The year 2016-2017 was a tough year for AYM Syntax. Sales remained flat for the year& profitability declined year-on- year for the first time in 5 years. While ourcompany continues to slowly transform itself into a stronger business weakness in asizeable portion (Nylon) of the business led to a decline in profitability. The localNylon business which was once the largest contributor of profitability for AYM is nowitself eating away at the profitability of other business segments. The challenge now isto transform the product & customer mix of the company into more profitable productsof nylon (PA6) as well as polyester (PAS & PET lines in AYM are interchangeable). Wehave been successful in a similar endeavor before when 10 years back lines wereconverted from Polyester (PET) to Nylon. However this time we must do it once again notonly keeping profitability in mind but also its long-term sustainability.
While things have turned for the worse on the nylon side of business there are severalpositive developments that have taken place in other areas which are worth highlighting.Our business embarked on a transformational journey about 2 years back and while theinflection point is still further down the road there have been a few positive steps inthe right direction. Focus on innovation & product development continued & few newproducts were developed. While no large-scale commercialization took place severalcustomers showed interest in these products & we hope to achieve success in the comingyears.
In both our Palghar dyed yarns as well as textile yarns (PET & PA6) area businessdevelopment was initiated with several new high-quality customers all around the world. Inthe BCF area the efforts that the management team has been putting in all these yearshave started to bear fruit. Solution dyed nylon was commercialized for the first time& has garnered a lot of interest from some of our highest quality customers. In thissegment we will be competing against the world's best; companies primarily based inEurope & the US. Another important milestone was that of acquiring the Dupont Soronalicense. This puts us firmly on the world map in the BCF area. From the point of view ofbuilding a strong foundation we moved a few steps forward. A new and qualified managementteam was put into place at the Palghar plant & HO. This team is now capable enough tomanage the complexities of working with high-quality customers. A lot of work was done inboth plants on upgrading infrastructure & most importantly in building new &improved systems in the area of quality product development & production planning.Despite all this progress I believe that we still have some way to go until ourfoundations are robust enough to be compared to the world's best.
A sizeable proportion of the new developments that we are carrying out are productswith high-quality requirements and significant barriers to entry. It is difficult to winthe trust of such customers for initial sampling following which our internal quality oftalent and systems need to be strong enough to sustain consistent on time delivery.Customers expect continuous innovations flawless deliveries & impeccable service asis the case with their current supply base which comes from countries such as USAEurope Taiwan & Korea. In an otherwise commoditized industry driven by price &volumes as opposed to quality service and innovation it requires us to do things verydifferently if we are to succeed. Changing the mind-set and culture of an organization isan incredibly difficult thing to do. Few if not none in the industry in our country havesucceeded (or even tried to embark) on the journey that we are on.
It will require us to make difficult decisions some of which might even impact usadversely in the shortterm. Once successful however this also means that customers willbe reluctant to switch sources leading to closer relationships & stickiness. Combinedwith innovation & superior new product development capabilities it is this overallpackage that will be the source of our competitive advantage in the future.
Given the commoditized and cyclical nature of AYM's current Nylon business warningsigns were always visible. As mentioned in several of my previous quarterly calls eventhough we could see it coming the pace of decline was accelerated by several externalfactors. Although it was a positive longterm step demonetization brought the domesticfabric market to a grinding halt leading to our plant running dry for several weeks &incurring losses. Another factor was the shortage of Caprolactam in the marketplaceleading to an appreciation of raw material (Nylon chips) prices by over 60% in fewer than90 days followed by a fall of over a third in fewer than 60 days leading to enormous stocklosses. Rapid increase in capacity by existing players and entry of several new players inthis period didn't help either.
While it is important to record the role of these external events we as anorganization also need to accept the harsh truth - our business model in the current nylonsegment is weak. We are competing against unorganized players with a lower cost structure& newer/more efficient machines in a market where switching cost is close to nilthereby being totally driven by price. The only way to win in such a marketplace is byhaving the lowest cost. Our dreams are different. We wish to compete on qualityconsistency & innovation as opposed to cost. While the long-term vision is clear &we can see light at the end of the tunnel a lot of effort is required to change theorganization culture customer mix product mix & the overall business model.
We hope that eventually our journey of growth will mirror that of a Chinese bambootree. Like any other tree it requires a tremendous amount of care and nurturing. Oneneeds to continuously water the tree but little or no growth is seen above the ground forall of the first 4 years! And then lo & behold! All of a sudden within 6 weeks thetree leaps upwards to several tens of feet in the sky! All this time despite no progressbeing seen above the ground all that nurturing was going in to build the roots andfoundation that could support such exponential growth. The bamboo tree is a true lesson inpersistence & faith. It's a lesson which reiterates the age-old wisdom of staying onthe path and never giving up!
Finally I would like to thank all our shareholders for their continued support &encouragement. Last but not the least I would like to thank all our employees for theircontinued efforts & commitment; for working hard towards our vision despite thesetbacks that we have encountered along the way. I remain confident that the path that wehave chosen is headed in the right direction. Nothing in life that is great is easy. If itwere easy it wou Id n't be great I
Managing Director & CEO
AYM Syntex. Ltd