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 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. 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
    3.4industry 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, Turkey and Thailand and thereby mitigating their
    risks. 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 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 and 2005-06

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

  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.

  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 12 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 input 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 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 2005/06, two additional production lines of
  PTA have been commissioned in Thailand, one by an existing producer
  and another by a new entrant. In MEG also, a local supply source will
  be available for the first time in Thailand from mid-2006. The company
  is evaluating all its options before entering into any commitments for
  purchase of PTA and MEG.

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. 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.

-   Evaluating the expansion of PET film capacity in
    Turkey/Thailand/India to further improve its cost structure 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.

  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.

  The project risk in Turkey is largely over as the plain film and
  metallised film plant have begun commercial production in 2005/06. The
  pet resin plant under construction is expected to begin production
  towards end of 2006. Further, 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.

2.  Extrusion Coating project

This would be a new product line for PTL. However, the production
process and technology for the project is well established. The company
will also ensure that experienced people are associated during
implementation of the project as also after start up of operations so as
to minimize the risk. The exact configuration of the machinery and
product mix is presently under evaluation and should take about 12
months to commence production.

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 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, 2006 Mr.
  Sanjiv Saraf and related parties control 41.62% 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.

0.  1.9 Foreign exchange risk

  Most of PTL’s products, i.e. about 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.

  The Company currently has outstanding long term loans of Euro 11
  million and may borrow additional Euro 3 million during 2006-07. Its
  investment in Turkey through PSPL as on May 31, 2006 is around USD 21
  million and EURO 11.02 million and will gradually be made to make up
  the total of USD 41.40 million for the completion of the entire scope
  of project.

0.  1.10 Interest rate risk

  As of March 31, 2006, the outstanding long term was Euro 11 million
  whereas outstanding short term loans were NIL. However, the company
  may avail of some USD/Euro long term / short term loans during 2006-07
  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.

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)