Finolex considers backward linkages for raw material

As part of the efforts to derisk its business from the fluctuations of world oil prices, PVC pipe maker Finolex Industries is considering long term tie-ups with suppliers of ethylene di-chloride, ethylene and vinyl chloride monomer "� the raw material for its PVC resin production.

The company may look to even extend this backward integration by setting up a gas cracker project. Finolex is also considering a proposal to develop a special economic zone at its Chinchawad facility.

Finolex chairman P P Chhabria told mediapersons after the company's twenty-fifth annual general meeting on Thursday that the company plans to construct a breakwater at the Ratnagiri jetty which will make it an all-weather one, allowing vessels to come in throughout the year.

"This will allow us to seek long term tie-ups for supply of ethylene and receive supplies weekly, rather than providing for stocks for the time when the jetty can not be operated," Chhabria said.

The company has also implemented a captive power project at Ratnagiri. It has enhanced the capacity of this project from 22 mw earlier to 43 mw so that its manufacturing facilities get continuous and clean power at much lower costs.

"This," he said, "will prepare the base for a gas cracker project should the company consider at a later date. Tie-ups for ethylene, however, seems to be more relevent given the present scenario."

Chhabria said the demand for PVC resin outstrips supply by 300,000 million tonne every year. With the completion of the capacity expansion project at the PVC resin plant, the company now has 28 per cent share of the market, he pointed out.

As the cost differential between imported PVC resin and domestic supply is just about 3 per cent, demand from manufacturers here will sustain, he said.

Earlier, Chhabria told the company's shareholders that the company has mustered 25 per cent growth in its pipes business.

"With a greater allocation for agriculture in the country's budget for the current year and a strong growth in the construction and real estate businesses, the rise in demand is expected to continue," he said.

Chhabria said the company has decided to set up a 70-acre special economic zone at its Chinchwad facility, the plans for which will be finalised in due course of time. The AGM passed a resolution enabling the board to increase the borrowing limit to Rs 2,000 crore from the present Rs 1,000 crore.

The company has recorded sales of Rs 907.12 crore for the financial year ended March 2006 (Rs 1,001 crore in 2004-05) and earned net profit of Rs 42.3 crore (Rs 95.9 crore in 2004-05).

This, Chhabria said, was due to the severe impact of the steep increase in prices of the company's raw materials, and the fall in global prices of PVC resin, resulting in lower margins.

The company recommended a dividend of 15 per cent for the last financial year and an additional 15 per cent special dividend on account of its silver jubilee.