According to Indo Rama managing director OP Lohia, the net profit recorded after 18 months of losses has been on account of the increase in polyester and yarn prices over the past few months as well as enhancing internal efficiencies through adoption of better systems and processes. Indo Rama recorded a gross profit of Rs 31.55 crore in the quarter ended June against Rs 2.51 crore in the same period last year.

Lohia said that given the current margins, due to an increase in polyester and yarn prices and better capacity utilisation, the company expects to wipe out last year's losses of Rs 160crore by the end of the current fiscal. Indo Rama expects to increase its capacity utilisation to 110 per cent by end of the current fiscal from 80 per cent. The company produced 55,873 mt of polyester in April-June on an installed capacity of 69,000 mt a quarter. The company is understood to have targeted a turnover of Rs 2,000 crore in the current fiscal.

Lohia said the domestic prices of POY and PSF have risen by over 18 per cent and 25 per cent during the last quarter. Keeping in mind that the projected demand growth for polyester is 12-15 per cent for the next few years, there is a clear scope for demand growth in the country, said Lohia.

"Consequently, with demand matching supply and with no additional polyester capacities in the pipeline, the margins are expected to further improve", he said. The world demand for polyester is rising by 6 per cent per annum and prices are showing some signs of revival, said Lohia. The company is strongly in place to take advantage of this surge in demand, hesaid.

Lohia said the company has undertaken several initiatives to make it amongst the lowest cost polyester producers in the world, including adoption of the strategic business unit (SBU) concept for polyester as well as yarn production, aimed at improving the company's market penetration.

Besides this, other internal cost measures include supply-chain management and better business practices which will result in annual savings of Rs 22.50 crore and implementation of SAP R/3, the leading enterprise resource planning software. "All these efforts will increase margins in the coming months," said Lohia. The company had announced a net loss of Rs 159.55 crore on sales of Rs 1,375.19 crore for the financial year ended March 31, 1999.

Insight

Despite closure of one of its plants in May, higher margins in sales have seen the company come back in the black. However, it is still too early to say whether it would post an annual profit. On the plus side we have a balanced supply-demand situation inpolyester which may result in higher realisations for the company. But surge in crude prices may push up raw material prices much higher in percentage terms.

--Manish Saxena