4 Business Operations by each product line

  Manufacture and Distribution of Polyester thin film (Polyethylene
  Terephthalate Film, also called PET film, sold under the Brand name
  ‘Sarafil’), is the core business of the Company, including its
  subsidiaries. It focuses mainly on 3 key segments - Packaging,
  Industrial and Electrical. The 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 PET thin film are
  Coffee/Tea bag, snack bag, softener bag, detergent bag, wire/cable
  wrap and hot stamping foil.

  []

  In April 2008, the company started manufacturing a downstream value
  added product called ‘Thermal Lamination film’. This sold under the
  brand name ‘Saralam’. In this product line, the PET film or BOPP film
  is used as the base film, and then extrusion coated with adhesive
  resins like LDPE or EVA, based on the requirement of the end use
  application to be catered to. Currently, a project for the
  implementation of the second Thermal lamination line is underway in
  Thailand and is expected to start in H1 2013-14.

  In line with its objective of becoming a complete packaging solution
  provider, rather than just a thin PET film supplier, the company has
  in March 2010 started the manufacture of Cast polypropylene film. The
  company manufactures and sells plain CPP film & metallised CPP film
  under the brand name ‘ SaraCPP’.

  In an effort to continue its objective of diversifying the product as
  well as the customer base, Polyplex set up a Silicone Coating film
  line is Thailand which commenced commercial operations in March’12
  under the brand name “Saracote”.

  The ongoing investment in a Blown Polypropylene film line in Thailand
  is another concentric diversification by the Company in the plastic
  film business. This film will be mainly used as a base film for the
  Silicone Coated film, as well as sold to potential customers.

  The project for manufacture of Thick PET film is under implementation
  in Thailand and is expected to start commercial production in H1
  2013-14. Some of the common applications of Thick PET film are as
  under:

  [][]

  [][]

  In line with its strategy to expand in related areas of the plastic
  industry, the Company is investing in a PET Bottle Grade resin line in
  Turkey. The project is expected to commence commercial operations in
  H2 of 2013-14.

  As a sustainability initiative, the Company is investing in a project
  to recycle process waste as well as post consumer waste. The project
  is being implemented in Thailand, under the Company’s subsidiary -
  EcoBlue Limited.

4.1 Product Description

  The range of products offered by the company is as under:

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

-   Plain

-   Corona or chemically treated

-   High adhesion films

-   Ultra clear films

-   Co-extruded films

  B.) Metallized PET films

-   Semi Metallized film (low Optical density)

-   High barrier films

C.) Specialty Films

-   Twist films

-   Anti static films

-   Heat Sealable films

-   Isotropic Films, High Friction Films, etc

-   Matte films

-   Thick films

D.  Thermal Lamination Film

    -   Gloss PET Thermal Film

    -   MATTE PET Thermal Film

    -   BOPP Thermal Film

    -   Metallized Thermal Film

E.  Cast Polypropylene film - Product range:

-   Lamination & Conversion grade film

    -   Transparent film for lamination & surface printing

    -   High hot tack film for candy packing

-   Metallizable grade film - Transparent heat sealable film for vacuum
    metallization

-   Twist grade film

-   Retort grade film

F.  Siliconized Films (Under the brand name ‘Saracote’) in PET and PP
    films are used in various applications such as:

-   Shingle roofing tapes

-   Release liner in pressure sensitive labels.

-   Release liner in pressure sensitive adhesive tapes.

-   Release liner in medical and hygiene products.

G) Thick PET Film – main sub categories are as under:

-   Milky White

-   Clear/Ultra Clear

-   Transparent

-   Hazy Film

4.1.1

  a) Characteristic of PET film

PET film characteristic properties are as follows:

-   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 & colors 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.

  b) Characteristics of CPP Film

-   Excellent Heat sealing properties/ High heat resistance

-   Exceptional Optics

-   Good dimensional stability and barrier properties

-   Excellent printability

-   Metallized CPP - Significantly increases barrier properties

  c) Characteristics of Thermal Lamination Films

-   High gloss & stiffness provide longevity to laminated media

-   Coated adhesive forms inseparable bond with inks/papers

-   Surface is conducive to add-on processes like Hot stamping, UV
    coating

-   Improves visual appeal of product

  d) Characteristics of Silicone Coated Films

-   Silicone Coated film is designed to provide excellent carrier to
    pressure sensitive material

-   Single/ Double sided coated film

-   Superior tensile strength, dimensional stability and caliper control
    as compared to other Liners

4.1.2 End Use segment

  Thin PET film can be used in the following 3 key segments

+-----------------------------------------------------------------------+
| -   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.                                                    |
+-----------------------------------------------------------------------+
| -   Industrial -Comprising of Hot stamping foils, flexible            |
|     air-conditioning ducts, labels /ID cards, lamination products and |
|     many more.                                                        |
+-----------------------------------------------------------------------+
| -   Electrical - Wire and cable wrap, membrane switches, flexible     |
|     printed circuits, capacitors and motor insulation.                |
+-----------------------------------------------------------------------+

  Thick PET film is mainly used in the Industrial and Electrical
  segments:

-   Electrical – This segment accounts for almost 60% - 65% of Thick PET
    film market and is driving the growth in demand of Thick PET films.
    Flat Panel screen, PV panel, insulation etc are the main
    applications.

-   Industrial – Window Film, Laminating Film, Credit & Prepaid Cards,
    Medical Film etc are the key applications.

  Thermal Lamination films mainly cater to the following applications:

-   Thermal Lamination of documents or printed media

-   Reflective Insulation

-   Flexible packaging

-   Rigid packing using printed corrugated carton board

  CPP films can be used in the following key segments:

-   Packaging - CPP film is used as the inner most layer in food
    packaging, due to its excellent heat sealing properties. It may also
    be used in Textile packaging, packaging of health care products/
    consumer products etc

-   Industrial – Hot fill bags & liners, Industrial adhesive tapes,
    Interior automotive trim panels etc

  Silicone Coated Films mainly cater to the following applications:

-   PET Release liners for labels

-   PET Shingle tapes for the roofing industry

-   PP release liners for labels/stickers.

  The segmental break-up of revenue (PTL Standalone and Consolidated)
  from Film sales (Plain & Metallized PET films, Thermal Lamination/
  Silicone Coated Films and CPP film) are as follows:

  ­

  -------------------- ---------- ---------- ---------- -------- ---------- --------
  STANDALONE SALES     2010-11               2011-12             2012-13    

  Segment              Bt. Mn     Bt. Mn     Bt. Mn     %        Bt. Mn     %

  Packaging Use        3,986.67   3,529.79   3,529.79   80.66    3,151.83   78.44

  Industrial Use       955.61     974.77     974.77     19.34    866.40     21.56

  Electrical Use       0.00       0.00       0.00       0.00     0.00       0.00

  Total Film Sales     4942.28    4,504.55   4,504.55   100.00   4,018.23   100.00
  -------------------- ---------- ---------- ---------- -------- ---------- --------

­

  --------------------- ----------- -------- ----------- -------- ---------- --------
  CONSOLIDATED SALES    2010-11              2011-12              2012-13    

  Segment               Bt. Mn      %        Bt. Mn      %        Bt. Mn     %

  Packaging Use         8,298.90    74.63    7,651.23    76.05    6,144.72   67.47

  Industrial Use        2,666.52    23.98    2,319.52    23.06    2,880.42   31.63

  Electrical Use        154.04      1.39     89.57       0.89     82.71      0.91

  Total Film Sales      11,119.47   100.00   10,060.33   100.00   9,107.85   100.00
  --------------------- ----------- -------- ----------- -------- ---------- --------

  Note:

i.  Sales of Thermal lamination film and Silicone Coated Film are
    included in 2 segments i.e. Packaging segment and Industrial
    segment, depending on the end use application of each type of
    product sold.

[]

4.1.3 Products with similar properties

  In certain applications like graphics and magnetic recordings,
  substituting PET film would result in compromising 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                      | Excellent  | Fair        |
+-------------------------------------------+------------+-------------+
| Gas barrier properties                    | Poor       | Excellent   |
+-------------------------------------------+------------+-------------+
| Break down voltage                        | Poor       | Excellent   |
+-------------------------------------------+------------+-------------+
| Machineability                            | Fair       | Excellent   |
+-------------------------------------------+------------+-------------+
| Printability                              | Fair       | Excellent   |
+-------------------------------------------+------------+-------------+
| Suitability for metallising               | Poor       | Excellent   |
+-------------------------------------------+------------+-------------+
| Density (gm/cc)                           | Low (0.91) | High (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 in
  times of decline in BOPP selling prices few years back, there was no
  visible impact on the growth in PET films consumption. This
  establishes the limited substitutability between the two products.

  4.2 Business Strategy

  Key elements of the strategy are:

  - Attain cost leadership by way of capacity expansion and vertical
  integration.

  - Capture high growth markets and build good customer relationship.

  - To build strong global delivery capabilities with a judicious mix of
  on-shore, near-shore and off-shore strategy.

  - Further broad base the product portfolio by investing in upgrading
  technical and R&D capabilities.

  - Concentric and related diversification to bring stability in
  earnings.

  - Consolidate market position in key geographic locations.

  Moving in this direction, the following initiatives have been taken by
  the Company in the past and are planned for future:

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

-   With the start up of the second Thin PET film line in Turkey in May
    2008, the subsidiary has an even stronger cost effective production
    base to service its expanding customer base in Europe, Middle East,
    Africa & CIS/Russia.

-   Backward integration into the manufacturing of PET chips has
    strengthened the cost structure of the Company in Thailand and also
    of the subsidiary in Turkey.

-   With the Extrusion Coating plant in April 2008 and the additional
    Metallizers in Thailand and Turkey in May 2008, the Company has been
    able to significantly increase the share of value added products, in
    its sales portfolio thereby improving its profitability on the
    whole.

-   As a part of its strategy of concentric diversification, the Company
    has set up a CPP film manufacturing line in Thailand in March 2010.
    This has helped the Company to establish itself as a complete
    packaging substrate provider.

-   With the start up of the new Silicone Coated film in Thailand in
    March 2012, the Company has been able to increase its presence in
    new product segments and thereby reduce the impact of the cyclical
    nature of the Thin Polyester Film industry.

-   The Company’s decision to invest in a new PET Thin film line in USA
    is another step towards geographically diversifying its
    manufacturing base. This would help the Company to participate in
    the growth in the flexible packaging segment in the American region
    and increase its market share substantially.

-   The PET Thick film line in Thailand would help the company to bring
    about more stability in earnings, once the line is ramped up to
    optimum levels, as this segment is generally more stable in
    comparison to the PET Thin film segment.

-   The second Extrusion coating line in Thailand would help the Company
    to increase its market share in this industry as well as further
    diversify its product portfolio.

-   The Blown PP line would help Polyplex to enter into the Silicone
    coated PP film market.

-   The investment in the PET Bottle Grade Resin line in Turkey is
    another initiative towards diversification of risk and enhancing of
    the product range.

-   Various types of customer engagement initiatives by the Company have
    helped it to not only retain key customers, but also increase its
    customer base across the globe. The wide network of distributors and
    agents has helped the Company to gain access to all key markets of
    the world.

-   The parent company in India has set up a dedicated Research and
    Development center which works closely with key customers, including
    end users of convertors to develop specialty and innovative
    products.

  4.3 Distribution Channel

  The Company distributes its products to both domestic and overseas
  markets, with main focus put on the latter.

  The product distribution is being made directly to the end users using
  its own marketing arms in USA, Netherlands and in China as well as
  commission agents across the globe. The indirect channel is mainly
  through distributors in designated areas. The sales through
  distributors and commission agents help support and even boost the
  sale volumes as these distributors and agents 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.

  Value of total film sales to end users and distributors are as
  follows. Sales made through commission agents are included in ‘End
  Users’ segment.­­

  ------------------ ---------- -------- ---------- -------- ---------- --------
  STANDALONE SALES   2010-11             2011-12             2012-13    

  Customers          Bt.        %        Bt.        %        Bt.        %
                     million             million             million    

  End Users          2,986.43   60.43    2,480.96   55.08    2,290.96   57.01

  Distributors       1,955.84   39.57    2,023.59   44.92    1,727.27   42.99

  Total              4,942.28   100.00   4,504.55   100.00   4,018.23   100.00
  ------------------ ---------- -------- ---------- -------- ---------- --------

  -------------------- ----------- -------- ----------- -------- ---------- --------
  CONSOLIDATED SALES   2010-11              2011-12              2012-13    

  Customers            Bt. million %        Bt. million %        Bt.        %
                                                                 million    

  End Users            7,375.54    66.33    6,792.27    67.52    6,009.80   65.98

  Distributors         3,743.93    33.67    3,268.05    32.48    3,098.05   34.02

  Total                11,119.47   100.00   10,060.33   100.00   9,107.85   100.00
  -------------------- ----------- -------- ----------- -------- ---------- --------

  4.4 Markets and competitive environment

  4.4.1 Global Demand and supply

  Thin PET Film

  The growth in packaging has over the years shifted the production and
  usage patterns of PET films. The Company’s relevant segments of
  Packaging, Industrial and Electrical constitute 98% of the total
  demand and the traditional high-end technology segments like magnetic
  media and imaging segments are reduced to only 2% of the total
  consumption due to technology transformation. All these years,
  Polyplex was operating only in the thin PET film segment, which
  represents three-fourth of the overall global PET film demand. With
  the start up of the Thick PET film line in Thailand in H1 of 2013-14,
  the company plans to diversify by venturing into the Thick film
  segment as well.

  Better packaging not only improves the shelf life of the products but
  is also essential for improving product appeal in a highly competitive
  consumer goods industry. Flexible packaging also plays a key role in
  source reduction on the principle of ‘use less waste in the first
  place’ which has ensured higher-than-GDP growth in the flexible
  packaging industry across the globe. PET film, being a higher-end
  substrate within packaging, has grown more rapidly than other
  substrates, growing at an average of about 7%-9% per annum. Demand in
  packaging is quite resilient as it relates to consumption of food
  products and consumer staples which are to a large extent
  non-discretionary in nature. This characteristic of the packaging
  segment has resulted in steady growth in demand, despite the adverse
  factors of economic slowdown witnessed in the recent past.

  []

  Source: Company/ Industry estimates

  An increase in the purchasing power, coupled with the changing life
  style of people in the developing countries has brought with it a
  substantial increase in the per capita consumption of packaging
  material. As a result of this, Asia (excluding Japan & Korea), is the
  largest market for PET films with almost one-third of the PET films
  produced being consumed in this region. At the same time, per capita
  consumption of packaging material in developing countries is still
  very low as compared to the mature markets. The key drivers of demand
  growth in these regions are the increase in the share of organized
  sector, increasing consumerism, changing demographics and the
  resulting need for better and more convenient packaging.

  A similar trend is also evident on the supply-side with most of the
  new capacities being added in low-cost developing countries. Most of
  the new capacity is also focused on the packaging segment, with an
  emphasis on high productivity and low operating costs. This has
  adversely impacted the traditionally large producers of PET film
  operating with high cost structures, who have now been forced to
  concentrate in the emerging niche technologies in PET films like films
  for LCDs, solar panels, touch screens and specific high-end
  applications within packaging. While trade defense measures like
  anti-dumping and countervailing duties are on the rise in an
  increasingly competitive market environment, they are unable to
  address the inherent problems of unproductive assets operating in the
  developed countries producing regular films.

  []

  Source: Company/ Industry estimates

  During the year 2012, the Thin PET film industry witnessed an
  oversupply scenario due to excessive capacity addition following the
  exceptionally high margins witnessed in the PET film industry in 2010.
  The current situation of oversupply is expected to continue for an
  extended period of another one to two years.

  We expect global Thin PET film growth rates to be at about 7% in the
  next few years, with the demand in the South East Asian region growing
  at a higher rate of 8-9%. The overall capacity addition in the next
  12-18 months is expected to be higher than the growth in demand but
  the actual timing of the additions will determine the duration of the
  current oversupply situation. Companies with consistent quality
  products, diversified product portfolio, access to international
  customers and a better supply chain model stand a better chance of
  participating in the market growth and improving/maintaining their
  margins above the industry averages.

  Thick PET Film

  The demand of Thick PET film is mainly concentrated in the developed
  economies of the world. Electrical and Industrial are the key segments
  in Thick film industry. In the last few years the demand of Thick PET
  film has been growing at a CAGR of about 7.0%.

  New innovations and usage new applications in the Electrical segments
  (like Flat Screen panel, PV solar cells etc) have been driving the
  growth in the past and would help this industry to continue to grow at
  a healthy CAGR of about 6.0% for the next few years.

  []

  Source: Company/ Industry estimates

  Similar to Thin Film industry, the additions in the capacity of Thick
  PET film has been done mainly by countries within Asia like China,
  South Korea and Japan. However, European and US still continue to have
  more than 20% of world capacity.

  []

  Source: Company/ Industry estimates

4.4.2 Industry Situation

  Global competition

  The global Thin PET film manufacturers can be classified into 3 main
  categories by size of their production capacity:

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

(ii) Mid-size players with production capacity between 50,000 – 100,000
     tons per year and

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

  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 has been recorded
  in the past. Thus small, mid-sized and major producers (including
  Polyplex group) have expanded their capacity to cope with the
  increasing demand in these segments. This has led to the expectation
  of higher market share by producers in various countries which have
  surplus production capacity.

  Domestic competition

  Thailand’s PET film market is of small scale as compared to the global
  PET film market. As per our estimates, demand in Thailand is
  approximately 30,000 tons per year with growth rate for next few years
  expected to be about 8-9%.In the past, domestic producers have put
  emphasis on producing BOPP film rather than any other types. PTL has
  principally focused on PET film since its inception in Thailand and
  started with one PET film line, within nine months set up a second
  line as well. Over the years, PTL has had several other expansions in
  film capacity i.e value added films like Metallized film, Thermal
  Lamination film, Silicone Coated film etc and related product
  diversification like manufacturing CPP film. The Company is in the
  process of setting up a Thick PET film line, Blown PP line and second
  Extrusion Coating line in Thailand, which are expected to commence
  operations within H1 of 2013-14. It is presently having the largest
  PET Thin film production capacity in the country.

  The film production capacities of the various plastic film producers
  in Thailand as at 31^(st) March 2013 are as follows:

  --------------------- --------------------- -------------- -------------
  Production line (tons Thai Film Industrials A.J. Plast.    PTL*
  per year)             Plc.                  Plc.           

  BOPP film             107,000               66,000         -

  PET Thin film         3,500                 31,000         48,000

  CPP film              3,500                 -              **15,600

  BOPA film             -                     18,000         -

  Metallized film       7,000                 10,800         16,200

  Blown PP Film                                              4,645

  PET Thick Film                                             28,800

  Total                 124,000               125,800        88,800

  Thermal Lamination    -                     -              365 mn Sqm
  film                                                       

  Silicone Coated Film                                       725 Mn Sqm
  --------------------- --------------------- -------------- -------------

  Source: Form 56-1 of A.J.Plast Plc and T.F.I Plc

  * PTL capacities are as approved by BOI, including ongoing projects.
  For actual attainable capacities, please refer table below, under
  section ‘Production Capacity’

  ** Combined capacity p.a. as approved by BOI for CPP plain and
  metalized film

Conclusion on PET film industry

The PET film industry has been expanding continuously in the past. 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 aggressively to respond to the increasing growth of
demand. During the years 2000 to-2012, global average capacity
utilization of PET film manufacturers was in the range of 80-90% of
rated or nameplate capacity, except in certain years where the
utilization rate declined to below 80% due to excess capacity built up
in the industry. The levels of 85-90% are 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.

[]

Note: Data from industry sources/Company Estimates

Despite the 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 attain
larger size and hence economy of scale.

Polyplex group has accumulated over 25 years experience in the PET film
industry. It has been strengthened with consistent expansion in
production capacity. Its management is highly competent. Delivery of
products is efficient by having geographically distributed production
bases and a widely spread sales and distribution network that allow for
easy access to the customers.

The emphasis on the countries with high demand growth potential,
production and cost effectiveness and concentrating on business segments
such as packaging, industrial and electrical segments which have
recorded healthy growth all along has contributed to the Polyplex group
becoming one of the Top 5 producers of thin PET film (excluding capacity
for magnetic media).

In view of tariff barriers imposed by importing countries such as
anti-dumping and anti-subsidy duties, the Company’s parent company based
in India has experienced such threat from both the EU and the USA
several times. 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. It is an outcome of the
understanding of the process, that USA has levied zero duties till date
under the anti-dumping measure against the company.

As an outcome of the Antidumping investigation by the Government of
Brazil against Thailand and Turkey, an Anti Dumping duty of about 28
cents/Kg on imports from Thailand to Brazil and about 6.7 cents/Kg on
imports from Turkey to Brazil has been levied. The impact of these
duties is not very significant as the Company’s sales to Brazil are
minimal.

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.

Outlook for the PET film industry:

-   Global demand for Thin PET films is expected to grow at a CAGR of
    about 7% over the next few years.

-   Demand growth for the products in the Flexible Packaging segment in
    the South East Asian region is expected to be about 8-9%.

-   Mid size and new producers would increasingly look to diversify
    their product range from commodity grades to specialty grade films
    to improve margins.

-   Addition to global capacity during the next 12-18 months is expected
    to be higher than the growth in the demand, and hence the current
    situation of over supply is expected to remain for another 1-2
    years.

-   New entrants from China have been increasingly dominating the market
    for PET film in the last 2-3 years, but their production is expected
    to mainly fulfill domestic demand which is growing rapidly.

-   The cyclical nature of the industry would continue.

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

-   Free Trade Agreements being entered between various countries are
    opening up new opportunities, as well as threats.

-   Increasingly, the larger producers are trying to tie up strategic
    partnerships or acquisitions in order to ensure growth, presence in
    diversified markets or products or even as a measure to acquire
    technology for newer and sophisticated product range.

4.5 Manufacturing of product

4.5.1 Production

PTL is having 3 plots of land at Siam Eastern Industrial Park, Rayong
Province, with a total area of about 100 Rai on which all the production
facilities are built up.

4.5.2 Production capacity

Capacity of Polyplex group as on 31^(st) March 2013 (including ongoing
projects) is as follows:

[]

  -------------------- -------- ----------- --------- -------- --------- --------
  Product Type         India    Thailand*   Turkey    USA      Total     Unit

  PET Thin Plain Film  55,000   42,000      58,000    31,000   186,000   MT

  PET Thick Film                28,800                         28,800    MT

  PET resin            77,600   80,500      57,600    57,600   273,300   MT

  PET Metallized Film  20,400   11,000      11,000    13,500   55,900    MT

  Bottle Grade PET                          210,000            210,000   MT
  Resin                                                                  

  BOPP Film            35,000                                  35,000    MT

  CPP Plain Film                10,000                         10,000    MT

  CPP Metallized Film           4,200                          4,200     MT

  Blown PP Film                 4,645                          4,645     MT

  Coated Films         260      865         140                1,265     Mn Sqm
  -------------------- -------- ----------- --------- -------- --------- --------

  ­

  * Capacities for Thailand above are attainable capacities and
  capacities approved by BOI based on theoretical output are higher. For
  BOI approved capacities in Thailand, please refer table above under
  section ‘Domestic competition’.

  The above table includes the capacities for the p rojects under
  implementation at Thailand, Turkey and in USA.

  The capacity utilization rates for the Plain PET film lines PTL
  Standalone and Consolidated are as follows:

[]

[]

4.5.3 Major raw materials

  PET resin

  PET Resin (polyethylene terephthalate resin) is the major raw material
  in the production process for PET films. It has been the strategy of
  Polyplex to produce its own Resins at all the manufacturing locations.
  Accordingly every location has its own Resin plant with sufficient
  capacity to meet its requirement.

  Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG):

  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 the Company has currently
  tied up with one local supplier each for PTA and MEG for PTL. For the
  PTA & MEG requirement for the new PET Thick Film line, it will procure
  PTA from another local supplier, whereas MEG will be sourced from
  existing supplier. The subsidiary in Turkey is importing PTA from
  Europe and MEG from Middle East. For the subsidiary in USA, talks are
  on with the local suppliers and the contracts will be finalized before
  the start up of the PET resin line.

  The company enters into Annual contracts as per which 100% of the
  company’s requirements would be supplied as per the specified price
  formula throughout the contractual period(s).

  Major Raw materials for the Extrusion Coated Film production:

  Apart from PET film, which comes mostly from the company’s in house
  production, the major raw materials for the Extrusion Coated film
  production are BOPP base film and Coating chemicals such as LDPE and
  EVA. All these are sourced from various manufacturers / traders from
  within Thailand as well as imports from within the region. For the
  second Thermal lamination line which is expected to start operations
  in H1 of 2013-14, the company plans to continue to source its
  requirement from existing suppliers, while it will also continue to
  explore other options available within this region.

  Major Raw materials for the Cast Polypropylene Film production:

  The major raw materials for the Cast Polypropylene film production are
  Homo Polymer and Co-Polymer. Homopolymer is being procured locally
  while Co-Polymer is being imported.

  Major Raw materials for the Silicone Coated Film production:

  For the Silicone Coating line, the main raw material is PET film which
  is transferred from the Company’s in house production and also
  imported from the Parent company in India at Arm’s length pricing.
  Silicone and other chemicals are being imported from USA and Europe
  from leading suppliers.

  Major Raw materials for the Blown PP Film production:

  For Blown PP film line, the main raw material is PP resins
  (Homopolymer, Co-Polymer and PP Color master batches). We plan to
  source our requirement from local supplies as well as imports from
  within this region. The company already has experience of sourcing
  similar resins (Homopolymer and Copolymer) for the CPP Film line and
  would leverage on the relationship with existing suppliers, to
  negotiate favorable terms of supply for its new requirement for the
  Blown PP film line.

  The value chain for the Company’s PET & CPP film business is depicted
  below:

  []

+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|   The value chain for Thermal         |   |        |   |   |   |      |
|   Lamination film is given below:     |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
| []                                    |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+
|                                       |   |        |   |   |   |      |
+---------------------------------------+---+--------+---+---+---+------+

4.5.4 Impact on the environment

  There is a negligible impact on environment caused from the polyester
  film production process since PET in both film and resins are
  generally recyclable. For its Polyester resin line, it has the
  required EIA approval and submits regular reports required as per EIA
  approval to the concerned authorities.

  Since its commencement of production in March 2003, PTL has not faced
  any significant 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.

All our product lines in Thailand have the following certifications:

-   ISO 14001:2004 certification on Environment Management system

-   ISO 9001:2008 certification on Quality Management system

-   OHSAS 18001:2007 certification on Occupational Health and Safety
    Management system

-   ISO 22000:2005 certification on Food Safety standards

-   TPM Excellence Award (Category A)

All our product lines in Turkey have the following certifications:

-   ISO 14001:2004 certification on Environment Management system

-   ISO 9001:2009 certification on Quality Management system

-   OHSAS 18001:2007 certification on Occupational Health and Safety
    Management system

-   BRC/IoP – certification on Global Standard For Packaging and
    Packaging Materials (For Plain and Metallized Film lines)