A recently constituted institutional committee-set up to study operations in the polyester industry-has recommended that a wholetime finance director selected by FIs should be appointed, if it is necessary.

The institutional committee, which has submitted its report to the heads of financial institutions recently, has also suggested many remedial measures including the possibility of becoming a polyester waste recycle unit and sale of units.

The report, based on the study of operations primarily in four companies - Indo Rama Synthetics, Sanghi Polyester, Modern Syntex and JCT Ltd- has pointed out that low international prices, reduction in import duties, high conversion costs and poor capacity utilisation rates are the main reasons for the poor performance.

The committee has found that these companies are making huge cash losses due to improper purchase of raw material at higher prices than available domestically and the lower sales realisation due to poor marketing. Hence, the suggestion is at each company a management committee of the board should be formed which should meet regularly and examine all transactions pertaining to purchase of raw material and sales made by the companies.While studying the operations, the panel has taken into account the results of companies for the financial year ending March 1998 and March 1999.

It has found that the ailing companies are making cash losses as their cost of production is higher than the sales realisation. The losses range between Rs 5000 and Rs 16,000 per tonne. The sales revenue in 1998-99 was lower by almost Rs 13,000 per tonne in respect of POY and Rs 10,000 in respect of PSF while the cost of production during this period went down between Rs 8 to Rs 12 per kg. Consequently, these companies posted higher losses in fiscal 1999 compared with the previous financial year.

Most of the polyester companies could not cover even 50 per cent of the interest and have defaulted in the payment of the interest portion, says the report. The committee has also found that most of these producers have been showing much lower sales realisation compared with profit-making companies like Reliance Industries, Century Enka, Rajashree, etc.

The head of the financial institutions had formed the committee early this year comprising senior officials from IDBI, IFCI and ICICI. The committee was asked to identify the scope for reducing the cost of assess the market scenario in the next five years and to look at the recast strategy.