1. Risk Factors

  Before making a decision to invest in the shares of the Company,
  investors should prudently consider the information about risk factors
  described in this section and all information contained herein. Apart
  from the said risk factors, there are still other unpredictable risks
  that may adversely impact the Company’s operating results.

The key risk factors are:

1.1 Industry Cycle

  The industry cycle of PET film hinges on the spread between the PET
  film price and the prices of PTA and MEG which are major raw
  materials. At the time of tight supply, the PET film and raw material
  price spread will widen to a greater extent, thus encouraging
  manufacturers to increase production by expanding their capacity. On
  the contrary, if PET film supply is larger than market demand, the
  film price will drop, hence narrowing the spread between the film and
  raw material prices. This cyclical nature will inevitably affect every
  producers’ revenues and profits. To illustrate such cyclical impact,
  the movement of profit before tax/sales of PCL, the parent company, is
  shown in comparison with that of the prices of PET film and raw
  materials, as below:

  Comparison of profit before tax/sales of the parent company with
  prices of PET film and raw materials

  []

  []

Source: Company information

  From the table, during 1994-1996, with large spread between the PET
  price and the raw material prices, PCL enjoyed high profit before tax
  of 24%-34% against sales. Later; however, the parent company recorded
  only 1%-9% profit before tax during 1997-2000 when such spread
  narrowed down significantly. A similar cyclical behaviour can be seen
  over the last 5-6 years. Thus, the cyclical nature of the industry has
  direct impact on the operating results of PET film producers and the
  Polyplex group.

  To mitigate such risk, the Company has sought to undertake the
  following:

-   With high productivity levels and cost control measures, Polyplex
    believes it is one of the lowest cost producers of polyester film in
    the world which will help it deliver better financial results than
    the other constituents of the industry. [Please see Section 3
    Business Operation of each product line]

-   Apart from investment in the additional metallised film projects in
    Thailand & Turkey, PTL is taking initiatives to broaden its product
    portfolio, including the development of certain value added films
    like Extrusion Coated film. [Please see Section 6 on future
    projects.]

-   Accessing customers operating across countries in the flexible
    packaging and industrial segments by presenting alternative sourcing
    options from India, Turkey and Thailand and thereby mitigating their
    risks. This enables a more stable pricing regime.

-   Increased focus on product development through R&D or technology
    acquisitions besides creating a strong technical services team are
    likely to be additional differentiators between Polyplex and its
    competition

1.2 Risks relating to uncertainty in prices of the product and raw
material

  The basic raw material for production of PET film is PET resin, which
  is in turn produced from Purified Terephthalate Acid (PTA) or
  Di-Methyl Terephthalate (DMT) and Mono Ethylene Glycol (MEG).

  Since the cost of resin is the single largest component of the total
  production cost, the fluctuation in the resin price may hurt the
  Company’s operating margins depending upon the ability of the Company
  to pass the increase in costs to its customers. As selling prices are
  usually negotiated on a monthly / quarterly basis, in a balanced
  demand supply situation, PTL is usually able to adjust the selling
  prices following any changes in the PET resin cost and other operating
  costs.

  Comparison between average raw material cost and average selling price
  of the Company in 2003/04, 2004/05, 2005-06 and 2006-07.

+-------------------------------+------------------+-------------------+
|                               | Raw material     | Product selling   |
|                               | cost             | price*            |
|                               |                  |                   |
|                               | (Bt. per kg.)    | (Bt. per kg.)     |
+-------------------------------+------------------+-------------------+
| Year 2003/04 (Apr 1, 03 – Mar | 37.07            | 73.68             |
| 31, 04)                       |                  |                   |
+-------------------------------+------------------+-------------------+
| Year 2004/05 (Apr 1, 04 – Mar | 46.98            | 84.67             |
| 31, 05)                       |                  |                   |
+-------------------------------+------------------+-------------------+
| Year 2005/06 (Apr 1, 05 – Mar | 39.33            | 74.09             |
| 31, 06)                       |                  |                   |
+-------------------------------+------------------+-------------------+
| Year 2006/07 (Apr 1, 06 – Mar | 40.68            | 64.43             |
| 31, 07)                       |                  |                   |
+-------------------------------+------------------+-------------------+

  * Average Selling price per Kg of Plain film

  As seen from the above table, with the increase in the raw material
  cost from Bt. 37.07 per kg. to Bt. 46.98 per kg., the Company has
  raised its selling price from Bt. 73.68 per kg. to Bt. 84.67 per kg
  which in year 2005/06 comes down to Bt 74.09 per kg in line with raw
  material cost reduction to Bt 39.33 per kg. This indicates general
  ability to pass on the cost increase to customers. However, for
  2006-07, PTL witnessed a fall in the selling price despite higher raw
  material costs due to increased global production capacities resulting
  in increased competition. Also raw material prices witnessed a sudden
  spike in the first 2 quarters of the financial year 2006-07 and the
  company was able to partially adjust the selling prices only towards
  the second half of the year.

  It may be mentioned here that as far as 2006-07 is concerned, since
  the company’s revenue is mostly dependant upon export sales, the fall
  in selling prices is also partly caused by the significant
  appreciation of the baht against USD in particular.

  Analysis of historical data shows high correlation between PTA/MEG –
  polyester film prices. The spread between two intermediates would vary
  depending upon the demand-supply situation of the commodity. Also
  sudden and sharp movements in raw material prices may affect the
  correlation for some time.

  The chart below shows the trend in the pricing of PET film and PTA and
  MEG for the last 13 years:

[] Source: Industry information

  The above data demonstrates that variations in the raw material prices
  by and large tend to get passed on to the end-customers. The
  demand-supply balance of PET films which could vary across regions
  could impact margins. The spread between the raw material and PET
  films, especially over the last few years, has moved in a band. PTL’s
  contracts with some customers provide for a quarterly/periodic review
  in pricing which enables it to adjust for any raw material cost
  movement.

  The Company monitors world and local input price trends carefully and
  determines its procurement plans accordingly.

1.3 Risk associated with reliance on only a few raw material suppliers

  In the past, PTL had been procuring PTA and MEG (which are the key
  inputs for captive production of Pet resin) almost entirely from one
  supplier. For PTA, the company was buying from a large local supplier
  and importing MEG from a reputed Middle Eastern producer out of its
  storage tanks in Singapore.

  However, PTA and MEG are well traded commodities and available from a
  variety of sources. During 2006/07, the company has switched to local
  supply sources for both the raw materials and is now meeting 100% of
  its requirement domestically. The company has entered into long term /
  yearly contract for the supply of the raw material to ensure its
  availability. These contracts also have a supply guarantee clause to
  ensure that the risk of buying 100% from a single source and also a
  single plant operation is mitigated.

  1.4 Risk from competition from existing manufacturers and entry of new
  players

  PTL mainly focuses on export sales. With consistently rising demand
  for PET film, competition comes from such world leading manufacturers
  as Dupont-Teijin, Toray, Mitsubishi, Kolon Group and SKC, all of which
  are well-established companies with long experience in this industry,
  as well as medium to small producers and new entrants with strong
  capital to accommodate investment in PET film plants and machinery
  (detailed in Section 3).

  Compared with the above large players, PTL has a lower cost of
  production and focuses on producing thin film which is PET film of
  high growth potential to serve packaging, industrial and electrical
  applications. For those who are new entrants, they need to improve and
  develop their production competence to ensure competitively low cost
  against the existing players, the process of which will certainly take
  some time. Besides, they need to build up their customer base. Thus,
  PTL is confident that it will readily be able to compete against both
  world leading producers and newcomers. While the financials of the
  company and group would reflect the cyclical trend of the industry, it
  would be able to demonstrate superior profitability in any market
  situation due to its competitive edge as reflected in lower costs,
  higher productivity and sales reach.

  The Company has strategically embarked on the expansion projects which
  will further reinforce its competitiveness, as follows:

-   Set-up of PET resin plants in Turkey for captive consumption to
    reduce the overall production cost and dependence on external raw
    material suppliers.

-   Set up an extrusion coating project for manufacture of value added
    products as a forward integration from production of plain films.

-   Expansion of metallizer capacity in Thailand & Turkey to further
    reduce the exposure to sales of plain films.

-   Doubling of installed capacity in Turkey to improve cost structure
    as also address the market needs of the proximate markets.

-   Continuously evaluating growth options in PET film / value added
    products / related areas like CPP / OPP films at all locations in
    Turkey/Thailand/India to further improve its cost structure, product
    offering and market reach / penetration.

1.5 Risk from trade barrier measures

  Trade barrier measures taken by various countries are broadly of two
  major types:

a)  Anti-dumping (AD): An anti-dumping duty can be imposed on imports if
    the ex-factory prices of such imported products are proved to be
    lower than the local selling prices of the similar products in the
    countries of the exporters. For the past years, the countries
    adopting this measure are the EU and the US against such countries
    as India and South Korea. For instance, South Korean producers and
    exporters of goods to the EU are subject to additional import duty
    of 3-12% upon the normal rates.

b)  Anti-subsidy: A countervailing duty (CVD) can be imposed if the
    government or any government agency provides any benefits or
    privileges specifically to any company or exporter of such country.
    For instance, Indian producers and exporters of goods to the EU are
    subject to additional import duty of 3-19% upon the normal rates.

  Such tax measures will cause import duty on the goods produced and
  exported from the targeted countries imposed at such a high rate that
  such goods will carry higher prices and hence have difficulty to
  compete with the products of the rivals.

  The company is undertaking all the safeguards to insulate against the
  risk arising out of anti-dumping duties and other protective barriers
  imposed by the importing countries. A geographically well-diversified
  sales portfolio will help mitigate the adverse fall-out of such an
  action, if any.

  1.6 Risks from future project

1.6.1 Expansion in Turkey

  The Turkish economy has not been so stable in the past with continuing
  concerns over its burgeoning current account deficit, high inflation
  and real interest rates, and a high level of government debt. However,
  efforts at economic stabilization and reforms have been quite
  successful with the IMF support, partly prompted by Turkey’s
  negotiations with the EU. With most of the product meant for exports,
  the Company’s operations will be based in a Free Trade Zone in Turkey,
  largely insulating it from the developments in the local economy.
  Moreover, with exposure now being spread to two countries, the overall
  country risk for PTL stands reduced. Moreover, PE now already has
  experience of running the unit in Turkey for almost 2 years and has
  not faced any significant issue with adverse impact on operations.

  The Company is currently in the process of setting up another
  Polyester film line in Turkey. Since the company already has
  experience of setting up similar projects in Turkey successfully, the
  project risk on the new project is not considered to be significant.
  Further, the key equipment has already been ordered and the civil
  works contract has also been awarded due to which the project schedule
  and project cost is largely established. The new Polyester Film plant
  is scheduled to commence commercial production in Q2 2008.

  1.6.2 Extrusion Coating project

The key risks arise mainly from Market, project execution, operation and
maintenance of the plant

Market feasibility of the project has already been completed and company
is exploring the option of signing the off-take agreement with one of
the key player in the industry. Market development activities are in
full swing so as to ramp up the production to full capacity in the
shortest possible time

The financing of the project has been approved by the banks and the
project execution is as per the schedule. The project is expected to
commence production in Q-4, 2007.

The company is in process of putting in place a team of competent
managers to manage and run the plant at high productivity levels.

  1.7 Risk from dependence on the parent company

  Polyplex Corporation Ltd. (PCL), through direct and indirect
  shareholding, currently controls 70% of the shareholding in PTL.

  Many of PTL’s existing management team were previously employed by PCL
  and have played a vital role in successfully establishing PTL’s plant
  ahead of the schedule and at a lower-than-estimated cost, together
  with ensuring high productivity levels resulting in the Company’s
  ability to produce quality products at a competitive cost. With
  operations having been fully stabilized, the company is implementing a
  program for reducing the dependence on expatriates by increasing the
  proportion of local Thai staff in operating/managerial positions.

  The Company’s present management team is composed of experienced key
  personnel in production, marketing, distribution and
  accounting/finance. It has thus been able to run the business on its
  own without reliance on the parent company. It is only in the research
  and development area where the parent company provides know-how free
  of charge seeing it as a subsidiary company.

  PTL’s business operation is independent from PCL in such undertaking
  as initial public offering, borrowing of loans, and other investments
  in the future, for instance. The parent company need not request any
  approval from any government bodies except for report of significant
  events to two stock exchanges where it is listed, namely Mumbai Stock
  Exchange and National Stock Exchange.

  The Company is confident that there will be no conflict of business
  interest between PCL and PTL on account of the following:

-   It is Polyplex’s policy in business operation that there is an
    equitable distribution of business between the various manufacturing
    units aligned to efficient servicing of customers.

-   The investment in PTL is in a significant proportion against PCL’s
    assets, hence the success of PTL being critical for PCL.

  (Details of marketing and investment policies between PTL and PCL in
  Section 2.2)

  1.8 Risk from sponsor group holding about 70% of total shares

  Currently, PTL’s major shareholders are PCL (As of March 31, 2007 Mr.
  Sanjiv Saraf and related parties control 41.98% in PCL), holding
  16.50%, and Polyplex (Asia) Pte. Ltd. (“PAPL”) which is wholly owned
  by PCL, holding 53.50%, thus in aggregate holding 70% of PTL paid-up
  common shares of Bt. 800 million. Thus, in matters that require a
  three-fourths majority vote of shareholders, the minority shareholders
  can successfully oppose corporate actions undertaken or supported by
  the majority shareholders. However, the parent company will continue
  to play a vital role in determining the Company’s policy on business
  administration and operation. Particularly, PTL’s top management team
  has mainly come from India with policy from the parent company in
  which Mr. Sanjiv Saraf is the major shareholder. He would thus be able
  to control the management of both PCL and PTL.

  However, PTL has set up a three-member Audit Committee to provide for
  an audit of the operations and the management. Besides, PCL is listed
  on the Stock Exchanges in India and abides by the Corporate Governance
  regulations prevailing for listed companies in India.

  1.9 Foreign exchange risk

  Most of PTL’s products, i.e. about 80-85%, are for exports, which are
  mostly denominated in US dollars and Euro. As against this, raw
  material (PTA & MEG) and interest payment are also linked to the US
  dollars or Euro. There are only some expenses which are in Thai Baht,
  i.e. packing materials, salaries and other administrative expenses
  which have to be settled by income from domestic sales. Thus, PTL has
  a US dollar and Euro surplus position, which can be hedged somewhat
  against repayment of its long-term loans and investment into Turkey
  through PSPL. The company has also taken tactical hedge through
  forward covers from time to time as a short term measure to mitigate
  risk. One of the key reasons for decline in profitability in 2006-07,
  apart from the cyclical decline in margins, was the Baht appreciation
  especially against USD. The impact on USD export sales could be only
  partially offset by the benefit on USD expenses.

  The Company currently has outstanding long term loans of Euro 14
  million and may borrow upto an additional amount of USD 27 million
  during 2007-08 for its Extrusion Coating project in Thailand and the
  investment into the Thin Film expansion in Turkey.

  1.10 Interest rate risk

  As of March 31, 2007, the outstanding long term was Euro 14 million
  whereas outstanding short term loans was NIL. However, the company may
  avail of some USD/Euro long term / short term loans during 2007-08
  carrying floating interest rates linked to Libor/Euribor or even fixed
  / floating Thai Baht rates. The floating interest rate may put the
  Company at a risk of rising financial cost if the interest rates move
  up. The company has been constantly monitoring the interest rates and
  has taken interest rate swaps for converting the liability into fixed
  rates, if considered beneficial.

1.11 Risk from overlap of products and markets

  The product portfolio of PCL and PTL is quite similar. In order to
  mitigate the risk of overlap of products and markets, both PCL and PTL
  have agreed on a clear cut policy on market segmentation. Under the
  policy, markets have been assigned to both the companies on the basis
  of logistics (cost and delivery terms), varying product range,
  preferential duty access in certain markets, trade barriers, etc
  (Section 2.2).

  The Polyplex group also has a policy on future investments in
  polyester film / related areas between the Company and its parent
  company. Investments in India/SAARC region would be decided and made
  by PCL and its other subsidiaries while investments In Thailand /
  ASEAN region as well as other countries would be in all likelihood be
  made by PTL or the subsidiaries in which the Company has a major stake
  (detailed in Section 2.2)