Financial Daily from THE HINDU group of publications
Sunday, Oct 24, 2004
Financial Daily from THE HINDU group of publications Sunday, Oct 24, 2004 |
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Investment World
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Rights Issues Markets - Recommendation Futura Polyesters: Avoid Raghuvir Srinivasan
Margins in the polyethylene terephthalate (PET) business are under pressure as prices have not risen in tune with the increase in raw material prices. Giants — Reliance Industries and Indo Rama — dominate the synthetic fibre business and Futura has been unable to fully utilise even its relatively small capacity for the product. Having defaulted on its loan repayment, Futura is unable to raise working capital funds from banks. The rights offer of Rs 14.87 crore now is to finance its working capital requirements. Futura Polyesters is the erstwhile Indian Organic Chemicals Ltd, which had interests in alcohol-based chemicals and polyester fibre. The former could not compete with petrochemicals which made the alcohol-based chemicals business unviable and the division began posting losses. Following this, Futura transferred the business to a newly-created subsidiary Innovassynth Technologies in January 2004. The present Futura has under its fold the PET chips and PET preforms businesses along with polyester fibre. Futura faced problems in the preforms business following supplies of contaminated material to one of its major buyers, Pepsico Inc., US, in 2002-03. It has since tried to diversify by entering into newer export markets. The domestic market for PET chips is not large enough to accommodate all the players forcing them to export the product. The anti-dumping duty slapped by the European Union has limited the market potential even as there is a fresh threat with the US contemplating a similar action. Futura has a distinct disadvantage in this respect while competing with Reliance Industries, which is an integrated manufacturer producing its own raw materials for PET chips — PTA and MEG. The prices of the two raw materials have been rising in the last year even as excess capacity in the region has ensured that PET prices do not rise as fast. This has affected Futura, which is paying a higher price for its raw materials even as it is unable to realise a higher price for PET. Futura is also up against formidable competition in the polyester fibre market, which it has sought to counter by producing speciality grades. With Reliance also adopting a similar strategy, Futura has found it difficult to carve a niche for itself. It would be a major challenge for the latter to extricate itself from its present difficult position, given the overall market scenario for its products and the precarious financial position. Shareholders would be well advised to stay away from this offer.
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