6 Future Projects

1.  Future project (Polyplex Europa - Turkey)

  Consistent with the overall strategy of geographically diversifying
  manufacturing operations, the company had set up a PET film
  manufacturing plant in Turkey to service the European, Middle-East and
  CIS markets. The initial scope of the project included an 8.7m wide
  film line with an annual capacity of 24,000 MT and a captive
  cogeneration power plant which started production in December,
  2005.,The scope was later enhanced to include a Metallizer with an
  installed capacity of 5000 MT per annum which had started production
  in March, 2006. The plant is located in the European Free Zone, in
  Corlu which is about 100 km west of Istanbul, on the European
  mainland. The location is optimum in terms of logistics, being about
  80 km from the Istanbul sea-port with an added advantage of land
  shipments to the proximate regions in Europe.

  The Free Zone location provides PE with special investment incentives
  such as Corporate Tax exemption (till Turkey joins EU) and exemption
  from VAT and Import duties for exports outside the EU and Turkey. In
  addition to this, the Free Zone comes with excellent infrastructure
  and insulates the Company to a large extent, from the Government
  intervention and vagaries of the local economy. In July, 2004, the
  company had set up a wholly owned investment company by the name of
  Polyplex (Singapore) Pte. Ltd (PSPL) in Singapore and in turn, a
  wholly-owned subsidiary of PSPL, Polyplex Europa Polyester Film Sanayi
  ve Ticaret A.S. (PE) had been formed in September, 2004 for
  implementation of the project.

  During the previous year, the company has also implemented a captive
  resin plant with a capacity of 45,500 MT per annum which has commenced
  commercial production in December, 2006 and will enable PE to reduce
  it its raw material input costs.

  6.1.1 Expansion of Film Capacity

  The overall blueprint for the Turkey investment called for a
  duplication of business model of the groups’ facilities in India and
  Thailand, i.e. two Pet film lines, a captive pet chips facility and
  forward integration into metallized films. The company believes that
  this is the most optimal model for each manufacturing location from
  sizing and economies point of view.

  Over the past few months, the company has been considering several
  options for profitable growth in Turkey with the objective to enhance
  its competitiveness, improve its product mix with a view to
  increasingly insulate itself from the vagaries of the cyclical markets
  for regular plain films. In this regard, the company had initially
  obtained in-principle approval from its Board to set up a thick film
  line in Turkey.

  A significant development over the past 1-2 years has been the rapid
  decline in margins and profitability brought about by bunched
  additions to installed capacity and supply of pet films, concentrated
  almost exclusively in Asia. This has resulted in an intensive exercise
  to re-evaluate the growth options before the company. The outcome of
  the deliberations has been that on consideration of all relevant
  factors, it is thought most prudent to invest in an additional thin
  film line in Turkey.

Project Details

  The investment would comprise of an additional state of the art 8.7
  metre wide thin pet film line (almost identical to the existing line
  in Turkey) with an installed capacity of 24,000 tons per annum. The
  line would be set up next to the existing line on surplus land already
  available with Polyplex Europa (PE), the company’s fully owned
  subsidiary. The product range from the new line would be thin film in
  the range of 10-50 micron thickness with capability for several value
  added products like coated films, co-extruded films, Hot Stamping
  applications, Heat Sealable films, Direct Embossable films and Clear
  Films etc

  The estimated capital cost (excluding working capital) is about USD 42
  million consisting of Site Development / Civil Construction Costs of
  USD 3.5 million, Process Equipment / Utilities / Engineering Costs of
  USD 27.5 million, additional captive power generation facility of USD
  4 million, investments on additional equipment for better product
  range of USD 3 million, preoperative / preliminary expenditure – USD
  1.5 million besides contingency margin of USD 2.5 million.

  The estimated project cost of USD 50 million (including additional
  working capital requirements of USD 8 million) is proposed to be
  financed as under:

  - Long term / short term loans of about USD 25 million borrowed by PE
  from various local / international banks. PTL is co-guarantor for
  these loans until completion of mortgage of Plant & machinery by PE.

  - Equity and Subordinated Interest free loans of about USD 25 million
  with the contribution being brought in from PTL through PSPL. To
  part-finance this investment in PE, PTL will avail of a long term loan
  of upto a maximum of USD 20 million from various Thai Bank(s). The
  investment by PTL in PSPL would be in the form of subscription to
  preference shares. PSPL in turn would invest in PE through a mix of
  equity shares and interest free subordinated loans.

  The company expects the implementation time period to be about 15
  months from the date of financial closure. As per current indications,
  the project is likely to start commercial operations by June-2008.

  Project Rationale

1.  The project would be instrumental in improving the cost structure of
    the Turkey facility as a whole due to economies on various fronts –
    both on the project side and operational side since this would be an
    almost identical line:

    -   Project costs would be lower than the first line due to lower
        design/engineering costs, availability of existing land/other
        infrastructure, spare capacity for some utilities, lower
        manpower costs due to availability of existing operations team
        and benefits of past learning.

    -   Operationally, the fixed costs especially salary and
        administrative overheads would decline significantly on a per
        unit basis as the additional costs would be a fraction of the
        existing levels.

    -   There would be synergies and savings in inventory for spares and
        other maintenance costs.

2.  The additional line would help improve the utilization of the
    captive pet resin facility, whereby the available capacity would be
    almost self-sufficient for both the lines. This will optimize the
    input costs and would be a major impetus to the cost competitiveness
    of the unit.

3.  The timing of the project is likely to coincide with an improvement
    in market conditions towards the second half of 2008.

4.  The key markets for the additional line would be its existing
    markets of EU, East and Central Europe, CIS republics, Turkey,
    Middle East and North Africa. The key competition in most of these
    markets is with local high cost producers with increasing import
    dependence in line with slowly growing markets and insignificant
    capacity expansions in the past. The company would be well placed to
    take advantage of its proximity to these markets to compete
    effectively with both local and import supplies.

5.  With the acquisition of a distribution company in USA, the company
    is expected to increase its customer base in the North American
    markets and thus present further options to place the additional
    volume from Turkey as the Thailand capacity is already fully booked.

6.  The project is considered viable, purely on the cost savings it
    generates for the entire entity even in fairly adverse market
    conditions.

7.  From risk point of view, it can be noted that these are
    substantially diminished on account of existing presence in
    operations- both on the implementation of the project as well as
    subsequent production and sales. Further, PE is already operating at
    close to optimum utilization rates on the existing thin film line
    and is able to sell all the volume. On the financial leveraging
    front, despite the proposed borrowings, the peak debt equity ratio
    for the company would remain below 0.75.

  6.1.2 Expansion of Metallizer Capacity

  Present Metallizer capacity is 5,000 tons p.a., which is fast reaching
  optimal utilization levels. The Management has firmed up the plans for
  expansion of the capacity by the addition of another Metallizer.

  The new metallizer shall be 2.85 meters wide as compared to the
  existing metallizer of 2.45 meters. The total investment in this
  project has been estimated at Euro 3 million and the project is
  expected to be completed in Q1 -2008.

  The project will be financed through a mix of internal cash accruals
  and Long term loans to be raised by PE.

Project Rationale

a)  The project would help improve the product mix of the company away
    from plain films (commodity products in nature and high degree of
    competition) to value added films where the margins would be higher
    and competition levels limited.

b)  The customer base for these films is almost similar to that of Plain
    films which can result in synergies and a better product offering.

c)  The existing sales & distribution network in all the markets can be
    leveraged to market and promote this product effectively.

6.1.3 Overall Outlook for Turkey projects

  The above two expansion projects are consistent with the overall
  strategy of the Group of geographically diversifying manufacturing
  operations, building cost competitiveness through optimum scale of
  operations, serving markets – European, Middle East and CIS- in
  vicinity of the production units and adding value added products in
  the portfolio.

  Turkey’s location as a bridge between Asia and Europe providing access
  to a large market in Europe, Russia/CIS, and the Middle East, demand
  for PET film in West Europe in 2006 which accounted for 15% of world
  demand and high per capita consumption (please refer to Section 3),
  availability of trained manpower and relatively lower operating costs
  have been important considerations in the decision on setting up of
  the project and further expansion. Turkey is also the location of
  Customs Union of EU, which facilitates duty free movement of goods
  between the two territories. Proximity to customers would also help
  serve the varying requirements of smaller customers on a timely basis.

  The expansions are to be located at the existing site in a Free Trade
  Zone in Turkey. A Free Trade Zone provides a conducive investment
  environment especially for import/export intensive operations as
  minimal controls on foreign currency. Investment can be freely brought
  in and also remitted out, foreign currency bank accounts are
  permitted, foreign currency earnings can be retained in these
  accounts. With this location, the Company shall have ready access to
  an existing large market in Western Europe where no new capacity has
  been added in the last 3-4 years and no capacity addition is proposed
  notwithstanding a continued growth in the market. The Packaging,
  Industrial & Electrical segments in the Western European market have
  grown at a CAGR of 6.81% in the last 4-5 years. Further, about 40% of
  the demand in this market is satisfied by imports, largely coming from
  Asia in the PIE segments. In addition, the unit is in a position to
  access markets in Russia, CIS and Central and Eastern Europe, which,
  though small currently, have a lot of potential given the stage of
  economic growth of these regions. Furthermore, the countries around
  the Mediterranean rim are another possible destination for the output.
  Both the Central & Eastern European markets and the Middle-East
  countries are currently being served mainly by imports, as there is no
  significant producer of PET films in the entire region.

  The entire project in PE including the above expansions would be a key
  element in the plan to build a global footprint and associate with
  dominant customers in the converting and industrial segments. Savings
  in delivery costs and likely better pricing would offset the higher
  operating costs of a manufacturing set up in Europe.

6.2 Future Projects (PTL – Thailand)

6.2.1 Extrusion Coating

  In order to improve its product mix towards more value added products,
  the company is in the process of implementing an extrusion coating
  project. This project would be implemented by partially using a new
  plot of land (35-2-54.80 rais) acquired from Siam Eastern Industrial
  Park Limited at an agreed cost of Baht 1.6 million per rai aggregating
  to Baht 57.02 million Baht. This plot of land is opposite the existing
  plant location in Siam Eastern Industrial Park.

  It is proposed to put up two separate extrusion coating lines in
  phases. The likely width of the first line is about 2007 mm with a
  trimmed width of 1970 mm. This will give an annual capacity of about
  150-300 million sq mtrs per line.

  The estimated capital cost of the project based on the revised line
  configuration and cost estimates is likely to be about USD 12-14
  million for both the lines. Bulk of this cost would be incurred on the
  main extrusion coating machine and the balance on auxiliary equipment,
  utilities, civil construction costs and preoperative expenditures. The
  project cost for the first line is currently estimated at about USD
  7.7 million.

  The project construction has started in April-07 and the orders for
  the machineries have already been placed. The long term loan agreement
  has been tied up with a local bank for USD 7 million with the balance
  to be funded from internal accruals.

  Product & Usage

  A typical extrusion coated product would be a combination of base pet
  film of between 12-50 micron thickness and EVA / PE coating of between
  20 -100 GSM. The end uses of this product are largely in developed
  countries / regions like US and EU in schools used for book /
  documents lamination as also a large trade segment for similar uses
  besides some packaging applications also

6.2.2 Expansion of Metallizer capacity

Project Details

  In order to further improve its product mix towards more value added
  products, the company proposes to expand its metallizer production
  capacity. This project would be implemented in the existing plot of
  land in Siam Eastern Industrial Park with the exact location of new
  machine under finalization but likely to be close to existing machine.

  It is proposed to buy a state of the art metallizing machine of 2850
  mm width from Applied Films of Germany besides additional slitters and
  other balancing equipment. The annual maximum design installed
  capacity of the machine would be about 8700 MT per annum although the
  practical installed capacity would be about 5500 MT per annum.

  The estimated capital cost of the project is USD 6 million. The broad
  break up of the capital cost is USD 4.25 million for plant &
  equipment, USD 0.75 million for Civil costs, USD 0.5 million for
  utilities and balance USD 0.5 million for preoperative and other
  expenses. The company is in the process of tying up the financing of
  this project.

  Product & Usage

  The process involves adding a layer of aluminum to the plain pet film
  which adds to the barrier properties required in flexible packaging,
  especially for food items. Thus bulk of the usage of Metallized films
  is in the packaging industry with some consumption in industrial
  segments like flexible air-conditioning ducts, etc also.

  Project Rationale

  The project rationale would be the same as for the Metallizer project
  in Turkey which are improved product mix of the company, synergies of
  similar customer base for the films with a better product offering and
  leveraging on existing sales & distribution network in all the markets
  to promote this product effectively.

6.3 Other Capital Expenditure

  As an ongoing effort to improve productivity, reduce losses, develop
  products and enhance quality control, PTL undertakes several
  small/medium capital expenditures on the basis of cost benefit
  analysis. The total outlay over the next 12-15 months for such
  projects is estimated at between Bt. 75-100 million. Some of the key
  expenses would be Band pinning system for thin film line 4, some
  insurance spares and miscellaneous equipments.