3. Business Operations

  PTL is the producer and distributor of thin PET film (Thin
  Polyethylene Terephthalate Film, also called PET film), most of the
  company’s production is exported to the foreign customers. PTL focus
  on 3 key segments - Packaging, Industrial and Electrical. PTL’s
  customers use the company’s products as raw material to produce their
  end-products which are then sold to their consumers. Some examples of
  products made from thin PET film are Coffee/Tea bag, snack bag,
  softener bag, detergent bag, wire/cable wrap and hot stamping foil.

3.1 Product Description

  PTL is the producer and distributor of thin PET film which has a wide
  range from 9 microns to 50 microns in thickness. The film is a high
  performance plastic film made from PET resin. The thin film product
  produced by the company can be categorized as follow:

  A.) Transparent films which can divided into 5 sub-categories

-   Plain

-   Corona or chemically treated

-   High adhesion and Barrier films

-   Ultra clear films

-   Co-extruded films

  B.) Hazy films

  C.) Metallised films

1.  Characteristic of PET film

PET film characteristic properties are as follow:

-   Optically brilliant, clear appearance

-   Excellent mechanical strength and toughness

-   Good dielectric properties

-   Good flatness and coefficient of friction (COF)

-   Tear-resistant and puncture - resistant characteristics

-   Excellent dimensional stability over a wide range of temperatures

-   Very good resistance to most common solvents, moisture, oil, and
    grease

-   Excellent barrier against a wide range of gases

  PET film can also be modified with varying degrees of shrinkage,
  opacity & colours and different surface textures for it to be used
  over a wide range of applications.

  A wide range of chemical treatments (in addition to corona) can be
  applied to PET film during its manufacture to help it adhere to
  various coatings.

3.1.2 End Use segment

  Thin PET film can be used in the 3 key segments

  ------------------- --- ------------------------------------------------
  1) Packaging        :   Clear and Metallized thin PET film can be used
                          as part of the outer layer and middle layer of
                          the flexible packaging such as coffee bag, snack
                          bag, softener bag, and detergent bag.

  2) Industrial       :   Comprising of Hot stamping foils, flexible
                          air-conditioning ducts, labels/ID cards,
                          lamination products and many more.

  3) Electrical       :   Wire and cable wrap, membrane switches, flexible
                          printed circuits, capacitors and motor
                          insulation.
  ------------------- --- ------------------------------------------------

The segmental break-up of income has been estimated as follows:

  ----------------------- ------------ ----------- ------------ -----------
  Segment                 2003-04                  2004-05      

                          Bt. Mn       %           Bt. Mn       %

  Industrial Use          440.70       26.78       751.51       23.03

  Electrical Use          42.47        2.58        102.14       3.13

  Packaging Use           1162.30      70.64       2,409.31     73.84

  Total Sales             1645.47      100.00      3,262.96     100.00
  ----------------------- ------------ ----------- ------------ -----------

3.1.3 Products with similar properties

  In certain applications like primarily graphics and magnetic
  recordings, substituting PET film would result in sacrificing
  performance characteristics of the product (e.g., strength, flatness,
  clarity, tear resistance, thermal stability and chemical resistance).
  However, in other applications, for which certain PET film performance
  characteristics may not be needed, PET film competes with a wide
  variety of substitute materials. These applications tend to fall in
  the low end of the product range, where other plastic films (e.g.,
  polyvinyl chloride, polypropylene, and polyethylene films) and paper
  may be considered as lower-priced substitutes. Applications for which
  a variety of substitute products may exist are primarily packaging and
  general-purpose industrial applications.

  BOPP Films (Biaxially Oriented Polypropylene) is one such close
  substitute product type, which is comparable in terms of its broad
  physical and mechanical properties to Polyester films. However, there
  are pros and cons of using PET film or BOPP films and depending upon
  the application requirements, a choice of the substrate would be made.
  As a result of this, both PET films and BOPP films have largely
  demarcated pockets where one is preferred over the other.

A Comparison of BOPP Films and BOPET (Polyester) Films

  Polyester film is considered as the premium plastic film in the
  flexible packaging industry. This is also reflected by the difference
  in the volume of the two products.

+--------------------------------------------+-----------+------------+
| Features                                   | BOPP      | BOPET      |
+--------------------------------------------+-----------+------------+
| Water vapour barrier(ป้องกันการซึมของไอน้ำ)    | Excellent | Fair       |
+--------------------------------------------+-----------+------------+
| Gas barrier properties(ป้องกันการซึมของก๊าซ)   | Poor      | Excellent  |
+--------------------------------------------+-----------+------------+
| Break down                                 | Poor      | Excellent  |
| voltage(ความสามารถในการรรับกระแสไฟฟ้า)       |           |            |
+--------------------------------------------+-----------+------------+
| Machineabi                                 | Fair      | Excellent  |
| lity(ความสามารถในการเปลี่ยนรูปร่างโดยเครื่องจักร) |           |            |
+--------------------------------------------+-----------+------------+
| Printability(ความสามารถในการพิมพ์)           | Fair      | Excellent  |
+--------------------------------------------+-----------+------------+
| Suitability for                            | Poor      | Excellent  |
| metallising(ความเหมาะสมที่ใช้ได้กับโลหะ)        |           |            |
+--------------------------------------------+-----------+------------+
| Density (gm/cc)                            | Low       | High       |
|                                            | (0.91)    | (1.39)     |
+--------------------------------------------+-----------+------------+
| Strength                                   | Fair      | Excellent  |
+--------------------------------------------+-----------+------------+
| Temperature Sensitivity                    | Poor      | Excellent  |
+--------------------------------------------+-----------+------------+

  Polyester film when stretched in both directions gives excellent
  dimensional stability, gas barrier properties, break-down voltage etc.
  BOPP, despite stretching remains a ‘limp film’. Polyester film has
  better handling capabilities for fluctuations in temperatures etc. and
  is therefore also preferred in the less sophisticated markets. In
  tropical countries PET is also preferred due to its moisture and
  oxygen barrier properties. In addition products where aroma retention
  is important require the use of PET; e.g. coffee, tea.

  On the other hand, the low density of BOPP (0.91 Vs. 1.39 for PET)
  makes it a ‘cheaper’ alternative in packaging. However, the advantage
  of density is to some extent offset by the need to typically have a
  thicker film when using BOPP as compared to PET for the same
  application. Further, since PET is not ordinarily heat sealable, BOPP
  is preferred in heat sealable applications.

  All over the world BOPP and PET have established their respective
  segments in the packaging market and overlap is insignificant. Even
  with the recent decline in BOPP selling prices, there has been no
  visible impact on the growth in PET films consumption. This
  establishes the limited substitutability between the two products.

3.2 Marketing Strategy

  Key elements of the strategy are:

  - Enhance capacity to capture growth markets & reinforce cost
  leadership position

  - To build strong global delivery capabilities with near-shoring and
  efficient onward distribution network

  - Further broad base the product portfolio by investing in upgrading
  technical and R&D capabilities. PTL is setting up a metallized film to
  its product offering to its customers

  - Consolidate market position in each geography before the next phase
  of growth

  Moving in this direction, the following initiatives have been taken by
  the Company:

-   The setting up of 2 successive film lines in Thailand was the first
    step towards achieving cost leadership position along with
    diversification of customer base.

-   Backward integration into the manufacturing of PET chips has
    strengthened the cost structure of the Company.

-   PTL is also setting up a metallizer to increase its product offering
    to its customers.

  After the completion of these expansions, PTL would have an optimal
  business model with 2 PET film lines, captive PET resin manufacturing
  and a metallizer; which it believes to be the most cost-effective
  structure.

-   Investment in a Polyester film line and metallizer in Turkey is the
    next initiative to further spread the manufacturing base closer to
    the customers in Europe, Russia, Middle-East and Northern Africa.
    Based on the initial experience at the new location and market
    conditions, plans call for subsequent setting up of another PET film
    line with backward integration into PET chips to have a facility
    similar to Thailand.

-   Deepening of the distribution reach through a mix of channel
    partnerships, direct presence and dealer representation and
    strengthening of the sales team.

-   Initiation of techniques like Total Productive Maintenance to
    improve the productivity at the plant.

3.3 Distribution Channel

  The Company distributes its products to both domestic and overseas
  markets, with main focus put on the latter, constituting about 90% of
  its total sale revenues. Such export markets are classified by region
  into three groups, namely Asia, North America and Europe.

  The product distribution has been made directly to the end users using
  its own marketing arm and indirectly through distributors in
  designated areas, such as those in the USA and Europe. Its indirect
  distribution through distributors can help support and even boost its
  sales as these distributors are in close proximity of the target
  markets, hence allowing for closer service provision to the customers
  with rapid delivery, and also better market penetration to access
  small customers. The Company’s sales through these distributors are
  free of any fees or charges. It is undertaken in the same manner as
  distribution to general customers.

  Value of export and domestic sales are as follows:

  --------------------------------------------------------------------------
  Customers                       2003/04               2004/05     
  ------------------------------- ------------ -------- ----------- --------
                                  Bt. million  %        Bt. million %

  Exports                                                           

  Asia                            716.63       43.55    1,090.16    33.41

  North America                   372.54       22.64    820.50      25.15

  Europe                          351.53       21.36    863.14      26.45

  Other Others                    48.35        2.94     126.71      3.88

  Total exports                   1,489.05     90.49    2,900.51    88.89

  Domestic sales                  156.42       9.51     362.45      11.11

  Grand total                     1,645.47     100.00   3,262.96    100.00
  --------------------------------------------------------------------------

  Value of sales to end users and distributors are as follows:

  ------------------------------- ------------ -------- ----------- --------
  Customers                       2003/04               2004/05     

                                  Bt. million  %        Bt. million %

  End Users                       770.68       46.84    1,647.04    50.48

  Distributors                    874.79       53.16    1,615.92    49.52

  Total                           1,645.47     100.00   3,262.96    100.00
  ------------------------------- ------------ -------- ----------- --------

3.4 Markets and competitive environment

  3.4.1 Global Demand

The worldwide merchant market of PET film in 2004 was 1.47 million tons,
up from 1.10 million tons in 1999, which represents a CAGR of 5.79%. Of
this market, about 80% of demand is estimated to be driven by thin
films. The sector with highest demand for thin PET film is packaging,
followed by industrial and electrical films respectively. Their combined
demand accounted for 70% in 1999, rising to 85% in 2004, with a
cumulative growth of 50% during 1999-2004. Electrical equipment recorded
the highest growth of 83%, packaging 64% and industrial 45%.

Table to illustrate global consumption of PET film by business sectors
(unit: thousand tons)

  ------------ -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
  Type         1999           2000           2001           2002           2003           2004     

               volume   %     volume   %     volume   %     volume   %     volume   %     volume   %

  Magnetic     237      21    237      19    210      18    198      15    170      13    110      8
  media                                                                                            

  Packaging    377      34    419      34    441      37    509      39    526      40    620      42

  Electrical   108      10    139      11    130      11    149      12    162      12    197      13

  Imaging      93       8     111      9     96       8     94       7     93       7     115      8

  Industrial   292      26    322      26    313      26    342      26    374      28    423      29

  Total        1,106    100   1,228    100   1,190    100   1,293    100   1,325    100   1,465    100
  ------------ -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----

Source: Company Data

Classified by region, demand for PET film was the highest in North
America, West Europe and Japan, accounting for 29%, 21% and 20% of world
consumption respectively in 1999, and 28%, 21% and 20% respectively in
2000. Later, consumption by other Asian countries leveled up to the
extent over that by West Europe and Japan. The region became the 2^(nd)
largest consumer of PET film in 2001 and the largest in 2004. In 2004,
other Asian countries’ demand for PET film accounted for 30% of world
demand, followed by America and Japan with 22% and 18% respectively.
With the expansion of packaging, industrial and electrical businesses
(CAGR of 9.79% during 1999-2004) and hence huge demand for thin PET film
since 1999, demand from other Asian countries recorded a healthy CAGR of
19% during 1999-2004.

Table to illustrate global consumption of PET film classified by regions
(unit : thousand tons)

  --------- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
  Region    1999           2000           2001           2002           2003           2004     

            volume   %     volume   %     volume   %     volume   %     volume   %     volume   %

  America   318      29    343      28    309      26    327      25    318      24    329      22

  Japan     221      20    243      20    218      18    221      17    245      18    267      18

  Korea     146      13    152      12    161      14    175      14    169      13    164      11

  Other     181      16    221      18    243      20    299      23    338      26    436      30
  Asian                                                                                         

  W Europe  226      21    255      21    237      20    248      19    226      17    232      16

  RoW       14       1     15       1     22       2     23       2     29       2     37       3

  Total     1,106    100   1,229    100   1,190    100   1,293    100   1,325    100   1,465    100

  Thin film 896      81    979      80    960      81    1,048    81    1,066    80    1,157    79

  Thick     210      19    250      20    230      19    245      19    259      20    308      21
  film                                                                                          
  --------- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----

Source: Company Data

3.4.2 Global Supply

The global merchant capacity for PET film in 2004 was 1.84 million tons
up from 1.45 million tons in 1999, which represents a CAGR of 4.8%. Thin
film capacity was estimated at 1.4 million tons in 2004, about 77% of
the total. Since 1999, there has been a shift of production towards
Asian markets (excluding Japan and Korea) whereas the capacity in all
the other markets has remained largely unchanged.

Table illustrate global capacity by types of PET film (unit: thousand
tons)

  ------- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
  Types   1999             2000             2001             2002             2003             2004       
  of PET                                                                                                  
  film                                                                                                    

          Capacity   %     Capacity   %     Capacity   %     Capacity   %     Capacity   %     Capacity   %

  Thin    1,088      75    1,089      73    1,099      74    1,157      75    1,217      75    1,415      77
  Film                                                                                                    

  Thick   364        25    409        27    395        26    395        25    395        25    424        23
  Film                                                                                                    

  Total   1,452      100   1,498      100   1,494      100   1,552      100   1,612      100   1,839      100
  ------- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----

Source: Industry estimates

Thin film: < 36 micron (µ) Thick film: > 36 micron

Classified by region, other Asia had the highest capacity in producing
PET film in 2004. Its portion compared to total capacity was 39.50%,
followed by Korea and America with 16.14% and 16.10% respectively.
During 1999-2004, Other Asia also was the region that had the highest
growth rate of PET film production capacity with growth rate 87% due to
the increase of new manufacturers, production lines and production
capacity expansion in India, China and some developing countries in Asia
in order to meet the increase in PET film demand in this region.

Table to illustrate shows global capacity of thin & thick film (unit:
thousand tons)

  -------------------------- --------- --------- --------- --------- --------- ---------
                             1999      2000      2001      2002      2003      2004

  America                                                                       

  - Thin Film                157.5     173.6     171.5     168.7     188.5     192.4

  - Thick Film               86.7      113.0     106.8     106.8     99.7      103.0

  Total                      244.2     286.6     278.3     275.5     288.2     295.4

  Compare to the World       16.82     19.13     18.63     17.75     17.87     16.1
  Capacity (%)                                                                 

  Japan                                                                         

  - Thin Film                179.0     179.5     177.5     198.0     181.5     179.4

  - Thick Film               86.0      87.0      77.0      77.0      96.0      101.0

  Total                      265.0     266.5     254.5     275.0     277.5     280.4

  Compare to the World       18.25     17.79     17.03     17.72     17.21     15.3
  Capacity (%)                                                                 

  Korea                                                                         

  - Thin Film                243.0     254.7     244.3     250.8     255.6     253.9

  - Thick Film               51.0      47.4      55.0      55.0      43.0      43.0

  Total                      294.0     302.1     299.3     305.8     298.6     296.9

  Compare to the World       20.25     20.17     20.03     19.70     18.52     16.1
  Capacity (%)                                                                 

  Other Asia                                                                    

  - Thin Film                325.3     303.8     330.8     372.4     430.3     622.4

  - Thick Film               63.2      77.0      73.6      73.6      87.0      104.1

  Total                      388.5     380.8     404.4     446.0     517.3     726.5

  Compare to the World       26.75     25.42     27.07     28.74     32.08     39.5
  Capacity (%)                                                                 

  West Europe                                                                   

  - Thin Film                160.6     152.0     158.3     152.8     147.7     152.8

  - Thick Film               61.1      67.4      69.2      69.2      62.0      59.2

  Total                      221.7     219.4     227.5     222.0     209.7     212.0

  Compare to the World       15.27     14.65     15.23     14.30     13.01     11.5
  Capacity (%)                                                                 

  The Rest of the World(ROW)                                                    

  - Thin Film                22.7      25.2      16.6      14.3      13.5      14.2

  - Thick Film               16.1      17.5      13.4      13.4      7.6       13.7

  Total                      38.8      42.7      30.0      27.7      21.1      27.9

  Compare to the World       2.67      2.85      2.01      1.78      1.31      1.5
  Capacity (%)                                                                 

  The World Production       1,452.2   1,498.1   1,494.0   1,552.0   1,612.4   1,839.1
  Capacity                                                                     
  -------------------------- --------- --------- --------- --------- --------- ---------

Source: Company Data

Note to Table :

  --------------- --- ----------------------------------------------------
  America         :   America Continent

  Other Asia      :   Countries in Asia except Japan and Korea

  West Europe     :   Countries in West Europe

  The Rest of the :   Countries in : Europe other than West Europe,
  World c             Africa, Australia and New Zealand
  --------------- --- ----------------------------------------------------

3.4.3 Industry condition

Global competition

There are currently three distinct classes of PET film manufacturers
classified by size of production capacity:

(i) World majors with production capacity of over 100,000 tons per year
    (e.g. Dupont-Teijin, Mitsubishi and Toray, etc.)

(ii) Mid-size players with production capacity between 50,000 – 100,000
     tons per year (e.g. Kolon, Polyplex, SKC, Cifu and Jindal, etc.)
     and

(iii) Small / local producers with production capacity of less than
      50,000 tons per year

Past demand for PET film for magnetic media application has been high in
the past, prompting major producers to focus mainly on this segment.
Competition in the magnetic media segment is thus confined only to these
major ones based on their long and well established expertise and
experience.

For other PET films including thin film, competition is seen among all
groups of producers thanks to the consistently rising demand, especially
for thin film which is used in packaging, industrial and electrical
segments where healthy growth of demand is recorded. Thus small and mid
sized producers (including Polyplex group) have expanded their capacity
to cope with the increasing demand in these segments. This can lead to
the expectation of higher market share by some small and mid sized
producers in various countries which have carried higher production
capacity.

Domestic competition

Thailand’s PET film market is of small scale. PTL forecasts that
domestic demand in Thailand is approximately 13,000 tons per year with
an annual growth rate of about 10%. In the past, domestic producers have
put emphasis on producing BOPP film rather than any other types. PTL
itself has principally focused on PET film with initial production
capacity of 15,000 tons per year, rising to 48,000 tons per year at
present, hence the largest PET film production capacity in the country.

The production capacities of the various plastic film producers in
Thailand are as follows:

  (unit: tons)

+--------------------------+-------------+-------------+-------------+
| Production line          | Thai Film   | A. J. Plast | PTL         |
|                          | Industries  | Plc.        |             |
| (tons per year)          | Plc.        |             |             |
+--------------------------+-------------+-------------+-------------+
| BOPP film                | 100,000     | 36,000      | -           |
+--------------------------+-------------+-------------+-------------+
| PET film                 | 3,500       | 28,500*     | 48,000      |
+--------------------------+-------------+-------------+-------------+
| CPP film                 | 3,500       | -           | -           |
+--------------------------+-------------+-------------+-------------+
| Metallized film          | 7,000       | 6,000       | -           |
+--------------------------+-------------+-------------+-------------+
| Other coated films       | 3,500       | -           | -           |
+--------------------------+-------------+-------------+-------------+
| Total                    | 117,500     | 70,500      | 48,000      |
+--------------------------+-------------+-------------+-------------+

Source: www.ajplast.com

* Understood to have increased capacity from 3^(rd) quarter of 2004

In 2002, Thailand’s production capacity of PET film was around 12,000
tons, rising to 51,000 tons by 2003 year-end and 80,000 tons currently
as a result of PET film capacity expansion by some producers such as A.
J. Plast in the wake of predicted growth of this industry.

As most of PTL’s production is intended for exports while the other PET
film producers have been more focused on the domestic markets.
Therefore, with different target markets, PTL does not foresee any
threat from the increasing capacity of these producers on its export
sales.

The table below shows export value of PET film of the Company compared
with other manufacturers of the country:

Export value of PTL compared with other companies’

+-----------+----------+------+------------+------+----------+------+
|           | April    |      | April      |      | April    |      |
|           | 02-March |      | 03-Mar 04  |      | 04-Jan   |      |
|           | 03       |      |            |      | 05       |      |
+-----------+----------+------+------------+------+----------+------+
|           | Bt.      | %    | Bt.        | %    | Bt.      | %    |
|           | million  |      | million    |      |  million |      |
+-----------+----------+------+------------+------+----------+------+
| PTL       | 0        | 0.00 | 1,489      | 95.5 | 2,396    | 9    |
|           |          |      |            |      |          | 5.54 |
+-----------+----------+------+------------+------+----------+------+
| Other     | 3        | 10   | 69         | 4.5  | 112      | 4.46 |
| companies |          | 0.00 |            |      |          |      |
+-----------+----------+------+------------+------+----------+------+
| Total     | 3        | 10   | 1,558      | 100  | 2,508    | 100  |
|           |          | 0.00 |            |      |          |      |
+-----------+----------+------+------------+------+----------+------+

Source: Customs Department (data available only until 31^(st) Jan 2005)

Conclusion on PET film industry

The PET film industry has expanded successively up to the present with
good future prospects foreseeable. The main driving factor for the past
five years has been the growth of the packaging, industrial and
electrical segments. Meanwhile, PET film producers have boosted their
capacity utilization and/or their production capacity to respond to the
increasing growth of demand. During 1999-2004, global average capacity
utilization of PET film accounted for 82-91% of rated or nameplate
capacity, considered a high utilization rate being close to the full
machinery capacity. In practice, some producers can produce lower than
the nameplate capacity due to the long use and hence the poor condition
of machinery while some can produce with capacity utilization even
higher than 100% of the nameplate capacity using new and modern
machinery and based on their long-time expertise and experience. Thus
with such near full capacity utilization, some producers have to launch
expansion of production capacity to cope with the increasing demand.

[]

Despite the ever rising demand for PET film, it is not easy for new
entrants to compete with the existing players. It is because it is an
industry that needs high levels of know-how, skills and expertise to
ensure the exact product size, standard and specifications required by
the customers. Project management skills are also needed to enhance
efficiency and cost effectiveness that will lead to competitiveness
against other producers. Capacity expansion may be unavoidable to ensure
larger size and hence economy of scale.

Polyplex group has accumulated over 17 years in the PET film industry.
It has been strengthened with consistent expansion in production
capacity. Its management is of high efficiency. Delivery of products is
efficient through having production bases that allow for easy access to
the customers. It has clear classification of markets among the
companies in the group. For example, PTL which is based in Thailand is
in charge of catering to markets in Thailand, East Asian countries,
China, Southeast Asian countries and America, while PE which is now in
the process of incorporation, will serve customers in Europe, Middle
East and Russia/CIS.

The emphasis on the countries with high demand growth and such business
segments as packaging, industrial and electrical segments which have
recorded healthy growth all along has contributed to the Polyplex group
becoming the fifth largest producer of thin PET film (excluding capacity
for magnetic media). When coupled with the production capacity of its
new facility in Turkey, the group will become the fourth largest
producer (excluding capacity for magnetic media).

In view of tax measures taken by importing countries such as
anti-dumping taxes, the Company’s parent company based in India used to
experience such threat from both the EU and the USA. It has thus been
keen on the issue, having information on the criteria and inspection
process adopted by those countries and knowing how to deal with the
problem. Such problem has been resolved until that, at present, the USA
has levied zero duties till date under the anti-dumping measure against
the parent company. It is also unlikely that the EU will take this
measure against the Company as the investigation process of which will
take about 12-16 months and by the end of that period, the distribution
to the EU will be handled by the facility in Turkey. As for export to
the USA, with close monitoring on selling prices, the Company has never
experienced any tax measures since its inception in April 2003.

Projection of PET film industry:

-   Within the next two years, there would be increase in production
    capacity from developing countries in Asia. No fresh production
    capacity is expected from Europe, the USA or Japan/Korea. Drastic
    capacity expansion as in the past 10 years is unlikely to occur.

-   New entrants from China would increasingly dominate the market for
    PET film but their production is expected to mainly fulfil domestic
    demand which is high. Moreover, with their limited skills, expertise
    and experience, their production cost fails to be competitive
    globally. They need some time to have their potential developed to
    be on a par with the existing global players.

-   The cyclical nature of the industry would continue but the severity
    of the ups and downs as witnessed in 1995 would be moderated.

-   Dominance of the existing large producers with market share of 45%
    is likely to continue though with a reducing share. However, decline
    in their traditional market segments and slower growth in their home
    markets have constrained their ability to improve their PET film
    operations. Lowering production cost through acquisitions and joint
    ventures with low-cost Asian countries, rationalization of capacity
    and continued emphasis on technology intensive niche products could
    be an important strategic response.

-   The transitioning of the industry to Asia would pose higher
    competitive pressure in the years to come.

-   Demand for the products is likely to grow between 5-10% in the
    packaging, industrial and electrical segments.

3.5 Manufacturing of product

3.5.1 Production

  PTL’s plant is located at No. 60/24 Moo 3, Siam Eastern Industrial
  Park, Rayong Province, on an area of 28 rai 50.9 square wah. In order
  to have better control over raw material quality and availability as
  also costs, PTL has also set up a captive Pet Resin facility. The
  first phase of the backward integration project involving setting up
  of a batch polycondensation plant of 20 tons/day capacity commenced
  operations in September-2004 and the second phase, being the
  Continuous process plant started operations in February, 2005.

3.5.2 Production capacity

  The Company has two PET film production lines. The first one carrying
  an approved production capacity of 24,000 tons per year commenced
  commercial production on April 2, 2003. The second one carrying the
  same capacity with commercial production commenced on November 12,
  2003. Capacity of Polyplex group, present and projected as on 31^(st)
  March 2006, are as follows

  ----------------------------- ------------------- ---------------------
                                Capacity (tons per  
                                year)               

                                Current             Projected as at
                                                    31^(st) March 2006

  a) PET film                                       

  India                         20,000              20,000

  Thailand                      39,000              48,000

  Turkey                        -                   24,000

  Total capacity                59,000              92,000

  b) PET resin                                      

  India                         20,000              20,000

  Thailand                      52,500              52,500

  Turkey                        -                   -

  Total capacity                72,500              72,500

  c) Metallized film                                

  India                         4,800               4,800

  Thailand                      -                   7,500

  Turkey                        -                   5,000

  Total capacity                4,800               17,300
  ----------------------------- ------------------- ---------------------

  During 2003/04, its production output of PET film accounted for 23,360
  tons, representing a capacity utilization of 96.46% (as per then
  stated capacity of 39,000 tons per year). Its output reached 38,199
  tons in 2004/05, which represents 97.95% capacity utilization (on the
  capacity of 39000 tons per year).

(Tons)

  ---------------------------- -------------------- ---------------------
                               2003/04              2004/05

  Full production capacity     24,217               39,000

  Production output            23,360               38,199

  Capacity utilization (%)     96.46                97.95
  ---------------------------- -------------------- ---------------------

3.5.3 Major raw materials

  PET resin

  PET Resin (polyethylene terephthalate resin) is the major raw material
  in the production process for PET films. Since inception, the company
  had procured most of its PET resin requirements from two unrelated
  suppliers belonging to one group with whom the Polyplex group enjoys a
  long-standing good relationship. Moreover, with large purchase volume
  from one group, the Company had negotiating power to procure lower
  priced raw material than procuring from several suppliers each in
  small volume.

  From time to time, the company had also procured imported PET resin
  from other Asian countries. The table below shows volume of PET resin
  consumed in 2003/04 and 2004/05:

  ------------------------- ----------- -------- ----------- --------------
                            2003/04              2004/05     

                            Tons        %        Tons        %

  Local                     23,659.45   99.10    31,428.10   88.78

  Imports                   213.20      0.90     3,970.54    11.22

  Total                     23,872.65   100.0    35,398.64   100.00
  ------------------------- ----------- -------- ----------- --------------

  Purified terephthalic acid (PTA) and mono ethylene glycol (MEG):

  However, in 2004-05, the company commenced production of its captive
  Pet resin in two phases.

  The major raw materials for PET resin production are purified
  terephthalic acid (PTA) and mono ethylene glycol (MEG). To ensure
  uninterrupted procurement of raw materials and given the
  current/likely tight supply scenario in most petrochemical inputs, the
  Company has entered into long term purchase agreements with one
  supplier each for PTA (local supplier) and MEG (import source) as per
  which 100% of the company’s requirements could be supplied as per the
  specified price formula throughout the contractual period(s) ending in
  December 2007.

3.5.4 Impact on the environment

  There are negligible impact on environment caused from the production
  process since PET in both film and resins are recylcable.

  Since its commencement of production in March 2003, PTL has not faced
  any problems relating to the environment. Inspection by the Industrial
  Factory Department has been undertaken on a regular basis, the result
  of which has come out that the Company’s manufacturing process poses
  no environmental impacts. PTL has attained ISO 14001:1996
  certification on environment management system on May 21, 2004.