Jct To Exit From Polyester Business

JCT Industries, the M M Thapar group company, is getting out of the polyester business. The company has asked Morgan Stanley to find prospective buyers for the division which contributes more than 50 per cent of JCT's turnover.

The company will retain textiles which clocked a gross turnover of nearly Rs 240 crore on a total turnover of Rs 847 crore last year. The Mumbai-based Orkay Industries, too, had did something similar, last year. Orkay retained its fabric business and sold polyester yarn division to JVG group for nearly Rs 230 crore.

The company is now seeking a $30-million foreign currency loan from Hongkong Bank to tide over the current cash crunch. JCT vice-president Vivek Kaul said the company was taking the loan to meet its working capital requirements.

Kaul, however, denied the company was up for sale. "Our structure is quite complex. The group owns 50 per cent in our company, we own large stakes in several group companies. It will be difficult to work it out," he said.

JCT's decision to sell the business is a natural fall-out of the severe squeeze on the polyester industry in the last one year. Prices have fallen due to overcapacity and undercutting. Realisations, too, dropped sharply in 1995-96 due to high input costs.

Though 1996-97 saw input costs sliding, JCT was hampered by its small capacity and inability to expand. In polyester fibre and yarn, the company had small capacities of 40,000 tonnes and 13,000 tonnes respectively. This was no match for the huge capacities Reliance and Indo Rama Synthetics were putting up.

In fact, financial institutions refused to fund JCT's Rs 650 crore, greenfield polyester project in Gujarat last year, citing liquidity crunch and uncertain prospects in the polyester industry. The FIs opined the industry was heading towards large-scale overcapacity and there was no point in lending large funds to a greenfield project.

This left JCT with no alternative but to dump the project. The purified terepthalic acid (PTA) project, which was conceived as a joint venture between JCT, Mitsui and Mitsubishi Chemicals, was also shelved due to lack of funds and FI interest.

With an installed capacity of less than 40,000 tonnes, JCT was in no position to compete against majors like Reliance and Indo Rama Synthetics who were setting up huge capacities of 5.6 lakh tonnes and 2.34 lakh tonnes.

Though JCT has installed capacities of 64,000 tonnes of polyester yarn, fibre, chips and industrial tyre cord the total output in 1995-96 was only 41,000 tonnes. Though sales are up due to buoyant demand, the realisations are dropping with the fall in polyester prices, industry sources said. Although PSF price is now quoted at Rs 54 per kg, after discounts, the realisation comes to Rs 49 per kg, they said.

With raw material costs of PTA\MEG now ruling at Rs 35-36 per kg, JCT will have little profit left after covering conversion cost and other fixed costs, they said. "JCT is doing a sensible thing by getting out of polyester," said analysts.