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Alagappan Arunachalam

INVESTORS can consider taking exposure in the stock of Polyplex Corporation, which is quoting at four times its consolidated earnings for FY-05. The stock trades lower than the investment value in its subsidiary, Polyplex (Thailand) Public Co. Its consolidated revenues have been growing at a healthy pace. The earnings are set to expand with a new plant in Turkey, which would serve the Russian, CIS and Western Europe markets.

Polyplex Corporation with PET films capacity of 59,000 tonnes is among the larger global players in the thin films business. Its plant in Turkey with a capacity of 24,000 tonnes is scheduled to be operational by October. PET films are used in the food packaging, industrial, electrical, imaging and magnetic media sectors. The company concentrates on one of the faster growing segments — the packaging sector. The gradual shift to value-added products also augurs well for profitability.

Thailand operations

Polyplex Corporation holds 70 per cent (16.5 per cent directly and 53.5 per cent through its wholly-owned subsidiary Polyplex Asia) in its Thailand subsidiary. Its holding in Polyplex Thailand is valued at an equivalent of 3.4 billion baht (Rs 356 crore) in the Thailand market, which translates to an investment valuation of Rs 243 per share.

The revenues and earnings of its Thailand subsidiary for FY-05 have grown about 100 per cent. The operating margins at about 30 per cent overshadow that of its peers in Thailand. With Polyplex Thailand's backward integration complete in February, by way of expansion of its polyester chips capacity, margins could improve. The additional capacity would meet its entire feedstock requirements similar to the operations of its parent in India. This backward integration would act as a partial hedge against a price risk in its feedstock.

The subsidiary derives about a quarter of its revenues from exports to Europe; supplies to this market would be taken care of by the new plant in Turkey, enabling the Thailand subsidiary to concentrate on the Asian markets. The move would also cut down on delivery cost for the group. The US, which accounts for 25 per cent of the revenues of Polyplex Thailand, has removed preferential status for PET films from Thailand; despite this move, Polyplex Thailand has registered a smart growth in revenues.

Consolidated picture

Polyplex's subsidiaries contribute about 64 per cent of its revenues and about 80 per cent of earnings. The consolidated revenues grew 53 per cent. Higher administration costs, however, curtailed earnings growth to 38 per cent. The duty-free movement of goods between Turkey and Europe augurs well for its consolidated earnings.

Polyplex's earnings from Indian operations fell 50 per cent due to higher raw material cost, which has more than neutralised the effect of lower interest outgo. The company operates its plants at about 95 per cent, unlike most of its other competitors in India. Revenues from domestic sales have been growing at a healthy pace.

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