Modern Syntex (India) Ltd Management Discussions.

MODERN SYNTEX (INDIA) LIMITED ANNUAL REPORT 2005-2006 MANAGEMENT DISCUSSION AND ANALYSIS OPERATIONS The year under review was highly volatile for the polyester industry with pressure both on top line as well as on bottom line. Production cost pushed up due to increase in raw material (PTA & MEG) prices. This has coincided with a bumper crop of cotton, which enabled cotton yam producers to make available cotton yarn relatively cheaper, which resulted-in poor off take of polyester yam for many months. The polyester industry in India and globally has been suffering mainly on account of over supply of POY/PFY/Polyester chips coupled with lower realization. The domestic POY/PFY/Chips industry how has a large surplus capacity. During the year under review the turnover of the Company was Rs 569 crores as against Rs. 572 crores in the previous year. Your Company has been able to reduce gross Loss before depreciation to Rs. 0.06 crores as against gross loss of Rs.3.04 crores in the previous year. Your Company is relentlessly putting all its efforts to reduce the cost and improve the operating margins. Your directors are, however, unable to declare any dividend for the ear under review in absence of profits. EXPORTS The exports were Rs. 17 crores during the year under review as compared to Rs. 19 crores in the previous year due to stiff competition from Far East Countries. The Company is continuing its efforts to search for new international markets to increase its export further. As tire prices of POY / PFY in international market are uneconomical due to excess supply and cheap export from South East Asian Countries, the margins in exports are still under pressure. FUTURE PROSPECTS The potential of Indian textile sector continues to be high indicating strong demand shift in favour of India, post abolition of quotas. The Polyester Industry is likely to see a major growth in the next few years with the Indian Governments Five Year action plan in place to promote textiles. The POY/Chips capacity is poised to substantially increase further with the major manufacturers increasing their capacity. The Company may be able to improve the profitability in view of on going implementation of de-bottlenecking programme. Since your Company is pursuing cost cutting measures and improving efficiencies in manufacturing areas, the performance is expected to improve further. However, the pressure on selling prices is expected to continue due to threat from import. Unfortunately, the Government did not pass on any relief in the Budget by way of reduction in excise duty on Raw Material ( PTA & MEG ) to support the industry, whereas duty on POY/PFY has been reduced which would only result in accumulation of unutilized CENVAT credit and the same in turn will put extra pressure on the Companys cash flow. INDUSTRIAL RELATIONS & PARTICULARS OF EMPLOYEES Your Directors sincerely appreciate the workers, staff and officers for their test efforts. The Company has enjoyed healthy and cordial industrial relations throughout the year. There is no employee getting remuneration.