The global PET resin industry is passing through an extended downtrend which continuedin 2015-16.
This downtrend was marked by diverse challenges related to oversupply and volatility inthe petrochemical products linked to the dynamics of crude oil price movements.
The industry was affected by weak global growth which declined 30 basis points - from3.4% in 2014 to 3.1% in 2015. There was a sustained decline business activity in Chinathere was an economic upheaval in Brazil and there was geopolitical tension in the MiddleEast 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 respondedto the external challenges by sweating manufacturing assets marketing wider and deeperwhile exercising strong fiscal control.
Global PET market
Crude oil prices continued to soften through 2015-16 moderating the price of theCompanys 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 onPET resin realizations which declined during the year under review. This resulted inlower margins for our product.
Facing the challenge
Inspite of these challenges Dhunseri Petrochem performed well. The Company respondedto every external development with an internal resolve to enhance operating efficiencies.For instance a coal price reduction helped it remain competitive leading to lower energycosts. The Company countered the demand slowdown by operating plants at optimum capacitywith the objective to rationalise production costs. Despite challenges in raw materialsourcing the Company reported higher production in the FY 2015-16.
As informed in the previous year the operations of the Companys subsidiaryEgyptian Indian Polyester Company S.A.E. (EIPET) were stopped due to a shortage ofworking capital. The operations are yet to commence as negotiations with the lenders ondebt re-structuring is pending. We are exploring the introduction of new investors inEIPET for which an investment banker has been appointed.
Forging strategic partnerships
The biggest development of the Companys working during the year under review wasstrategic in nature. The management of Dhunseri Petrochem resolved to collaborate withIndorama Ventures the worlds largest PET resin manufacturer. As a follow-up to thisarrangement expected to be formalized by September 2016 - the Indian operations ofDhunseri Petrochem will be transferred to a subsidiary in which Dhunseri Petrochem andIndorama 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 ofthe largest companies are focused on enhancing operational scale. This increase in scaleis being derived through restructuring in the prevailing industrial scenario.
The arrangement is relevant in the Indian geography for a number of reasons. TheCompanys principal competitor commissioned sizable capacity expansion which is morethan twice that of Dhunseri Petrochem. The challenges from the competitors backwardintegration into the manufacture of raw material and consequent competitive advantageowing to a larger capacity needed to be mitigated. We believe that our arrangement withthe worlds largest PET resin manufacturer will provide us with the competitivestrength to protect our market share in India.
The arrangement will enhance our consolidated competitiveness in various ways.
One Dhunseri Petrochem will be able to capitalise on Indoramas robust rawmaterial sourcing base that ensures the availability of quality raw material atcompetitive costs.
Two Dhunseri Petrochem will effectively leverage Indoramas globally-dispersedmarketing footprint and enter unexplored geographies.
Three Dhunseri Petrochem will stand to acquire a 50% ownership of Micro PolypetPrivate Limited (capacity of 216000 tonnes per annum) in Panipat to address Indiasgrowing demand.
Four the cumulative capacity of Dhunseri Petrochem will increase to nearly 700000tonnes per annum generating attractive economies-of-scale related to procurementoperational overheads and marketing.
On the other hand Indorama the largest PET manufacturer in the world enjoying apresence in 20 countries did not have India on their map until recently. This jointventure will allow it to cover a faster growing Indian market.
We believe that this arrangement represents a win-win proposition that benefits notjust Dhunseri Petrochem but also Indorama Ventures.
In view of these realities we are optimistic that the complement of the two companieswould result in an accretion of value that will be beneficial for the shareholders ofDhunseri Petrochem.
The outlook for the PET resin business in India continues to be optimistic on the backof low per capita PET consumption and a recovering economy.
At Dhunseri Petrochem we are prepared for this sizable consumption wave through acomplement of capacity capability and resources that should translate into sustainablegrowth across the foreseeable future.
C.K.Dhanuka Executive Chairman