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Futura Polyester


Futura Polyester operates in three segments of the polyester industry – polymers, performs, and polyester staple fibre (PSF).

The company has reported operating losses in the recent past.  Management focus, however, appears to be on value-added products including environmentally friendly “green” products. 

Management expects PSF, PET resin and PET Preform segments to witness demand growth as a result of various factors including MNC shift from glass to PET bottles, consumer shift from tap to bottled water, etc.

The company reported declining operating profits on a reasonably stable revenue base over the last five years – reporting operating losses in the last twelve months on revenues of just over 400cr.  It employed net debt of about 150cr at last financial year-end, which appears excessive relative to cash flows.  If operating conditions don’t improve, management may be able to liquidate long-term assets to repay debt but the current situation doesn’t appear too rosy for existing shareholders.

PET segments

The company appears to lack real bargaining power with MNCs leading to pressure on PET perform selling prices and profit margins, partly as a result of low operating costs of new machinery (alternative for MNCs) but also because of excess capacity in this segment, which results in low capacity utilisation.  It faces its most severe competition in the commodity end of its product segments.  Further, it is exposed to raw material price increases, which cannot be passed on fully to MNCs.  Moreover, it experiences frequent power cuts hampering its operations and hence, uses a private wind-based power supplier to fulfil its needs.

A key issue facing the company is its inability to replace old machinery or even carry out regular repairs and maintenance as a result of tight liquidity conditions.  This is also adversely impacting its sales mix.  Management expect to make capital expenditures once the liquidity improves – shareholders should note these expected higher capital expenditures when estimating cash flows available to them over the next few years.

PSF segment

The business is exposed to global economic slowdowns and a strengthening INR that adversely impact revenues.  It is exposed to rises in polyester resin prices – one of its principal raw materials – which cannot be passed completely to its customers because it lacks full pricing power.

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