Mr. Rakesh Gothi, Managing Director, JBF Industries Ltd, is a B.Tech, MS & MBA degree holder. He joined the company in 1997. He has over 30 years of experience and has previously worked with J.K. Synthetics Ltd. and Nirlon Ltd. He is deeply involved in the production and marketing functions of the company.
JBF Industries Ltd, established in 1982, was founded by Mr. Bhagirath Arya as a Yarn Texturising business, over the years the company has backwardly integrated. It is currently engaged in production of Polyester products such as Polyethelene Terephthalate (PET) chips which are of Bottle grade, Textile grade and film grade, Partially Oriented Yarn (POY), Polyester Filament Yarn(PFY), Other Specialized Yarn and Full Drawn Yarn (FDY) and BOPET Films. It commenced international operations in 2006 by setting up a plant at Ras-Al-Khaimah (RAK) for manufacturing PET chips and BOPET Films. It has a Polymerization capacity of ~1.03 MMT p.a. and downstream capacity of 0.325 MMT p.a. distributed over 3 domestic and 1 overseas plants. The company has client base spread across multiple geographies in European, African, Middle East and Indian Markets.
Replying to Anil Mascarenhas of IIFL, Rakesh Gothi says, “We are currently in the phase of a major expansion where we plan to set up a PTA Plant in Mangalore SEZ, India at a cost of ~ USD 600mn.”
You have moved up from to Polyester Chips maker to Yarn & Film making. Walk us through how the company has evolved over the years and where do you see it headed in the coming years?
JBF Industries has evolved multifold in the last 5 years. The company has grown from achieving sales of Rs. 7.3bn in FY06 to Rs. 65bn in FY11. From only catering to textile chips and POY segment in India up to 2007, we now cover the entire value chain in the polyester segment. We now also manufacture bottle grade chips and Polyester films of different grades like thin film, thick film, and metalized film from our Ras Al-Khaimah (RAK), UAE plant. We started with our geographic diversification in FY06 and spent Rs. 8,000 mn over the span of 3 years to put up the Films and Bottle grade chips plant in RAK, UAE. In FY06-07 our revenue mix was 66% textile chips and 34% POY. Today the revenue mix stands at Textile chips – 28%, Bottle grade chips – 28%, POY – 26% and Films 18%. Our overall polymerization capacity has increased from 0.335 mn tons per annum (TPA) in 2007 to 1.05mn TPA in 2011. Going forward, JBF is planning to set up a Purified Terephthalic Acid (PTA) plant in Mangalore, India (PTA – is one of the key raw materials in the manufacturing process of Polyethelene Terephthalate (PET) and constitutes around 70% of the total raw material cost). This will be a 1.12 mn TPA plant and will cater to the PTA needs of company’s plants in both India as well RAK as the group requirement of PTA today stands at ~ 850k TPA. Additionally, the company is also going to set up a 390,000 TPA PET plant in Belgium. This plant will be adjacent to British Petroleum’s (BP) PTA facility which will ensure continuous supply of PTA to JBF’s plant.
What is the vision for your company and how do you propose to get there?
The vision of our company is to be a leading global petro-chemical company covering the entire polyester value chain.
What are the changing trends in the industry and what are some opportunities and challenges that you see?
Opportunities are seen in the bottle grade market where FMCG manufactures are keen on shifting from glass packaging to PET bottle packaging. The global demand growth rate in this segment is as high as 5-8% p.a. Challenges include oversupply of POY in the market may cause prices to be temporarily subdued.
Brief us on your product portfolio and what is the revenue share from your major segments?
JBF Industries today is present in the manufacturing of many of the products in the polyester value chain. In India our products include PET Chips of Textile grade and Bottle grade. Additionally the company also manufactures Partially Oriented Yarn and other specialized yarns of different grades. In the RAK, UAE plant, we manufacture bottle grade chips and Polyester Films of different grades like Thick films, thin films and also metalized films. On a consolidated level, the company achieved revenue of about Rs. 65bn in FY11. The revenue mix was Textile chips – 28%, Bottle grade chips – 28%, POY – 26% and Films 18%.
Comment on your subsidiaries. To what extent have you managed to backward integrate? Any plans to list them?
JBF Industries has 2 primary subsidiaries: JBF India and JBF RAK.
As mentioned earlier, we plan to further backward integrate by setting up a manufacturing facility of our key raw material – PTA. Currently there are no plans of listing the subsidiaries separately.
JBF used to enjoy advantages in terms of location, quality of the product flexibility in terms of supplying various varieties of chips and efficient servicing. What are the key strengths of the company today?
JBF India, has its manufacturing facilities primarily in Gujarat, which is close to the raw material supplier. This ensures low cost spends in procuring PTA, from various suppliers as they are present in a 150-200km radius from JBF plant. On the other hand, the plants are close to Surat, which is a major textile hub in India, and a large consumer of yarn as well as textile chips. This again means low logistic costs.
JBF Industries is now the second largest supplier of Textile Grade Chips in the Indian market. The company has developed a good reputation in terms of quality and years of experience and therefore our chips are widely accepted by all yarn manufacturers. The company is also the third largest manufacture of bottle grade chips as well as the third largest manufacturer of Polyester Yarn in India. The proximity of the plants to the customers and the sheer size of the company give us a competitive edge over others.
Another major defining strength at JBF is the inventory management policy. JBF only keeps about 15 days of end to end inventory and therefore it is relatively immune to sudden price fluctuations. This policy has resulted in JBF successfully managing operations for the last 25 years.
Who are the players you compete with in the market? Is there a clear product differentiation in the market?
There is very limited product differentiation between various competitors in the market. The only differentiating factor is the management of the operating parameters such as logistics, power, inventory etc.
JBF’s major competitors are as follows:
What is the demand outlook for your products? Which are your key markets?
Products for domestic market include Textile chips, POY, bottle grade chips
The demand growth in volume terms for textile chips continues is estimated to be at 5-8% p.a.
Polyester Oriented Yarn (POY) and Polyester Filament Yarn (PFY) clocked around 14-15% growth in FY05-10, and are expected to grow around 14-16% in FY10-15e as well.
Bottle grade chips continue to be the high growth segment where growth is likely to be in the range of 10-12% p.a. This growth is also due to FMCG players’ willingness to shift from glass bottles to PET bottles.
Products from UAE include Bottle grade chips and BOPET Films. Demand growth for bottle grade chips continues to be strong due at 8-10% p.a. to our focus on the MENA (Middle East and North Africa) markets. Demand for Films, especially thick films (used in solar panels, LED screens etc) is growing at 10% + levels.
Comment on your manufacturing units. What is the capacity and utilization? Any expansion plans?
Our domestic manufacturing units are at Sarigram in Gujarat, Saily in Silvassa and at Athola in Silvassa. We manufacture Textile grade chips, bottle grade chips, POY and Specialized Yarn at these plants. Our capacities are as follows:
Our capacity is as follows
Bottle grade chips – 420k tpa
What is the current level of debt and average cost of borrowing?
Our gross debt as at 31st March 2011 stands at Rs. 17.83bn and our average cost of borrowings stands at ~10.7% p.a.
Tell us your production and sales volume?
Comment on your margins and where do you see them headed?
There was a steep rise in film prices in H2FY11. Prices moved from about USD 2500/ton to as high as about USD 4000/ton. This led to exceptionally high sales and margin numbers in the film business in 2011, JBF earned EBITDA margins of ~15% at a consolidated level in FY11. Comparatively, H1FY12 has seen moderation in prices across the board, and so we expect our margins to stabilize at 10-11% EBITDA levels, which is our 5 year average.
The PTA plant that we intend to set up by 2014, will result in consolidated EBITDA margins climbing upwards to approx 15-20% levels on a sustainable basis.
What are the raw material price trends?
There was a gradual rise in raw material prices last financial year due to the boom in film prices. However, the H1FY12 has seen raw material prices declining and stabilizing at normalized levels. We anticipate a moderate to stable pricing scenario for the raw materials, PTA and MEG in the near future.
Promoters holding at present? Any plans to hike/reduce stake?
Promoter holding at JBF Industries stands at 41.87%.
What is your message for the shareholders of the Company?
We are currently in the phase of a major expansion where we plan to set up a PTA Plant in Mangalore SEZ, India at a cost of ~ USD 600mn. This 1.12mn TPA plant will be operational in FY15, and will bring in great stability to JBF’s consolidated operations.
Currently India unit operates at 75% utilization levels due to shortage and inconsistent PTA supply. With the Mangalore SEZ plant, the capacity levels will be enhanced to 100% and beyond. Company stocks 15 days worth of PTA at their plant. PTA from Mangalore SEZ will be delivered in 4-5 days time, ensuring low working capital requirements thereby improving margins
There is abundant supply of MEG and Paraxylene in RAK. To avail PTA, paraxylene is shipped to south Asian countries, where it is converted to PTA and shipped to UAE region. This entails a logistic cost of USD 70/ton. By FY15, UAE plants will be supplied with PTA from the Mangalore SEZ thereby saving logistic costs (~USD 35-40/tonne) and ensuring low working capital requirements
There are sufficient funds at the company’s disposal to take on this gigantic project and the company has made sufficient progress towards this direction
The company continues to remain focused on delivering better than industry results for its stakeholders. We are committed in becoming one of the formidable Global petrochemical companies covering the entire polyester segment by FY15. Additionally, the company is likely to maintain its track record of rewarding its shareholders with high dividends compared to its peers.