due to the fall in cotton production and the implementation of WTO diktats which will reduce tariffs protection on PTA.

However, currently, Indo Rama is preparing for a zero profit fiscal, out of a total turnover of Rs 1,550 crore. It has to clear its outstanding debts of Rs 110 crore besides coughing up Rs 73 crore as interest payment.

It is unlikely that the company will pay any dividend this year, though its operating profit would be around Rs 170 crore.