While Chinese polyester players are emerging as "too big to fail", their closest rivals from India have hit the slowdown wall as they struggle with poor economies of scale in the event of weak demand from major markets like Europe. The second quarter numbers of Indian polyester major Indo Rama Synthetics (India) Ltd well explain that.
The company reported a net loss of Rs 61.36 crore for the second quarter ended September 2013 as against a net profit of Rs 103.59 crore in the year ago period. For the quarter under review, net sales of the company also fell to Rs 618.98 crore as against Rs 734.50 crore in the same quarter of 2012-13.
While the fall in sales could be attributed to slowdown in major markets like Europe, Indo Rama has been struggling to improve its margins amid continuing weak cotton prices and other factors like rupee depreciation, increase in crude, RLNG and petrochemical prices in the world market. Weak rupee led to foreign exchange loss of Rs 86.68 crore during the quarter under review versus a gain of Rs 81.22 crore in the year ago period.
Volatile crude oil prices and the resultant changes in the prices of PTA and MEG coupled with rupee depreciation have affected prices of raw materials of the company and consequently, its margins. Indo Rama's operational EBITDA dropped to Rs 15.55 crore as compared to Rs 41.26 crore in the same period last year.
Further adding to the woes of the company is the lack of adequate raw material following sudden suspension of production at the PTA plant of IOCL at Panipat.
Meanwhile, tough competition from China is further dampening the hopes of revival in their fortunes among Indian polyester makers. Indian companies are at disadvantage from their Chinese counterparts for huge difference between the synthetic yarn prices in two countries. With 60 per cent of global Polyester Staple Fibre (PSF) capacity, China remains a dominating player in polyester and downstream textile products.
