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
  producer’s 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 Overview]

-   Apart from the proposed investment in the additional PET Thin film
    project and the CPP Project in Thailand, PTL is also taking
    initiatives to evaluate various other opportunities to broaden its
    product portfolio, including the development of certain value added
    films like Extrusion Coated film, which started commercial
    production in April’08.

-   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 for the past 5 years is given below.

+----------------------------------+---------------+-------------------+
|                                  | 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)                          |               |                   |
+----------------------------------+---------------+-------------------+
| Year 2007/08 (Apr 1, 07 – Mar    | 38.49         | 64.87             |
| 31, 08)                          |               |                   |
+----------------------------------+---------------+-------------------+

  * Average Net realization 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 and 2007-08 is
  concerned, since the company’s revenue is 80-85% from export sales,
  the fall in selling prices is also partly caused by the significant
  appreciation of the baht against USD in particular.

  For the year 2007-08, despite the increase in USD Raw material prices,
  there is a drop in raw material cost per kg, as the price increase is
  completely offset by the appreciation of Baht against the USD. Since
  the price fixation for the raw materials is in USD, the appreciation
  of Baht has benefited in terms of lower raw material cost in Baht
  terms.

  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 7 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 each. 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. From the year 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, 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.

  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 which
  can happen gradually through supply of consistently good quality
  products. 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, good quality, higher productivity, value
  added product mix and sales reach.

-   The Company has strategically embarked on various expansion projects
    in Turkey and Thailand in the recent past and also has few other
    expansion projects in the pipeline which will further strengthen its
    competitiveness (Refer Section 2 –Business Operations for details on
    Projects commenced during the year and Section 6 –Future projects
    for new projects in the pipeline) The company has been continuously
    evaluating other growth options in PET film / value added products /
    related areas like CPP / BOPP films at all locations in
    Turkey/Thailand/India and has also been evaluating possibilities for
    any acquisitions to further expand its manufacturing base and also
    to 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. For manufacturers having a
  regional manufacturing base in such locations, such trade defense
  measures can be an opportunity if anti dumping duties are levied
  against imports from the Asian low cost producers.

  In the recent US Anti Dumping petition against producers of PET film
  from Thailand, China, Brazil and Middle East, a zero % duty against
  Thailand imports has been notified in the preliminary determination
  announced in April’08.

  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 CPP Film project in Thailand

  The Company is currently in the process of setting up a project for
  manufacture of CPP film line which will be a related product
  diversification for the company and help in diversifying its product
  risk. The technology for manufacture of CPP film is fairly established
  and the project would be similar to PET film, where sufficient
  know-how is already available with the company. Besides that, we also
  have an experienced projects team which has had a very good track
  record in the past, of starting projects on schedule and within
  budgeted project costs. The company also has customer synergies. The
  same set of customers may have a requirement for PET as well as CPP
  film, so we can make a broad base offering to the customers in the
  packaging converting industry and become a preferred single supplier
  for all their product needs. We can leverage on our existing sales and
  distribution network to further develop our customer base for CPP
  film. As far as the market risk is concerned, we are targeting a
  relatively small share of about 7% in the South East Asian market,
  which is fragmented with about 3-4 main players holding > 40% market
  share in the region and as such, gaining 7% market share is not such a
  big risk. The other smaller players have older and smaller lines which
  have productivity and quality issues. PTL is going for a wider line
  which will help in higher productivity, higher speed and better
  quality of products.

  On the whole, the company is of the opinion that the risk associated
  with this project is not as high, since the Investment size is also
  relatively small.

  1.6.2 Thin PET Film expansion project

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

Market feasibility of the project is being carried out and the company
has identified existing key markets where there is a potential to
increase market share. The company is also exploring options to develop
new markets where there is a strong growth potential. Since Thin PET
film is an already existing product for the company, market development
activities will be taken up in full swing so as to ramp up the
production to full capacity in the shortest possible time

As far as the Project execution is concerned, the company does not
foresee any major concern as it has an experienced Projects team which
has implemented similar projects in the past smoothly in scheduled
project time and well within the budgeted project cost. The team of
competent managers will put in their best efforts to ensure that the
plant is running at high productivity levels.

The company currently has 4 local banks in its portfolio of banks that
have supported expansion projects in Thailand and in Turkey. The company
is confident of gaining the support of these banks in financing the new
expansion projects as well. The company proposes to borrow up to 65-75%
of the Project cost and will make a choice of 1 or more banks depending
on the terms and conditions offered by each of the banks.

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.

  Some 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 and
  has been successful in the production and other operational areas
  where this program was implemented.

  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)

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

  Currently, PTL’s major shareholders are PCL (As of March 31, 2008 the
  promotor Mr. Sanjiv Saraf and related parties control 46.93% 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 80-85%, are for exports, which are
  mostly denominated in US dollars and Euro. As against this, raw
  material (PTA & MEG) prices are also linked to the US dollar, although
  their payments are done in Baht and there are Long term loan related
  interest payments/loan repayments in USD and Euro. The company as at
  Mar 31^(st) ’08 had Euro loans of about 13.1 million and USD loans of
  about 13.2 million. 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 and
  from the surplus income from USD/Euro exports. Thus, broadly speaking,
  PTL has a US dollar balanced position on the trade front and Euro
  surplus position, which can be hedged somewhat against repayment of
  its long-term loans and investment into Turkey through PSPL. To the
  extent possible, the company has been trying to create a natural hedge
  to mitigate the risk from currency fluctuations. In some cases, the
  company has also taken tactical hedge through forward covers from time
  to time as a short term measure to mitigate risk.

  The company may borrow additional amounts to the extent of USD 10-12
  million for the CPP project and tie up another 40-50 million USD for
  the Thin film expansion project in Thailand. The currency of the loan
  will mostly likely be USD as the loan will be serviced out of revenues
  from these projects, which will be mainly from Exports, mostly dollar
  denominated.

0.  1.10 Interest rate risk

  As of March 31, 2008, the outstanding long term was Euro 13.1 million,
  USD 13.2 million and Baht 119.5 million, whereas outstanding short
  term loans was NIL. The USD loans have floating LIBOR based interest
  rates and the Euro loans have floating EURIBOR based rates. The Baht
  term loan is at a Fixed rate.The floating interest rate may put the
  Company at a risk of rising financial cost if the interest rates move
  up. Interest rate swap from floating EURIBOR to fixed EURIBOR was
  taken for partial Euro loan for an amount of 6 million for a period of
  2 years from 2006-2008. The swap will end in October’08. 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, PTL and PE is quite similar. In order to
  mitigate the risk of overlap of products and markets, PCL, PTL and PE
  have agreed on a clear cut policy on market segmentation. Under the
  policy, markets have been assigned to all the 3 group companies on the
  basis of logistics (cost and delivery terms), varying product range,
  preferential duty access in certain markets, availability of material
  etc (Section 3).

  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( excluding PTL) 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)