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.  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 high demand for the PET film, the PET film
  and raw material price spread will widen to a greater extent, thus
  encouraging manufacturers to expedite production by expanding their
  capacity. On the contrary, if PET film supply is larger than market
  demand, the film price will drop and hence narrowing the spread
  between the film and raw material prices. This cyclical nature will
  inevitably affect the entrepreneurs’ 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. 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
    3.4industry outlook]

-   Apart from investment in the metallised film project in Thailand,
    PTL is taking initiatives to broaden its product portfolio,
    including the development of certain value added films. [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 and Thailand and thereby mitigating their risks.
    The commissioning of the proposed project in Turkey during this year
    will further bolster Polyplex’s position in this regard. This
    enables a more stable pricing regime.

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, PTL is 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 and 2004/05

+-------------------------------+------------------+-------------------+
|                               | 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)                       |                  |                   |
+-------------------------------+------------------+-------------------+

  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.
  This indicates its ability to pass on the cost increase to its
  customers.

  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.

  The chart below shows the trend in the pricing of PET film and PTA and
  MEG for the last 11 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 movement.

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

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

  In the past, PTL had been procuring PET resin almost entirely from
  only two local suppliers, both of which belong to one single group,
  i.e. Indo Rama group (which has no relationship with the Company’s
  major shareholders), thus putting the Company at a risk if they
  discontinue their supply. However, the Indo Rama group has long-time
  good relationship with PCL, the Company’s parent company, and the
  Company has so far never encountered any problem of this nature.

  Moreover, to relieve dependence on any particular supplier, PTL has
  since commissioned a batch process PET resin plant in September 2004
  as also an continuous process plant in February 2005, would has made
  PTL self-sufficient for its requirement of PET resin. PTA and MEG, the
  raw materials for Pet resin, are available from a variety of sources.
  The Company has signed PTA and MEG supply agreements with two
  suppliers, the term of which covers July 2004 – December 2007.
  (detailed in Section 3.5.3).

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 carries 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.

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

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

-   Establishment of a PET film line in Turkey to better serve its
    customers in Europe, Russia, Middle-East and Northern Africa, where
    demand is significantly high.

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.

  PCL, PTL’s parent company based in India, has also faced several
  anti-dumping and countervailing investigations since 1997. Thus, over
  a period of time, PTL has adopted practices and monitoring mechanism
  through close follow-up and comparison of export and domestic selling
  prices to ensure that the Company can be safeguarded against these
  trade barrier measures.

  A geographically well-diversified sales portfolio will help mitigate
  the adverse fall-out of such an action, if any.

6.  Risks from future project

    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 are underway with the
  IMF support, partly prompted by Turkey’s desire to initiate accession
  negotiations with the EU. With investment in Turkey, PTL may bear risk
  relating to the feasibility of the investment project that may be
  exposed to such uncontrollable factors as longer-than-projected
  construction period or cost overrun. This will inevitably affect its
  planned production and distribution.

  However, 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. Its experience from the successful plant
  setup in Thailand within a shorter period of time than projected and
  good support from financial institutions will mitigate the perceived
  risks to some extent.

  The cost of the project in Turkey is currently estimated at around USD
  50 million, of which USD 29.75 million will come from the
  shareholders’ equity and USD 20.25 million from borrowing. The Turkey
  company has been incorporated and named Polyplex Europa Polyester Film
  Sanayi Ve Ticaret Anonim Sirketi (PE). The project is at an advanced
  stage of construction and arrival of machinery is commencing shortly.
  All the Loan/Security documents for the 15 Million Euro (USD 20.25
  million) term loan from a German bank have been executed and first
  disbursement is expected shortly. Overall the project implementation
  is as per schedule and expected to commence production in
  October-2005. (details in Section 6.1).

2.  Metallised film project

This would be a new product line for PTL. However, PCL, the parent
company, has about 4 years experience in producing such product. It will
transfer the production technology to PTL. This can thus ensure the
Company’s production competence. The machinery is presently under final
stages of installation and commissioning and should commence production
within June-05

1.6.3 Investment in Polyplex (America) Inc.

This is a distribution company setup to enhance distribution in the key
market of North America. This operation would carry the normal trading
risks but the same should be mitigated by long standing customer
relationships and experience in the North American markets.

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.

  Most of PTL’s existing management team was previously employed by PCL
  and has 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 needs 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 and Section 5.2)

0.  1.8 Risk from sponsor group holding about 70% of total shares

  Currently, PTL’s major shareholders are PCL (As of March 31, 2005 Mr.
  Sanjiv Saraf and related parties control 45.95% in PCL), holding
  16.50%, and Polyplex (Asia) Pte. Ltd. (“PAPL”) which is totally owned
  by PCL, holding 53.50%, thus aggregately 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.

0.  1.9 Foreign exchange risk

  Most of PTL’s products, i.e. about 90%, 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. Some future borrowings may be Euro currency and thus Euro
  interest payments. There are only some certain expenses which are in
  Thai Baht, i.e. packing materials, salaries and other administrative
  expenses, and 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 prepaid all its outstanding long term USD loans during
  2004-05 out of the proceeds of IPO. Its investment in Turkey through
  PSPL as on May 31, 2005 is around USD 13 million and EURO 3.52 million
  and will gradually be made to make up the total of USD 29.75 million
  for the completion of the project and start of operations around
  October 2005. Its investment in such wholly owned subsidiary is in US
  dollars and Euro currency.

0.  1.10 Interest rate risk

  As of March 31, 2005, the outstanding long term as also short term
  loans was NIL. However, the company may avail of some USD/Euro long
  term / short term loans during 2005-06 carrying floating interest
  rates linked to Libor/Euribor The floating interest rate may put the
  Company at a risk of rising financial cost if the Euribor / Libor
  edges up. The company has been constantly monitoring the interest
  rates and evaluating interest rate swaps for converting the liability
  into fixed rates, if beneficial.

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 5.2)