"Our focus is on speciality products"

SMART TALK/ M P Taparia, managing director, Supreme Industries

Amid spiralling prices of metals, the need to conserve natural resources and attain energy efficiency amongst other cost saving measures, many sectors such as electronics, automobiles and construction are increasingly and alternatively using plastics as their raw material.

And, the requirement is only expected to grow considering India's high GDP growth rates and limited natural resources. This will give a much needed push to plastic consumption and for players like Supreme Industries among others, it will be continuing business.

The Rs 1161-crore company is an acknowledged leader in the Indian plastics industry producing more than 15,000 varieties of plastic products and handling volumes of over 2.7 lakh tonnes of polymers annually.

Its products are broadly classified into categories like plastic piping system, cross laminated films, plastic furniture, material handling systems (including crates), protective packaging and industrial products, used across industries.

Going ahead, the company plans to increase the application of its products in agriculture, housing and infrastructure, which is one of the key thrust areas of growth, for the government. M P Taparia, managing director Supreme Industries spoke to Priya Kansara on the company's future growth strategies.

What is the scope for growth in Indian plastics consumption?

Consumption of plastics has tremendous potential in India due to lower per capita consumption (including recycled plastics) of around 6 kg as compared to China's 42 kg and the world average of 28 kg. According to industry estimates, the consumption of plastics in 2007-08 which is estimated at around 6 million tons, can double in the next five years if adequate supporting measures are taken by the government.

What has restricted the growth in consumption of plastics?

The Indian plastics industry has not been given adequate support by the government which has imposed high indirect taxes on plastic products. The combined rate of excise duty and value added taxes (VAT) constitute around 28 per cent on plastics products in India as compared to ASEAN's, which range between 5 per cent and 10 per cent.

The government must further reduce the general excise duty from 14 per cent to 8 per cent. They may unfold the road-map of implementation of goods & services tax (GST) throughout the country by April 2010. Considering our per capita income, GST on plastics products should be around 12 per cent against the current 28 per cent.

In this scenario, how is the company expected to fare?

We hope to clock a turnover of Rs 2,000 crore by 2009-10. If the government promotes the plastics industry, we could reach Rs 5,000 crore turnover in less than five years. This year (June ending), we hope to clock a turnover of around Rs 1,300 crore with an operating profit margin of 12.3-12.5 per cent. Next year, we expect a turnover of Rs 1,700 crore, with an operating profit margin of 13 per cent.

What is the reason for this high growth in sales and improved profitability?

We are expanding our capacity for material handling system, cross laminated films products, plastics piping system, furniture and protective packaging products. Out of our total capital expenditure programme of Rs 415 crore between 2006-07 to 2008-09 at different locations, we are investing a sum of Rs 260 crore at Gadegaon, Jalgaon district of Maharashtra for the same.

A sum of Rs 120 crore has already been spent and the rest will be invested over the next 18 months. This expansion will ensure a sales volume growth of 20 per cent to around 1.44 lakh tonnes in the current year. By 2008-09, our production and sales volume will go up by 25 per cent to 1.80 lakh tonnes.

Profitability will improve due to higher contribution of specialty products, tax incentives for Gadegaon complex (including power rebates), stable outlook on raw material prices and overall operating efficiency with increased volumes. Currently, about 25 per cent of sales and 45 per cent of gross profit comes from cross laminated film and specialty products in each of other product segments. We expect this share to further improve in 2008-09. Our aim is to increase the volume and variety of specialty products in every product segment.

Further, polymer prices, which were firm until now, are expected to remain stable in the near future due to slackness in US economy and expected addition of new capacities. We expect raw material prices to decline slightly from the third quarter of the current calendar year.

How will the company fund its expansion plan?

We will fund the expansion plan from divestments, internal accruals and debt. We have divested some of the product segments (rigid PVC and food serviceware) and idle real estate. We are further negotiating to divest in product segments where we are unable to differentiate. This will generate a sum of Rs 105 crore in 2006-07 & 2007-08. The balance will come from internal accruals and debt.

What is the threat from the unorganised segment and imports?

Our product range does not face any import threat. Also, many of our products, except plastic piping systems, do not compete with those made by the unorganised players. However, our plastic piping systems are differentiated vis-à-vis players in unorganised sector.

The market has pegged a value of Rs 65-70 per share for the company's Andheri property. What is your comment?

We are constructing an office complex at our Andheri property, which will have a saleable area of around 270,000 square feet and will be ready by March 2009. The complex will cost us around Rs 85 crore. According to the current market rates of Rs 16,000 per square feet and considering the tax on the real estate gain, the valuation may be in the range of Rs 85 to 90 per share.